Pentagon, BAE Sign APKWS Deal for Up to 25,000 Kits a Year

The Pentagon has signed a deal with BAE Systems to buy up to 25,000 laser-guidance kits a year for seven years, betting that a cheap rocket conversion can take on drones that would otherwise be shot down with missiles costing many times more.

The framework agreement, announced Oct. 19, covers the Advanced Precision Kill Weapon System, or APKWS, which turns an ordinary unguided rocket into a precision weapon. It was signed with the Army, Navy, Air Force and Marine Corps, and neither side disclosed its cost, Defense News reported.

“By securing multi-year demand, this agreement keeps production lines running at capacity,” said Michael Duffey, under secretary of war for acquisition and sustainment. The deal “provides our forces with interceptor inventory, and flips the cost calculus in the taxpayer’s favor,” he said.

What the deal does

The agreement is a framework, not a contract. It sets the government’s expected demand so BAE can start ramping up production while the two sides negotiate a multiyear contract, Defense News reported. It is subject to congressional authorization and appropriations, according to the Pentagon’s announcement.

It also includes a path to surge production to 35,000 kits a year to supply allies. That extra capacity would come online as partner countries submit formal requests through the Foreign Military Sales program, and the Pentagon says allied demand will help pay for new U.S. production lines.

Steady orders over several years let a manufacturer buy parts with long lead times and hire workers without worrying that demand will vanish after one budget cycle, the Pentagon said.

“APKWS delivers proven, reliable and affordable precision at scale to counter evolving threats,” said Tom Arseneault, president and chief executive of BAE Systems Inc. The kits “ensure our warfighters maintain a decisive advantage,” he said.

How APKWS works

APKWS is a guidance section that fits between the warhead and the motor of a standard 2.75-inch, or 70 mm, Hydra-70 rocket, according to BAE Systems. Small wings pop out after launch, each carrying a laser seeker, and steer the rocket to a spot marked by a laser designator.

The kit is qualified on more than 20 aircraft, including the AH-64 Apache and UH-60 Black Hawk helicopters, the AV-8B Harrier, the A-10, the F-16 and the F/A-18, BAE says. The Air Force has since added the F-15E. It can also be fired from ground and vehicle launchers, drones and ships.

BAE has delivered more than 100,000 kits and has been in full-rate production for more than 12 years, according to the company. The kits are built in Hudson, New Hampshire, and Austin, Texas. The 25,000-a-year figure matches the capacity BAE cited in 2023, Defense News reported.

Because the rocket needs a target marked by a laser, it is best suited to slower threats, such as the one-way attack drones Iran and its partners have fired by the hundreds.

Why the price matters

An APKWS round costs about $35,000, according to Air Force officials, compared with about $1 million for an AMRAAM air-to-air missile and about $500,000 for an AIM-9X, Air & Space Forces Magazine reported in September. The War Zone has put the guidance section alone at $15,000 to $20,000.

That gap matters when the target is a drone that may cost tens of thousands of dollars. Firing a $1 million missile at it is a losing trade, and fighter jets can carry only a handful of air-to-air missiles. An F-15E can carry 42 APKWS rockets in pods of seven, according to Air & Space Forces Magazine.

Tested in the Middle East

Fighter pilots have already used it. F-16s received APKWS for counter-drone missions first, in 2024, and F-15Es were next in line in 2025. Air Force testers at Eglin Air Force Base got the rockets cleared on the F-15E in about a week, and units overseas had the capability about nine days after testing began, Air & Space Forces Magazine reported.

“we deployed that capability at the end of the first week,” said Brig. Gen. Mark Massaro of the Air Force Test Center.

F-16s have used APKWS against Houthi drones, The War Zone reported. The same report said counter-drone equipment, including APKWS proximity fuzes, had been diverted from Ukraine to the Middle East, a shift Defense Secretary Pete Hegseth addressed in June 2025 Senate testimony, saying the U.S. would “surge counter UAS systems to our troops and our bases… first.”

Not everyone sees it as a full answer. “APKWS is a step in the right direction, but it can’t be the final step,” said Lt. Gen. Derek France, former commander of Air Forces Central, according to Air & Space Forces Magazine. “This drone problem is not going away.”

The orders already on the books

BAE was already building at a high rate. The Navy awarded BAE a five-year contract in 2025 worth up to about $1.7 billion for continued APKWS production, with a first order of $322 million, according to a BAE announcement.

Foreign demand is growing too. The State Department approved a possible sale of up to 20,000 kits to Saudi Arabia in July 2026, worth up to $1.96 billion, split between air-to-air and air-to-ground versions, Defense News reported. Italy is also weighing a purchase for counter-drone defense.

Part of a bigger push

The BAE agreement is the latest in a string of framework deals the Pentagon has used this year to lock in munitions production before the money is formally appropriated. In January, Lockheed Martin agreed to more than triple production of the PAC-3 MSE interceptor. In March, BAE and Lockheed agreed to quadruple production of seekers for THAAD interceptors, Defense News reported. A THAAD framework signed in January turned into a contract worth more than $35 billion in June.

Each deal signals long-term demand to industry in exchange for faster production, and each still depends on Congress to fund it.

What happens next

The Pentagon and BAE still have to negotiate the multiyear contract, and no date has been announced. Congress will have to authorize and fund the purchases through the fiscal 2027 defense bill and spending bills. The government is operating under a stopgap measure that runs through Dec. 11.

Allied orders will come through Foreign Military Sales requests, which could push production toward the 35,000-a-year surge level.