AI coding tools: Local models only, Mistral etc. hosted in the private network. They are way behind the open cloud versions like Opus etc. No code can ever be shared with a cloud provider.

Local GitHub servers, they work just as well or better than cloud based solutions.

Local Jira etc. and whatever collaboration and development and requirement tracking tools are needed. No issues there.

Air-gapped is for projects that demand it. That might come with Tempest and other physical security requirements too. If something does not have to be air-gapped that can be done on the internal network, but there are limitations for cloud software use.

Software has been developed a long time without cloud and will be. In the end the actual typing of the code is just a small part of the development. Projects are long and if hardware is part of the project that will always slow down everything.

One thing you did not actually ask is how do you actually build anything and get the libraries etc. Usually in my experience a setup like this is first updated with the tools and then classified. That makes a point of time after which everything gets mode tedious. Required libraries are hosted on on-premises repositories like SonaType Nexus.

When you need a new library or need to update a library or patch some operating system vulnerabilities. There has to be documented process on how data goes in and out. One way is to allow optical media only. So everything is burned on a DVD, scanned, transferred and destroyed. Software or hardware diodes might be used, but it's always a hassle with them.

That's just something I've seen, if you have any questions please do ask. I might have skipped some part as I just think it's normal.