Funded vs Unfunded Backlog in Defence

Appropriation Is the Line, Not the Contract

A defence prime’s backlog number tells you how much future revenue sits under signed contracts. It does not tell you how much of that money the customer has actually set aside to pay for it. That second question is what the funded/unfunded split answers, and it matters because a government contract can be legally binding long before Congress, or an equivalent legislature, has appropriated the cash to pay for it.

The split turns on one fact: whether the money has cleared appropriation, the final step after authorisation. Funded backlog covers firm orders where it has; unfunded backlog covers firm orders that have been awarded but are still waiting on that step. Lockheed Martin’s FY2025 10-K states the distinction plainly: backlog “includes both funded (firm orders for our products and services for which funding has been both authorized and appropriated by the customer) and unfunded (firm orders for which funding has not been appropriated) amounts.” Northrop Grumman’s own definition, quoted later on this page, applies the same authorised-and-appropriated test.

Both funded and unfunded amounts are inside total backlog. Neither is a promise the government will never keep. Unfunded backlog is not a cancelled contract or a soft order; it is real, government-committed work waiting on the next appropriation cycle to release the cash.

What Sits Outside Backlog Altogether

Backlog is not the largest number a defence contractor can point to. Above it sits a separate, larger pool: contract options that have not been exercised, and ceilings under indefinite-delivery, indefinite-quantity (IDIQ) vehicles that have not yet generated an actual task order. Every filer that defines backlog excludes this pool by name, and General Dynamics is the one that puts a dollar figure on it.

General Dynamics’ FY2025 backlog table carries a column headed “Estimated Potential Contract Value” alongside funded, unfunded and total backlog, and reports a company-wide $60.9B in that column, on top of $118.0B in backlog. That $60.9B is not an order. It is the value of options and IDIQ ceilings the company could still be awarded, and none of it counts as backlog, funded or unfunded, until it converts into a firm order. Reading a defence prime’s growth story off backlog alone therefore understates the size of the relationship with the customer; reading it off backlog plus estimated potential contract value overstates how much of that relationship is actually locked in.

Lockheed Martin’s FY2025 Backlog, Worked

Lockheed Martin’s 10-K gives the cleanest single example of the mechanics. At 31 December 2025, the company reported funded backlog of $120.2B against total backlog of $193.6B.

Notice what the 10-K states directly and what it does not: total backlog and funded backlog are both filed figures, but unfunded backlog never gets its own line. The $73.4B only exists once you subtract one filed number from the other, so every mention of “Lockheed’s unfunded backlog” is describing a number the company never actually published.

Same Word, Different Definitions Across Filers

Funded and unfunded sound like a single, portable standard. They are not. Each filer that uses the terms defines them slightly differently, and one filer has abandoned the framing entirely.

The Lockheed Martin and Northrop Grumman definitions are close to identical, which is what makes their funded shares directly comparable: Northrop Grumman’s FY2025 funded backlog was $43.5B of $95.7B total, a 45.5% funded share, well below Lockheed Martin’s 62%. That gap is real. It reflects where each company’s contracts sit in the appropriation cycle in a given year; it says nothing about which backlog is worth more.

General Dynamics complicates a straight comparison because it runs two different definitions inside one company. Its defence segments use the same authorised-and-appropriated test as Lockheed Martin and Northrop Grumman. Its Aerospace segment, which is mostly Gulfstream business jets, uses a different one entirely: “Aerospace funded backlog represents primarily new aircraft orders for which we have definitive purchase contracts and deposits from customers. Unfunded backlog consists of agreements to provide future aircraft maintenance and support services.” That is a commercial deposits-and-contracts test, nothing to do with government appropriation. General Dynamics’ company-wide FY2025 backlog table shows $93.5B funded against $24.5B unfunded, a 79.2% funded share, but that figure blends a government appropriation definition with a commercial one and should not be read against Lockheed Martin’s or Northrop Grumman’s pure-defence figures above.

BAE Systems’ £83.6bn Group order backlog includes an unfunded line of only £5.6bn, a funded share above 93%. The gap to its American peers is definitional rather than a sign of more secure contracts: BAE’s “unfunded” covers only the elements of US multi-year contracts awaiting authorisation, and says nothing about the appropriation status of BAE’s UK, European or Saudi government work. A narrower definition of unfunded mechanically produces a higher funded share. It does not, on its own, make the backlog behind it stronger.

RTX does not draw a funded/unfunded line at all. Its FY2025 10-K defines backlog as “equivalent to our remaining performance obligations (RPO) for our sales contracts,” reported by commercial versus defence market rather than by funding status. That is not an oversight. Nearly half of RTX’s business is commercial aerospace, where government appropriation has no bearing on whether the money will show up, so a funded/unfunded split built for government contracting does not map cleanly onto the rest of RTX’s book.

Reading Funded Share in a Model

A low funded share is not a weak backlog. It is a backlog that is further back in the appropriation queue. That changes the timing of when the revenue is likely to convert; it does not change whether the revenue arrives at all. Unfunded backlog isn’t idle. It is contracted work waiting for the next appropriation, which arrives on a predictable annual or multi-year budget cycle. The budget and demand-cycle guide covers how that timing moves with the wider defence budget.

The practical rule for a model: use total backlog to size the revenue opportunity, and use the funded share to read how much of that opportunity is already past the appropriation gate. The gate changes timing. It doesn’t shrink the opportunity.

Where This Goes Wrong

Ranking funded share across filers as though it were one measurement is the error that shows up most often. It isn’t one measurement: General Dynamics blends a commercial-and-government figure, BAE narrows its unfunded definition to US multi-year contracts only, and both end up sitting in the same column as Lockheed Martin’s and Northrop Grumman’s pure appropriation-status figures.

RTX’s absence from that comparison isn’t a data gap to fill in. The company has already explained, in its own definition, why the funded/unfunded split doesn’t apply to most of its backlog.

A company’s “unfunded backlog” is rarely a number it chose to publish. Lockheed Martin’s is the arithmetic remainder of two figures it did file, and any unfunded figure a filer doesn’t state directly should get the same scepticism.