FY 2026 Request: Space Force Seeks $277M for MILNET and Pauses Tranche 3 Transport Layer

FY 2026 Request: Space Force Seeks $277M for MILNET and Pauses Tranche 3 Transport Layer

Published:

June 30, 2025

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Updated:

June 30, 2025

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Editorial Team

U.S. Air Force photo by Eric Dietrich

The Space Force wants $277 million next year to launch the Military Internet (MILNET) constellation and has frozen money for the Space Development Agency’s Tranche 3 Transport Layer. Defense officials confirm the shift appears in the service’s fiscal 2026 budget books, released on June 26.

The new line item rolls two earlier program elements into one. According to industry sources, the money comes from a National Reconnaissance Office account that already funds an experimental MILNET pathfinder built around SpaceX’s Starshield bus. The plan uses the existing Starlink production line but adds hardened encryption, optical cross-links, and onboard processing tailored for combat data. Space Force leaders say they want a “plug-and-play” network that is not locked to a single vendor, even though SpaceX still stands in pole position for the first block of spacecraft.

Freezing Tranche 3 surprised many firms that spent two years gearing for the contract. Lockheed Martin, Northrop Grumman, York Space, and Rocket Lab all have satellites in build for Tranche 2. Those orders continue, yet the Transport Layer’s planned third batch – about 140 satellites – no longer shows up in the out-year tables. The official justification says the pause gives analysts time to decide whether a MILNET-style mesh can do the same job with fewer vehicles and lower latency to tactical users.

Sen. Chris Coons raised the issue at Thursday’s Senate Appropriations defense hearing. He warned that a sole-source deal tied to proprietary interfaces could undercut competition and stunt the broader space-industrial base. He asked for a classified briefing on why the department “handed this to SpaceX.” Col. Troy Meink, now acting Air Force secretary, pushed back. He stated that Tranche 2 deliveries stay on track and that the term “MILNET” describes a mission, not a contractor. Our analysis shows the exchange signals growing Hill concern about any path that wedges government networks too tightly to a single commercial supplier.

Budget highlights:

$277 million for the first MILNET fiscal-year tranche;

$0 for Transport Layer Tranche 3 in FY 2026 tables;

$740 million kept for Tranche 2 completion through 2027;

Classified top-line for related missile-tracking layers unchanged.
The MILNET architecture will fly in low Earth orbit at 550 kilometers with polar and mid-inclination rings. Each satellite carries three optical terminals, Ka-band gimbals, a tactical gateway processor, and hardened workstations for on-orbit re-keying. Defense officials confirm the payload suite mirrors the Tranche 2 Beta configuration but swaps out government-furnished cryptographic cards for a new chipset certified by the National Security Agency.

According to one senior acquisition officer, the service estimates a $2.4 billion life-cycle bill to reach global coverage with MILNET. That is roughly half the cost of buying a full Tranche 3 layer plus follow-on refreshes. The number assumes SpaceX keeps line rates above 50 satellites per month and offers the same fixed-price structure used on Starshield lots produced for the NRO. Competitors argue the figure ignores second-source stand-up expenses that would surface later.

Industrial executives who bid Tranche 3 say the pause skews the playing field. Some teams invested in new laser-link assembly lines and ground integration labs. Other suppliers worry that a long freeze will push component demand off a cliff, driving higher unit costs for future missile-warning birds that draw on the same parts bin. One procurement advisor calls the decision “a curveball just as the supply chain stabilized.”

Defense officials counter that Tranche 3 never reached milestone B, so the stop does not trigger termination fees. They note that MILNET brings unique attributes the Transport Layer lacks:

Onboard compute to host classified mission apps;

Automatic path-selection across military and coalition gateways;

Higher power budgets for anti-jam waveforms;

Direct-to-weapon links approved for certain hypersonic interceptors.
Program managers frame these perks as enablers for Joint All-Domain Command and Control. They argue a rugged, laser-linked backbone must exist before the services field thousands of autonomous surface and air vehicles.

Yet questions linger. The Transport Layer evolved as a vendor-agnostic mesh with open optical standards. MILNET has no equivalent public interface spec. Without one, smaller firms could be fenced out of terminal upgrades and hosted-payload rides. A draft request for proposals is due by December, but only after an Analysis of Alternatives wraps in September. Insiders expect a hybrid plan: SpaceX will build Block 0, while a second producer competes for Block 1 if demonstrations prove out.

Capitol Hill staff briefed on the budget note three pressure points:

Schedule risk. Sliding Tranche 3 leaves a potential relay gap between 2028 and 2030 if Tranche 2 vehicles age faster than expected.

Security review. The Senate wants assurance that foreign suppliers inside the Starshield stack clear cybersecurity thresholds.

Industrial diversification. Lawmakers may tie FY 2026 funds to multiple-award language to keep legacy integrators engaged.
On the operational side, guardians at the Space Systems Command already test Ku-band user terminals on KC-46 tankers. A separate project links Army Integrated Fires Command posts through an experimental optical gateway in New Mexico. Early results show one-way latency under 30 milliseconds for 8-megabyte imagery files, meeting the cross-domain threshold for time-sensitive targeting.

Cost remains the wildcard. The service pegs each MILNET vehicle at about $7 million flyaway, including launch share. Legacy vendors call that optimistic. They argue it omits spare-in-store coverage and ground certification. SpaceX has yet to confirm the price, citing customer confidentiality.

The debate also touches on launch cadence. The Transport Layer plan spread payloads across multiple providers to hedge booster slips. MILNET leans heavily on Falcon 9 rideshares. United Launch Alliance and Blue Origin lobbyists already hint they will push for “fair-opportunity” language in the next NDAA to prevent a single-provider lock.

The path chosen over the next six months will shape U.S. military satcom for a decade. A Transport Layer reboot would maintain competitive tension but lock the department into higher per-unit costs. A MILNET pivot could speed delivery and cut expenses, yet deepen dependence on one vendor and raise oversight challenges. Either way, the Senate hearing underscores that Congress intends to stay close to the decision.

Key milestones ahead:

July 15  –  SDA submits Transport Layer risk-mitigation brief to OSD.

August 30  –  Space Force delivers MILNET cost estimate to CAPE.

September 25  –  A-option on Starshield Block 0 satellites triggers if no congressional hold placed.

October 10  –  House and Senate mark-ups reconcile FY 2026 space procurement lines.
Looking further, MILNET Block 0 aims for an on-orbit demo in late 2027 with eight pathfinder nodes. Full-rate production ramps in FY 2028. Tranche 2 Transport Layer reaches initial operational capability the same year, giving planners at least one overlapping layer if timelines hold.

In the background, the Pentagon is mapping a migration plan for senior Leader communications. Today, most secured traffic flows through the Wideband Global SATCOM system and leased comsats. Officials say MILNET will shoulder half that load by 2030, freeing WGS channels for partners.

The budget request still needs congressional approval. Hearings so far show rare bipartisan alignment on keeping options open. The final mark will reveal whether lawmakers fund the full $277 million or carve out a share to keep Tranche 3 studies alive. For now, program offices enter an uncertain summer – balancing near-term fielding needs against long-term flexibility.

REFERENCE SOURCES

https://www.defensedaily.com/sda-requests-277-million-for-spacex-milnet-cancels-tranche-3-of-transport-layer/air-force/

https://breakingdefense.com/2025/06/space-force-ponders-shakeup-to-leo-satellite-strategy-potentially-hiring-spacex-for-data-relay/

https://www.satellitetoday.com/government-military/2025/06/26/sda-requests-277-million-for-spacex-milnet-halts-tranche-3-of-transport-layer/

https://www.defensenews.com/space/2025/06/27/space-force-rethinking-plans-for-proliferated-satellite-communications/

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