Case Study

San Diego's Defense Technology Cluster

Prepared by Frontier Catalyst | March 2026

EXECUTIVE SUMMARY

San Diego's defense innovation cluster, AUKUS's American address, is building the technology that defines the next generation of allied-nation military capability: unmanned aerial systems, autonomous AI pilots, hypersonic test infrastructure, counter-UAS systems, and the satellite communications architecture to keep them all operational.

Three companies span the full arc of that internationalization. General Atomics is the established FMS anchor: more than $7 billion in active international procurement. Kratos Defense has grown revenue approximately 32% over two years, with FY2025 estimates approaching $1.35B¹, shipping autonomous aircraft to the German Luftwaffe, hypersonic test vehicles at Pentagon scale, and acquiring Israeli satellite communications assets. Shield AI opened offices in Abu Dhabi, Melbourne, and Kyiv before most legacy primes had articulated their autonomous systems strategy.

The AUKUS agreement was signed at a San Diego summit in March 2023. These three companies, surrounded by hundreds of defense-adjacent firms and embedded in the region's naval and marine air installations, employ more than 18,000 people connected to the San Diego region. They represent more than $8 billion in active or contracted international defense procurement, each operating at the intersection of allied-nation relationships that the AUKUS framework formalizes and the City's international engagement infrastructure supports.

This is not a story about what San Diego hopes to become. It is a description of what San Diego already is, and what the City's international engagement infrastructure does to protect and expand that position.

SAN DIEGO'S DEFENSE INNOVATION ECOSYSTEM

The defense sector injects $36 billion in direct spending into San Diego's economy annually, supports 354,000 jobs, and accounts for approximately 20 percent of gross regional product. The economic multiplier is $1.56 for every federal defense dollar, sustained by international supply chains, allied technology partnerships, and foreign military sales that are structural to the sector's economics, not incidental.

The cluster spans:

This cluster is AUKUS's American address. The Defense Innovation Unit, holding formal MOUs with India, Japan, Singapore, and the AUKUS partner nations, with nine international prize challenges launched, operates a San Diego node that the City is working to expand as a magnet for allied-nation defense investment.

The City's role is not to fund or manage this ecosystem, it is to position it. When Australian procurement officials visit for AUKUS purposes, when Indian Navy leadership follows up on the approximately $3.5 billion GA commitment, when German Airbus engineers receive Valkyrie aircraft from Kratos, the Mayor's office and trade mission network frame those visits as San Diego investments, not merely California transactions.

What the City has not yet built is the measurement infrastructure to systematically track these relationships, attribute outcomes to specific engagement activities, and demonstrate to institutional stakeholders that the international engagement function produces measurable return.

GENERAL ATOMICS: THE FMS ANCHOR

The Company

General Atomics (including GA-ASI) is San Diego's largest defense technology company by employment and the world's dominant manufacturer of medium-altitude, long-endurance (MALE) remotely piloted aircraft. Founded in 1955, GA is headquartered in Torrey Pines/UTC with its primary GA-ASI manufacturing campus in Poway. It employs approximately 13,000 to 14,000 people globally and generates estimated annual revenues of $2.5 billion to $3.5 billion (privately held, so the range is anchored to confirmed DoD prime contract data and third-party estimates).

The core product line (MQ-9 Reaper (legacy), MQ-9A (USAF), MQ-9B SkyGuardian (land), and MQ-9B SeaGuardian (maritime)) is the dominant Western ISR and strike platform at medium altitude. No allied-nation manufacturer offers comparable capability at equivalent cost. Frost & Sullivan's October 2025 US Military UAV Market Growth Outlook 2030 documents GA's 44.2% market share of the total U.S. military UAV market, nearly double Northrop Grumman (20.0%), with MALE UAVs accounting for 45.9% of major contracts.²

The International Footprint

GA's international sales activity is among the most active FMS programs of any US defense company. In the 24 months from March 2024 through March 2026, the following commitments were announced or confirmed:

Additional operators: Japan (Coast Guard and JMSDF), Spain, France, Italy, the Netherlands, Denmark: all operate or are evaluating MQ-9 variants.

The AUKUS Dimension

GA-EMS signed a deal with Israel's Rafael to build precision-strike weapons for Australia's Guided Weapons Enterprise, aligned with AUKUS Pillar II (the advanced capabilities and technology cooperation track, distinct from the nuclear submarine program).⁴ The system ("Bullseye") is at TRL 8 with initial deliveries late 2025, manufactured at GA-EMS's Tupelo, Mississippi facility.⁵ Australia participates in assembly, testing, and integration, creating defense manufacturing capacity as a byproduct.

The IRIS IDIQ ($14.1 billion ceiling, sole-source, 2024) structures all future GA MQ-9 deliveries, USAF and FMS, through 2031. The initial $108.3 million task order is already tied to the India FMS. This single contract vehicle is the commercial architecture through which San Diego's most internationally deployed defense platform reaches allied nations for the next decade.

What the City Does Here

GA does not need the City to negotiate FMS contracts. What the City provides is the relationship context in which those transactions are understood and expanded. When the India delegation follows up on its approximately $3.5 billion commitment with a San Diego visit, the Mayor's office frames what they see: not one company, but a cluster (GA-ASI in Poway, Shield AI downtown, Kratos in Kearny Mesa, DIU, the naval bases) that together represent the allied-nation technology investment destination of the decade.

KRATOS DEFENSE & SECURITY SOLUTIONS: THE GROWTH ENGINE

The Company

Kratos Defense & Security Solutions (NASDAQ: KTOS) is San Diego's highest-growth publicly traded defense company. Its revenue trajectory is the clearest expression of where defense technology investment is flowing:

Headquartered in San Diego with approximately 4,000 employees, Kratos operates across three internationally relevant segments: tactical unmanned systems, hypersonic flight test programs, and satellite communications ground systems. Its stock surged approximately 190 percent in CY2025, reaching a market capitalization above $19 billion at the January 2026 peak.

Tactical Unmanned Systems: The Valkyrie Goes to Europe

Kratos's Valkyrie (XQ-58A) is a low-cost, stealthy autonomous aircraft designed for collaborative combat alongside crewed fighters, the "loyal wingman" concept. Designed to be expendable, it can be risked in contested environments where a $100 million crewed aircraft cannot go.

In Q3 2025, Kratos shipped Valkyrie aircraft to Airbus for Germany's Luftwaffe Collaborative Combat Aircraft (CCA) program, autonomous teaming capability for Eurofighter and next-generation fleets. Airbus is the prime; Kratos is the aircraft. CEO Eric DeMarco confirmed on the Q3 2025 earnings call a "sole source position" with two additional unnamed international customers, suggesting Germany is the first of multiple allied-nation Valkyrie programs.

Separately, Kratos leads the US market in high-performance aerial target drones (UTAP-22 Mako and related systems), sold under both direct commercial and FMS channels, making Kratos a recurring budget item in allied-nation procurement cycles, not a one-time transaction.

Hypersonic Programs: San Diego at the Front of the Fastest Race in Defense

Hypersonics is the most consequential capability gap in US and allied defense technology today. It is also one of the four named AUKUS Pillar II technology priorities.

The AUKUS connection is policy, not yet contract; no confirmed FMS for Kratos hypersonic systems exist as of this writing. But Kratos's demonstrated flight test capability is precisely the infrastructure Pillar II needs.

Satellite Communications: Going International by Acquisition

About 20 percent of Kratos's revenue, roughly $220 million annually, comes from international customers, a share growing as the Valkyrie, SATCOM, and acquisition pipelines all expand internationally.

What the City Does Here

Kratos is expanding internationally through three channels simultaneously: allied-nation autonomous aircraft (Valkyrie/Germany), AUKUS-adjacent hypersonic infrastructure (MACH-TB), and acquisition (Orbit Technologies/Israel, OmanSat-1). The City's international engagement function is the relationship network through which the next opportunity surfaces before it has to be competed. France's Airbus is already procuring Kratos SATCOM through OmanSat-1, operating in the same bilateral ecosystem Mayor Gloria's France trade mission reinforced, though no direct causal link to that specific contract has been established. The point is structural: the cluster's international expansion and the diplomatic track run on parallel rails in the same geography.

SHIELD AI: THE STARTUP-TO-INTERNATIONAL STORY

The Company

Founded in San Diego in 2015, Shield AI builds autonomous military aircraft capability: systems that operate without GPS, without communications links, without a human pilot in the loop. Its Hivemind AI pilot is integrated into V-BAT unmanned aircraft and under development for fixed-wing platforms. In March 2026, Shield AI closed a $1.5 billion Series G co-led by Advent International and JPMorganChase at a $12.7 billion valuation, following a $240 million Series F-1 at $5.3 billion just a year earlier. It employs more than 1,000 people. Hivemind is not a future capability: V-BAT aircraft equipped with Hivemind are flying combat-support missions today.

The International Footprint: Already Operational

What distinguishes Shield AI is not its valuation, it is its international operational presence:

The AUKUS Connection

Shield AI's Melbourne office is the clearest example of a San Diego company that has already established physical Australian presence in anticipation of AUKUS autonomous systems investment. The AUKUS advanced capabilities framework explicitly targets autonomous systems, undersea capabilities, and AI integration, all areas where Hivemind is relevant.

When Australian defense officials evaluate AUKUS technology partners, Shield AI's Melbourne office is the proof point: not a company that will open an Australian office someday, but one that already has staff on the ground building relationship infrastructure on the Australian side of the partnership.

Investment Profile

What the City Does Here

Shield AI is building its international infrastructure independently. The City's role is to accelerate the government-to-government layer that shields commercial relationships from political friction and makes San Diego the default destination for allied autonomous systems investment. When Australia's Minister for Defence Industry visits, drawn by the AUKUS summit legacy and the City's engagement network, the visit that lands at Shield AI's offices is worth more than any marketing campaign. The City creates the occasion; Shield AI's capability closes it.

POLICY IMPLICATIONS FOR THE DEFENSE CLUSTER

The Argument Assembled

As the cluster converges, the synergies start to move together.

The autonomous systems and AI capabilities in San Diego's defense cluster require the same semiconductor infrastructure being built by ASML, Kneron, and Apple. The two sectors reinforce each other's international investment case. See the Technology Sector case study.

What the City Does in This Cluster

The City's mandate is not to negotiate contracts, it is to build the relationship infrastructure that directs allied-nation investment toward San Diego's competitive advantages. Three mechanisms:

• Government-to-government introductions: When allied defense ministries make AUKUS Pillar II investment decisions, the City's relationships create the occasion for San Diego companies to be on the consideration list: relationship work individual companies cannot do for themselves.

• Cluster framing: No individual company can credibly frame the full cluster (GA's FMS relationships, Kratos's hypersonic infrastructure, Shield AI's autonomous systems, DIU, the naval bases) as a coherent investment destination. The Mayor's office does that framing.

• Trade mission sequencing: The South Korea mission (October 2023) produced Samsung's San Diego office (Del Mar, March 2024).⁶ It also reinforced the Hanwha relationship that became the Gray Eagle STOL co-production agreement.⁷ The same mission serves defense, technology, and life sciences simultaneously: the relationship infrastructure is shared across sectors.

The Counter-Argument, and the Response

"These are federal contracts. The City of San Diego plays no role in Department of Defense procurement decisions. Why does the Mayor's international engagement office matter for defense?"

Federal procurement decisions are made in Washington. But international procurement decisions (which nation buys which system, which country places AUKUS industrial investment, which defense ministry establishes a San Diego presence) are influenced by the government-to-government relationships that San Diego collectively cultivates. Cities that build intentional infrastructure capture allied-nation investment when procurement decisions flow. Cities that leave it to Washington get the contracts that follow from DC's policy process.

GROWTH VECTORS AND RISK SIGNALS

Growth Vectors

Risk Signals

WHAT OTHER CITIES HAVE DONE

Documented governance actions by peer defense regions. Not aspirational, specific programs with sourced outcomes.

Huntsville, Alabama

Hampton Roads, Virginia

Melbourne, Australia (Victoria)

California manages its defense economy through a decentralized network (CADENCE, California Jobs First) rather than a single strategic plan.⁹ The comparison with Victoria is structural, not a gap: both fund defense industry development; they differ in centralization.

BUILDING THE ENGAGEMENT FOUNDATION

The evidence above is built from public sources. What it cannot capture is the perspective of the people closest to these decisions, and the institutional knowledge that determines which models translate and which do not. The questions below are designed to start that conversation.

What the Research Establishes vs. What Remains Unknown

• The contract pipeline is documented ($8B+). How defense companies experience the City is not. All three are growing internationally without documented City assistance. Do they see the City's engagement function as relevant? Would they participate in coordinated cluster framing?

• Allied nations are investing. Whether they experience San Diego as a destination is unknown. When Australian or Indian procurement delegations visit, who manages the visit: the company, the embassy, DIU, or the City? Is there a gap the City could fill?

• Hampton Roads has a regional coordination body. Whether San Diego's stakeholders want one is untested. SDMAC serves a private-sector function. Is there demand among elected officials, base commanders, and defense leaders for a government-constituted regional alliance?

• The defense-technology convergence is structural. How companies experience it is unknown. Do Shield AI and Kneron share talent pipelines? Do defense AI companies recruit from the same UCSD programs as commercial semiconductor firms? Is the convergence real at the hiring level, or only narrative?

Stakeholder Questions

Priority Engagement Targets