New U.S. cybersecurity rules for defense contractors are prompting small suppliers to reconsider military work, raising concerns about supply chain resilience and production output.
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| As the U.S. rolls out stricter cybersecurity standards for defense contractors, small aerospace suppliers warn of rising costs, audit delays and potential exits from the military market. Image: CH |
Tech Desk — February 22, 2026:
New cybersecurity requirements imposed by the U.S. Department of Defense are reshaping the economics of doing business in the American defense sector, potentially sidelining some small suppliers at a moment when Washington is urging contractors to expand output and diversify their supply chains.
The long-delayed Cybersecurity Maturity Model Certification (CMMC), first introduced in 2019, officially began rolling out in November. The framework is designed to safeguard controlled unclassified information (CUI) handled by companies working on federal defense contracts. Under the phased system, contractors must first complete self-assessments, with more stringent Level 2 requirements — including third-party audits — expected to take effect by November.
While the goal is to harden the defense industrial base against cyber threats, industry executives say the rollout has introduced new friction into an already strained supply chain.
Several aerospace executives, speaking on condition of anonymity due to the sensitivity of the matter, described months-long waits for audits and uncertainty over what qualifies as protected information. Without a clear definition of which data must meet CMMC standards, some prime contractors are requiring compliance from suppliers even when they do not directly handle sensitive materials such as technical drawings or weapons schematics.
That ambiguity has complicated planning for small firms with limited cybersecurity staff and tight cash flow. Legal advisers warn that inconsistent interpretations of CUI could result in overcompliance — and higher costs — across the lower tiers of the supply chain.
Alex Major, a lawyer at McCarter & English who advises defense contractors on CMMC compliance, said the requirements risk unintentionally narrowing competition among smaller suppliers. The burden is especially acute for international firms balancing U.S. mandates with European data privacy laws and other regional cybersecurity regimes, which may not align neatly with Pentagon definitions.
For many small aerospace suppliers, the financial stakes are significant. Industry sources estimate compliance costs can run into the hundreds of thousands of dollars per company. One Canadian aerospace executive said meeting both U.S. and European requirements would cost approximately C$500,000.
Margaret Boatner, vice president of national security policy at the U.S.-based Aerospace Industries Association, warned that accumulating regulatory demands could push some firms out of the defense market entirely. With 88% of aerospace companies classified as small businesses, according to 2022 congressional data, the impact could ripple widely through the industrial base.
Three aerospace companies — two in the United States and one in Canada — said they each have a handful of suppliers unwilling to pursue Level 2 certification. One U.S. executive said half of his suppliers have yet to indicate whether they will comply. Another, whose firm is the sole-source provider of a part for a U.S. fighter jet program, expressed uncertainty about how his own upstream vendors will respond.
The potential retreat of small suppliers comes after years of production bottlenecks that have delayed weapons systems and aircraft deliveries. Investors and defense planners alike closely monitor the health of these firms, many of which are sole-source producers of specialized components essential to larger contractors.
Dave Trader, CEO of nonprofit aerospace supplier Pathfinder Manufacturing, said his company — which performs limited defense work producing wire harnesses — is weighing whether compliance is worth the investment, especially given strong commercial demand from Boeing.
The dilemma highlights a broader tension: as the Pentagon seeks to secure its data from cyber threats, the added compliance burden may undermine efforts to broaden and strengthen the supplier base. The Defense Department declined to comment on industry concerns.
The Trump administration has pressed defense contractors to boost production capacity and reduce reliance on fragile supply chains. Yet the CMMC rollout underscores a difficult trade-off between cybersecurity rigor and industrial agility.
If small firms opt to pivot toward commercial markets rather than absorb new regulatory costs, the defense sector could see reduced competition and heightened concentration among larger, better-capitalized players. Over time, that may increase costs for the government and weaken supply chain resilience — the very vulnerabilities policymakers aim to address.
As the November deadline for higher-level certification approaches, the success of CMMC may hinge not only on strengthening cyber defenses, but on ensuring that compliance demands do not hollow out the small-business backbone of America’s defense industry.