New Joint Ventures Accelerate Evolution Of Battlefield Technology

Joint ventures have become a key feature of the rapidly evolving defense landscape. Flexible structures that often prioritize operational outcomes over technology ownership are enabling collaborations between primes, disruptors, and financial sponsors. However, export controls, foreign direct investment (FDI) rules, and long investment horizons make careful structuring essential.

Summary

• Modern warfare’s shift toward technology-driven and autonomous systems is accelerating JV formation, with partners combining complementary strengths like intellectual property, manufacturing, and supply chains.
• The defense supply chain is now characterized by diverse partnerships, such as disruptor-disruptor and disruptor-prime relationships alongside traditional prime-prime alliances.
• Many new JVs prioritize operational advantage over ownership, featuring light governance and flexible structures designed for future exits and regional expansions.
• Export controls, foreign investment screening, and local partnering requirements are central to structuring cross-border defense JVs, directly impacting equity arrangements and operational control.

Defense companies are forming joint ventures at a rate that would have been difficult to imagine even five years ago, as the focus of modern warfare moves from heavy engineering to tech-enabled, often autonomous systems.

Advanced engines, AI-enabled drones, and next-generation sensors demand capital commitments and technical capabilities that no single firm can marshal alone. One partner may contribute intellectual property in the form of software or AI technology, while the other brings manufacturing capability, supply chains, government certifications, and customer access.

For decades the archetypal defense JV involved partnerships between defense primes, for example the Lockheed Martin/Raytheon Javelin missile program. That model still exists, but the landscape has shifted in response to demand surges driven by the wars in Ukraine and the Middle East, NATO rearmament commitments, and the rise of defense-tech disruptors.

Diverse partnerships emerge that are driving innovation

Recent deal activity illustrates this diversity. The partnership between EDGE and Anduril combines the UAE state-backed defense group’s manufacturing strength and regional market access with the U.S. autonomy provider’s technology. The JV launched with an anchor customer and is targeting full-rate production by the end of 2028.

The AIRO Group–Bullet alliance brings battlefield-tested Ukrainian interceptor drone technology into U.S. manufacturing and NATO procurement channels, functioning as a conduit between frontline innovation and U.S. contracting. Meanwhile, the Raytheon-Rafael JV is a more traditional prime-to-prime model founded on a major government contract, in this case a USD1.25 billion deal to supply Israel with Iron Dome interceptors.

Alongside formal equity joint ventures, a spectrum of strategic alliances is also emerging. Disruptor-disruptor partnerships, for example Anduril/OpenAI, Shield AI/Palantir, EagleNXT/ThirdEye Systems and Lantronix/Unusual Machines combine AI, autonomy and data capabilities.

Elsewhere, disruptor-prime partnerships such as Anduril’s deal with Rheinmetall allow primes to inject momentum into their legacy platforms while giving disruptors the procurement credibility and manufacturing scale they need to compete for larger contracts. Prime-prime alliances such as Airbus/Northrop Grumman address production bottlenecks and share risk across jurisdictions.

Arrangements are often governance-light

What distinguishes many of these arrangements is the fact that they prioritize operational advantage over ownership. Governance tends to be light, while alignment between parties comes through customer pull and shared roadmaps rather than board mechanics. Here, structures are deliberately designed to preserve optionality for future exits, whether buy-outs, acquisitions, or regional spin-outs.

Export controls and foreign investment screening lie at the heart of every cross-border defense JV. U.S. International Traffic in Arms Regulations (ITAR) and Export Administration Regulations (EAR) rules, alongside other jurisdictions’ export controls (an issue we explore in more detail here) govern any transfer of technology, while Committee on Foreign Investment in the United States (CFIUS) and broader FDI screening regimes (which we explore in more detail here) will apply wherever a foreign entity takes a significant stake in a JV with a non-domestic partner. Many countries also impose local partnering requirements on such arrangements.

In practice, these dynamics shape the way JVs are structured. EDGE Group’s joint ventures, for example, feature 49:51 equity stakes whereby EDGE controls the alliance in the UAE but takes a minority position in the partner’s home jurisdiction.

Innovative structuring solutions help mitigate commercial risks

Equity commitments are staggered in tranches aligned with technology-transfer milestones, and termination rights are baked in at each phase. The latter point (i.e., how to unwind an alliance if the geopolitical or regulatory landscape shifts) is a critical consideration. Resolution mechanisms must be built into the agreement such as call or put rights, clauses that support forced sales to third parties, mandatory listings, or measures to convert equity arrangements into arm’s-length contractual collaborations.

One creative solution we have seen involves structuring a commercial collaboration agreement alongside the JV to extract value contractually rather than through equity. This addresses the challenge that arises when liquidating the JV is impractical because the shares are worth more to one party than the other.

Private capital firms are also increasingly teaming up with primes manufacturers (e.g., Carlyle’s deal with Raytheon) to co-invest, share risk, and tap into domain expertise. Here it’s important that financial sponsors do not rely too heavily on their partner’s sectoral expertise and connections and instead take steps to independently understand the economics of government contracting and the foreign investment landscape.

They also need to get comfortable with the fact that defense JVs often run over many years. This requires patient capital and the ability to adapt as budgets, threats, and the geopolitical landscape evolve. Investors must enter the space cognizant that conventional PE hold periods and exit timelines may not apply. Those who approach defense JVs with the right structure, partners, and time horizon will be best placed to succeed.