New cybersecurity rules from the United States Department of Defense are prompting small aerospace suppliers to reconsider military contracts amid rising compliance costs and audit delays.
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| As stricter CMMC audit requirements approach, small contractors warn of rising costs, regulatory confusion, and potential exits from the defense marketplace. Image: CH |
WASHINGTON, United States — February 21, 2026:
New cybersecurity requirements imposed by the United States Department of Defense are introducing unintended strain into the lower tiers of the U.S. defense industrial base, with some small suppliers reconsidering their participation in military programs due to mounting compliance costs and regulatory uncertainty.
The long-delayed Cybersecurity Maturity Model Certification (CMMC), first introduced in 2019, formally began implementation last November. Designed to protect controlled unclassified information across federal contracts, the framework requires contractors to meet escalating cybersecurity standards. Companies must now complete self-assessments under Level 1, while a more rigorous Level 2 — including third-party audits — is expected to begin by November.
For small aerospace and defense firms, the shift represents more than a procedural adjustment. Industry executives say compliance can cost hundreds of thousands of dollars per company, a significant burden for businesses operating on narrow margins or balancing defense work with commercial contracts. Months-long waits for audits and ongoing confusion over what data qualifies as controlled information have further complicated planning.
Margaret Boatner, vice president of national security policy at the Aerospace Industries Association, warned that accumulating regulatory requirements are prompting some firms to reconsider — if not exit — the defense marketplace altogether. Given that roughly 88% of aerospace firms are small businesses, according to data from a 2022 U.S. House Small Business Subcommittee, even modest attrition could ripple across the supply chain.
The timing is sensitive. The administration of Donald Trump has been pressing contractors to increase output and diversify suppliers to strengthen production resilience. Yet executives at several aerospace companies in the United States and Canada report that some of their smaller suppliers have declined to pursue higher-level CMMC certification, including mandatory audits. Others remain undecided, creating uncertainty for prime contractors dependent on specialized components.
In some cases, those suppliers are sole-source providers of critical parts for major weapons systems. Their potential withdrawal raises concerns about reduced competition and bottlenecks — risks that investors have monitored closely after years of production delays across the defense sector.
Legal advisers also caution that compliance complexity may inadvertently narrow the field. Alex Major of McCarter & English said certification requirements could diminish competition in lower tiers of the supply chain if smaller firms opt out rather than absorb the expense and administrative burden.
The challenge is magnified for international suppliers. Companies operating in Canada or Europe must reconcile U.S. cybersecurity mandates with regional data protection laws, sometimes facing conflicting standards for data classification and storage. One Canadian aerospace executive estimated that meeting cybersecurity requirements in both Europe and the United States could cost approximately C$500,000 — a steep investment for firms with limited defense exposure.
Even U.S.-based nonprofit suppliers are weighing the trade-offs. Dave Trader, CEO of Pathfinder Manufacturing, said his company is uncertain whether the cost of full compliance is justified given its relatively modest defense work and strong commercial demand from aircraft manufacturer Boeing.
The Pentagon has declined to comment publicly on the concerns. Yet the broader dilemma is clear. CMMC is intended to fortify national security by preventing cyber intrusions into sensitive defense programs. At the same time, its implementation risks thinning the ranks of small suppliers that form the backbone of the aerospace and defense ecosystem.
As audit requirements tighten later this year, the coming months will test whether the Defense Department can balance cybersecurity imperatives with industrial resilience. The outcome may determine not only the security of sensitive data, but also the long-term health and competitiveness of the North American defense supply chain.