The Leeto Act transferred operation control of the Trans-Draconic Federation Navy to the New Day Alliance. At the time the act was signed into law, the TDFN represented the largest cohesive fighting force in the known worlds (albeit by numbers only and only edging out the Crimson Blade by a very narrow margin). In practice, the dragons still retained significant influence over the navy, both economically (as they still provided 90%+ of the funding) and politically (as the main purpose of the navy was defense, and draconic lands made up a large portion of the Alliance). The dragons were also allowed to keep (and maintain direct control of) the various civilian oversight groups meant to keep the TDFN in check (these groups were found to be highly effective at this task specifically because of their connection with the dragons).
The primary goal of the Leeto Act was to reduce the power and influence of the navy Supreme Commanders, while also making their appointment by Alliance committee. In the past Supreme Commanders were officially appointed by the Federation, but in practice usually only a single dragon flight had any input. As infighting among the dragon flights increased, the Leeto Act was meant to stop the dragons from using humans as cannon fodder in their wars. Since every flight that was part of the Federation was also a member of the Alliance, the act allowed the Alliance to exert operational authority over the troops.
Originally, the intention was to fold the TDFN into the existing Alliance Regulars, an existing inter-governmental force pieced together from Alliance member-worlds who were not also part of the Trans-Draconic Federation or the Foundation. This plan, however, would have created insurmountable technical, logistical, and legal issues and was quickly abandoned. Firstly, the Regulars used completely incompatible (and considerably cheaper) equipment, whereas the TDFN purchased most of theirs from the Foundation, making them compatible with Crimson Blade units. Secondly, the regulars used an entirely different force structure, with separate army, navy, and air-force; while the TDFN had as the name implied only a navy (this was often mocked by forces in landlocked areas who thought it was funny to be part of the navy yet deployed nowhere remotely near an ocean). Lastly, the Leeto Act stipulated that the Federation would retain legal ownership of all physical military assets in perpetuity, "excepting new assets purchased by the Alliance". In other words, the Federation would still own all of the ships, planes, trucks, and guns being used by Federation forces.