A Private Equity Billionaire Mounts His Biggest Takeover Yet: the Pentagon
Stephen Feinberg is trying to win congressional approval of the largest defense budget ever while browbeating contractors to speed production
- Steve Feinberg, the Pentagon’s No. 2 official, is leading the Trump administration’s push for a $1.5 trillion military budget.
- Feinberg, a former private-equity boss, uses a “carrot-and-stick” approach with defense contractors to accelerate production.
- He has clinched deals for government equity stakes in companies and reorganized high-priority programs to report directly to him.
On Wall Street, Steve Feinberg had a well-oiled sales pitch for investors thinking of betting billions on his corporate turnarounds.
Now the Pentagon’s No. 2 official, the former private-equity boss faces the biggest sell of his career: persuading Congress to bless the Trump administration’s $1.5 trillion military budget.
The massive funding surge would pour into a military plagued by years of costly overruns and painful delays. Feinberg has told Trump administration officials he could avoid those pitfalls using a carrot-and-stick approach with companies on the receiving end of those dollars.
“Contractors that are willing to change with us will prosper and grow,” Feinberg told a crowd of executives from Lockheed Martin, Northrop Grumman and other major suppliers at the National War College in Washington, D.C. last year. “Those who don’t, and resist it, will be gone.”
The 66-year-old billionaire has been the Pentagon’s top weapons buyer for the past year after leaving his lucrative perch atop private-equity firm Cerberus Capital Management. He has spent much of that time sparring with contractors over progress ramping up output and how they’re investing their money.
Feinberg has clinched deals for the government to take equity stakes in at least five private-sector companies and is seeking tens of billions of dollars this year for more taxpayer investments. Those bets could take years to yield results and are complicated by a war with Iran that has already drawn down U.S. arsenals.
Feinberg’s bosses—President Trump and Defense Secretary Pete Hegseth—have given the deputy defense secretary wide latitude to take a more forceful approach with big U.S. companies, which reap tens of billions of dollars in annual sales from military contracts. He has treated defense contractors like the Pentagon’s portfolio companies, often ordering firms to shift resources toward military priorities before any contracts exist to pay for the moves.
Feinberg has surrounded himself with a close-knit circle of advisers with Cerberus ties. The group includes former Cerberus Managing Director John Gallagher and a deal team called the Economic Defense Unit led by Cerberus alumnus George Kollitides.
The finance experts negotiate Pentagon contracts with defense companies, according to Michael Cadenazzi, an assistant secretary of defense. “They’re the ones structuring the deals to make sure that they work,” Cadenazzi said at a Hudson Institute event in February. Some industry executives have nicknamed the squad “Deal Team 6.”
“This is a Cerberus takeover,” said Steve Blank, an adjunct Stanford professor of entrepreneurship and national security. “Private equity has just acquired its largest organization.”
A Cerberus spokesman said that “Feinberg divested his stake in Cerberus and any funds that it manages and is not involved with the operations of Cerberus or any of its portfolio companies in any way,” adding that the ex-Cerberus employees now at the Pentagon “made their own personal decisions to serve in the U.S. Government and are not involved with the operations of Cerberus or any of its portfolio companies in any way.”
Feinberg helped set in motion the administration’s new defense budget, a $441 billion increase over last year. If approved, the money would support Trump’s lofty military wish list, including developing the Golden Dome missile shield and building the Golden Fleet of navy ships. It would also give Feinberg’s officials a deep war chest, including $30 billion for purchases under the Defense Production Act and $20 billion for Office of Strategic Capital loans.
Feinberg has been working behind the scenes to boost support for a spending jump. While Republican and Democratic lawmakers and congressional aides complain that Hegseth’s team doesn’t keep them in the loop on major developments, Feinberg has managed to build relationships on both sides of the aisle. He is particularly close with Sen. Jack Reed (D., R.I.), who he frequently speaks with by phone.
“He’s not caring about whether or not his subordinates kiss his ass all the time,” said Rep. Adam Smith, the senior Democrat on the House Armed Services Committee, who has met with Feinberg several times. “He wants to get a job done. And that distinguishes him from both of his bosses up on the food chain there.”
Around Christmas, the Republican defense leadership had dinner with Feinberg and Hegseth, presenting the Pentagon leaders with charts showing that the nearly flat defense budget proposed by Russ Vought, director of the Office of Management and Budget, compared unfavorably with the spending plans of previous administrations—even under Democratic presidents.
Feinberg and Hegseth made the same case to Trump in a White House meeting a few days later, arguing that the commander in chief should increase the defense budget to 5% of annual U.S. gross domestic product, in line with his demand of European allies.
The pitch worked. Days later, Trump called for a $1.5 trillion defense budget, which would mark 5% of GDP.
The funding surge would protect the pipeline of high-end missiles that the U.S. and its Persian Gulf partners have burned through over the past few weeks and could put the military on firmer footing for the next decade. But experts warn that the war on Iran has exposed the need for cheaper weaponry that can be designed quickly and produced en masse—a job traditional defense contractors haven’t been able to do.
“The big systems need to be fixed, and he is doing that,” John Ferrari, a retired Army major general and fellow at the American Enterprise Institute, said of Feinberg. “But we need a lot more emphasis on the low-cost side.”
At the Pentagon, Feinberg is known for frequently hosting meetings that last for hours, quizzing company bosses who visit and often staying at work until midnight. He rarely leaves the building, according to people who know him, on occasion inviting friends to his office for dinner at 11:30 p.m. He has instituted quarterly calls with the CEOs of big defense companies, pushing them to invest to accelerate production of weapons and military gear.
Feinberg is the rare deputy defense secretary who has no aspirations for the top job. He keeps a meticulously low profile, eschewing media interviews and the DC social scene. He drives a Ford pickup truck and cringes at needing a security detail, according to a person who knows him well.
Feinberg’s attempt to speed weapons buying could cut out key steps in the process, said Mark Cancian, a senior adviser for the Center for Strategic and International Studies. One example is extensive, independent testing to ensure the effectiveness and reliability of critical systems, which can mean life or death for servicemembers. “You hear so often, ‘the system is broken.’ Well, no, the system is the result of a series of trade-offs,” Cancian said.
“The Department of War has everything it needs to execute any mission at the time and place of the President’s choosing and on any timeline,” said Pentagon spokesman Sean Parnell. He said Feinberg made a “generational impact on the Department of War” in his first year on the job. Feinberg declined to be interviewed for this article.
Business leaders who have interacted with the deputy defense secretary describe him as an intense micromanager, poring over minutiae within contracts and supply-chain statistics to look for potential savings or bottlenecks.
Feinberg got his start as a distressed-debt trader at Drexel Burnham Lambert in the 1980s. He had joined ROTC while a student at Princeton University but went to Wall Street after graduating. In his early 30s, he co-founded Cerberus and made a fortune by taking over distressed companies such as supermarket chain Albertsons and revamping their operations. Cerberus now manages roughly $70 billion in assets.
Feinberg has said that wasteful spending and poor financial accountability have hamstrung the Pentagon’s ability to keep up with changes in modern warfare. People who have worked with the executive say these failures frustrated him when he was on Wall Street and motivated his decision to try to fix the department’s failings through the public sector.
“This is in my wheelhouse, hopefully,” Feinberg said in his confirmation hearing last year. “I spent a career helping organizations improve, and after doing it for so many years, I have certainly made my share of mistakes, but I certainly believe I understand and I think I can add some value there.”
Feinberg also knows firsthand about how the Pentagon spends its money. Over the years, Cerberus has acquired defense contractors and other businesses that depend on U.S. military spending, including firearms manufacturers, a maker of military trucks and a longtime provider of aviation services and logistics in conflict zones.
Another Cerberus investment, Ligado Networks, sued the U.S. government in 2023 for $39 billion. The twice-bankrupt telecom company said the Pentagon was using its licensed wireless spectrum rights without compensation, threatening its business model.
When he joined the government last year, Feinberg committed to transfer his Cerberus holdings to trusts that benefit his adult children. Asked about potential conflicts of interest, Pentagon spokesman Parnell said, “The Deputy is a man of integrity who has conducted himself ethically throughout his entire career.”
Tough tactics
Executives from mining company MP Materials were summoned to the Pentagon last April in a moment of crisis for Washington. China had just announced crushing restrictions on the export of rare-earth minerals crucial to production of weapons like missiles and jet fighters, in response to Trump’s sweeping tariffs.
Defense Department officials pressed the executives to explain how quickly they could ramp up production: With more cash, how would the timeline change? Executives promised to crunch the numbers after they left Washington.
That wasn’t good enough for Feinberg.
“Cancel your return flights,” he told the few dozen executives gathered in the room. “Get a hotel.” They were told to pitch their prospective investor—the U.S. government—the next day.
The executives came back in the morning with a lengthy slide deck, and spent almost four hours discussing their plans with senior Pentagon officials.
The tense meeting eventually yielded an investment of hundreds of millions in MP Materials, giving the U.S. a 15% stake in a major domestic producer of rare-earth materials. Officials designed the deal to quickly spur production rather than to net taxpayers a major windfall.
The government also guaranteed it would pay a minimum price for some of MP’s output, further protecting the company against losses from potential Chinese dumping. U.S. officials later decided that commitment was too expensive to extend to other mining companies, according to people familiar with the matter.
When Trump promised new restrictions on executive pay and stock buybacks in early January, the Pentagon arranged a call with defense CEOs. Feinberg kept executives waiting for an hour before he finally logged on, and during the call provided few details.
The CEOs didn’t see the executive order until it was posted on the White House’s website the next day. It forbade companies from paying dividends or buying back stock “until such time as they are able to produce a superior product, on time and on budget.” The threat might have worked: Multiple weapons makers later agreed to preliminary deals before they had contracts in hand. They continued to pay dividends.
More missiles
Under pressure from Feinberg, some defense contractors have taken steps to shore up goodwill. Lockheed Martin in January struck a deal with the Pentagon to more than triple production of Patriot missile interceptors to about 2,000 a year.
Another big Pentagon supplier, L3Harris, agreed in mid-January to ramp up production and spin off its missiles business into a new public company backed by a $1 billion Pentagon investment. The deal was clinched after months of meetings with Feinberg and other Department of Defense officials who wanted some missile parts pumped out at triple their current speed.
The transaction “came out probably different than what we thought it would a couple months ago, but it seems to be a fair deal,” L3Harris Chief Executive Chris Kubasik said in an interview. “We needed the amount they’d be willing to pay.”
Feinberg for months privately criticized contractor RTX about the pace of negotiations to speed its production of AMRAAM, Standard Missile and Tomahawk munitions, according to people familiar with the exchanges. By January, the pressure campaign reached the White House and Trump called out the company’s Raytheon subsidiary on his Truth Social platform.
Raytheon responded in early February with its own multiyear missile-production commitments pledging to invest early to as much as quadruple its annual output.
A few days later, on Feb. 6, top weapons buyer Michael Duffey sent a terse letter on behalf of Feinberg to at least half a dozen defense contractors warning them to brace for sweeping performance reviews that will identify the companies that aren’t fulfilling their contractual obligations.
The missile makers are making upfront investments to boost output, but the moves could swell profits if the government makes good on its promised contracts over the coming years. A roughly $5 billion to $6 billion investment bump from Lockheed and RTX over the next three years could eventually lift their annual sales by $20 billion, according to analysts at investment bank Jefferies.
Lines of control
Feinberg is also making waves inside the Pentagon, particularly after launching an acquisition overhaul last year that reorganized high priority programs to report directly to him.
These managers, often referred to as “program czars,” include officials responsible for buying the F-47 next-generation jet fighter, the B-21 Raider stealth bomber, new submarines and pieces of the planned $185 billion Golden Dome antimissile shield.
“I report to the deputy secretary and only to the deputy secretary,” Space Force Gen. Michael Guetlein, the Golden Dome manager, said at a March 17 industry conference. “He is the only official who can tell me, ‘no.’”
The restructuring has led some senior service officials to complain that Feinberg is going around them straight to the White House in planning for programs typically in their portfolios. It is too soon to tell whether this organizational shake-up—a near-term disruption—will improve programs expected to take years or decades to prove their worth.
Air Force Gen. Dale White, who manages major weapons programs from the B-21 bomber to Air Force One, said at the same industry conference that Feinberg is making hard choices to get the military’s industrial base on a wartime footing.
“He’s very inclusive: getting everyone in the room, embracing diversity of thought, understanding the challenges that have to be addressed, coming to a consensus,” said White. “Or if not, making the tough decision.”