The big-spending Pentagon opened a campaign Tuesday against the consolidation of defense contractors, saying competition has dwindled as arms suppliers merge and supersize.

In an official report, the Department of Defense (DoD), which has a budget of $768 billion this year, said the shrinking number of suppliers threatens national security and limits the potential for developing new technologies essential to future warfare.

The report said the department needs to make concerted efforts to boost smaller companies, noting they generate more patented innovations than larger companies but can lack the financial strength to survive the department's often years-long procurement process.

"This is a national security concern, but it's also a major economic concern," said a senior government official in a briefing for media.

"Consolidation also threatens the small businesses that are critical to our economy over the past decade; the number of small businesses in the defense industrial base has declined by 40 percent," the official said.

The report noted that today just a handful of giant companies dominate supply to the US military: Boeing, Lockheed Martin, Raytheon Technologies, General Dynamics and Northrop Grumman.

That group has shrunk sharply through the two decades of war in Afghanistan and Iraq.

Since the 1990s, the number of aerospace and defense prime contractors has narrowed from 51 to just five, the report said.

Suppliers of major weapons system have also fallen sharply in number.

Producers of tactical missiles have declined from 13 to three, fixed-wing aircraft suppliers fell from eight to three, and satellite makers have dropped from eight to four.

"Such consolidation leaves DoD increasingly reliant on a handful of companies for critical defense capabilities," the report said.

"Small businesses spur innovation, producing 16.5 times more patents than large firms, and form the next generation of suppliers to support the DoD mission," the report said.

Without action, it said, the Pentagon could lose 15,000 more suppliers over the next decade.

Pentagon officials said they would work with government antitrust regulators to combat consolidation.

The report came out just as Lockheed Martin withdrew its $4.4 billion takeover bid for Aerojet Rocketdyne, which produces rocket engines, after the Federal Trade Commission took action last month to block the merger on antitrust grounds.

Experts: End of Lockheed bid for Aerojet Rocketdyne may impact space, missile markets
Washington DC (UPI) Feb 15, 2021 - Lockheed Martin, the largest U.S. defense contractor, has dropped its proposal to buy rocket-engine maker Aerojet Rocketdyne, but experts said another suitor could emerge.

The Sacramento-based Aerojet has produced engines for the space shuttle, is working on engines for NASA's next moon rockets and is also developing hypersonic missile systems for the U.S. military.

Lockheed said Monday it was dropping the merger plan because the Federal Trade Commission sued to block the deal due to fears that Maryland-based Lockheed would achieve a stranglehold over missile production.

But the end of Lockheed's bid doesn't mean someone else won't come along and buy Aerojet, according to Cynthia Cook, a director at the Center for Strategic and International Studies, a Washington, D.C.-based think tank.

"It would not be surprising if Aerojet ended up being purchased by another company -- the fact that they agreed to be acquired by Lockheed Martin indicates that they are open to this, even though they have released a statement saying they would press ahead as an independent company," Cook, who heads the center's Defense-Industrial Initiatives Group, told UPI.

And although the Biden Administration has signaled it will oppose anti-competitive consolidation in the defense industry, Lockheed and other contractors may seek other acquisition targets soon, she said.

"It's too soon for us to know how the Biden Administration will handle similar deals in the defense sector. We need a few more examples before we can draw conclusions," Cook said.

Aerojet Rocketdyne is best-known for producing RS-25 rocket engines that powered the space shuttle, while it has modified those for use on the newer SLS moon rocket for NASA. The space agency is preparing to launch an uncrewed SLS this spring.

Aerojet also works on engines for hypersonic missile systems, a niche where it has only one other U.S. competitor, Virginia-based Northrop Grumman.

Lockheed CEO James Taiclet said in a statement Monday that buying Aerojet "would have benefited the entire industry through greater efficiency, speed and significant cost reductions for the U.S. government." But he said the company didn't want to proceed in a federal suit against the FTC.

The FTC had argued that buying Aerojet would have allowed Lockheed to cut off other contractors from critical components needed to build missiles.

"Without competitive pressure, Lockheed can jack up the price the U.S. government has to pay, while delivering lower quality and less innovation. We cannot afford to allow further concentration in markets critical to our national security and defense," FTC Bureau of Competition Director Holly Vedova said in a news release.

But trying to block Lockheed's deal doesn't make sense if the government wants to see Aerojet Rocketdyne thrive, Marco Cáceres, space analyst for Virginia-based Teal Group, told UPI in an interview.

It's important to recognize that Aerojet is facing stiff competition for rocket engines from Elon Musk's SpaceX, numerous small launchers and Jeff Bezos' Blue Origin, Cáceres said.

SpaceX makes their own rocket engines, while Blue Origin has been trying to develop a new engine for United Launch Alliance -- which is jointly owned by Lockheed and Boeing.

Those newer space companies, however, have shown no interest in building engines for missiles, he noted.

"The one thing that the government should do to foster competition and provide more diversity in terms of competitive launch is precisely to have allowed" the merger, he said.

"I think you're in danger of losing Boeing and Lockheed, two big legacy companies in launch services, because they just can't compete on price with SpaceX, they don't have the reusable technology, either," Cáceres said.

Related Links
The Military Industrial Complex at SpaceWar.com
Learn about the Superpowers of the 21st Century at SpaceWar.com

Tweet

Thanks for being here; We need your help. The SpaceDaily news network continues to grow but revenues have never been harder to maintain. With the rise of Ad Blockers, and Facebook - our traditional revenue sources via quality network advertising continues to decline. And unlike so many other news sites, we don't have a paywall - with those annoying usernames and passwords. Our news coverage takes time and effort to publish 365 days a year. If you find our news sites informative and useful then please consider becoming a regular supporter or for now make a one off contribution.
SpaceDaily Contributor $5 Billed Once credit card or paypal		SpaceDaily Monthly Supporter $5 Billed Monthly paypal only

Aerojet Rocketdyne positioned to continue driving growth, profitability and value creation
Los Angeles CA (SPX) Feb 15, 2022
Aerojet Rocketdyne Holdings, Inc. has reaffirmed its strong foundation for substantial value creation following the termination of its merger agreement with Lockheed Martin Corporation. The Company issued the following statement: We are poised to deliver substantial value to our shareholders driven by our continued leadership in key space exploration and defense growth markets, including by advancing hypersonics and strategic, tactical and missile defense systems. Aerojet Rocketdyne has deli ... read more