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Defense

The FMS Loophole: How State Department Sign-Offs Insulate Defense Primes From Shutdown Risk

State Department case approvals — not Pentagon appropriations — book years of prime-contractor backlog, and that distinction matters more than shutdown headlines suggest.

Image: Money Racket
By at Money Racket · Jun 30, 2026

The lede: When a government shuts down or a continuing resolution freezes new-start funding, Pentagon procurement lines can stall for months. But a parallel revenue pipe runs almost entirely outside that fight: Foreign Military Sales. FMS cases are negotiated government-to-government, approved by the State Department (via DSCA's implementation of Letters of Offer and Acceptance), and largely paid for by the buying country — not appropriated U.S. dollars. In FY2025 alone, the FMS system moved $104.38 billion, atop $934 billion in open case backlog, according to the Defense Security Cooperation Agency. That backlog books years of production for prime contractors and is structurally insulated from the domestic budget calendar: a CR freezes new U.S. starts, not a Letter of Offer and Acceptance already signed with Warsaw, Riyadh, or Tokyo. Investors who treat "defense revenue" as one undifferentiated bucket exposed to government-shutdown headlines are missing that FMS backlog is a distinct, steadier annuity — driven by State Department case approvals and allied defense budgets, not Capitol Hill's fiscal-year drama.

A continuing resolution freezes a new U.S. budget line. It does not touch a Letter of Offer and Acceptance already signed with Warsaw, Riyadh, or Tokyo.

Who cashes in:

  • LMT — F-35 remains the single largest FMS program in dollar terms, with a partner/FMS customer list (Poland, Germany, Finland, Canada, and others) that keeps ordering regardless of U.S. appropriations status; Lockheed also books steady FMS volume on PAC-3 interceptors and Hellfire variants.
  • RTX — Patriot air-and-missile-defense systems and interceptors are a recurring emergency-case item (Qatar, Poland, and others have used the expedited "emergency exists" waiver State can invoke to bypass the normal congressional notification hold), giving RTX's Raytheon segment a replenishment tail that runs independent of DoD's own budget cycle.
  • BA — Boeing Defense books FMS-heavy backlog on F-15EX, Apache, and Chinook sales to Gulf and Indo-Pacific partners, plus munitions packages bundled into broader country deals (e.g., the Canada air-strike-weapons case naming Boeing and RTX as principal contractors) — a hedge against the commercial-jet drag on Boeing's overall numbers.
  • GD — Abrams tank and munitions FMS cases to Eastern European and Gulf allies add a backlog layer that doesn't compete with domestic Army procurement dollars for the same appropriations line.

Who is exposed:

  • HII — Shipbuilding is overwhelmingly a domestic-Navy business with limited FMS substitution; when continuing resolutions freeze new ship starts or repair funding, Huntington Ingalls has no comparable allied backlog to lean on.
  • LDOS — Leidos is a services/IT integrator paid mostly through U.S. federal contracts and task orders, not FMS cases, so it carries fuller exposure to CR-driven contracting freezes and government shutdown furloughs.

The play / what to watch: Don't read "government shutdown" headlines as uniformly bearish for primes — check the FMS-to-total-backlog mix in 10-Ks and DSCA's Major Arms Sales notifications first. Watch congress.gov's arms-sale notification tracker and DSCA press releases for new Letters of Offer and Acceptance; each one is forward revenue booked outside the appropriations fight, and emergency-waiver cases (State declaring "an emergency exists") signal the fastest path from notification to signed case.

Source: original report ↗

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