Posted 18 февраля 2022,, 06:54

Published 18 февраля 2022,, 06:54

Modified 24 декабря 2022,, 22:38

Updated 24 декабря 2022,, 22:38

The Pentagon started the fight against monopolies in the market of military contractors

18 февраля 2022, 06:54
The State of Defense Competitiveness report, prepared pursuant to President Joe Biden's July executive order, suggests that the White House and the Department of Defense will no longer easily agree to mergers and acquisitions of major defense contractors.

Alexander Sychev

According to ministerial officials, the reduction in the number of suppliers is nothing less than a threat to national security and limits the ability to develop new technologies needed to wage war in the future.

Companies no longer experience competitive pressure to innovate or perform at the highest quality level. Finally, the number of proposals has decreased. Every year it becomes more and more difficult for the Pentagon to meet its demand, which this year is estimated at $768 billion, and subsequently not regret the money spent.

Now the Department of Defense intends to direct efforts to support small companies and explained why. A study showed that they generate 16.5 times more patented innovations than large companies. But they lack the financial strength to withstand the onslaught of the “grossers” in a procurement process that often drags on for years.

“Consolidation is threatening small businesses that are critical to our economy. Over the past decade, the number of small enterprises in the military-industrial complex has decreased by 40%, the compilers of the report are sounding the alarm, “and another 15 thousand may disappear in the next decade”.

In absolute terms, it looks like this. Since the 1990s, the number of major aerospace and defense contractors has dwindled from 51 companies to just five. There are three companies that produced tactical missiles, and there were 13. Aircraft suppliers - three instead of eight, and satellite manufacturers have become two times less - four.

Today, the Pentagon has to deal with several supply-dominating giants: Boeing, Lockheed Martin, Raytheon Technologies, General Dynamics and Northrop Grumman.

By the way, the report came out just at the moment when Lockheed Martin Corporation was trying to absorb Aerojet Rocketdyne, which produces rocket engines. The deal was valued at $4.4 billion. But last month, unexpectedly, the Federal Trade Commission decided to block the merger, seeing signs of a monopoly in the rocket engine market. Now, after the publication of the report of the Ministry of Defense, it becomes clear where the legs grow from.

The era of President Donald Trump's permissiveness, in which it was believed that consolidation was a blessing, has come to an end. The previous administration easily approved the merger between L3 and Harris, which jumped the single corporation from the second ten in the rankings to seventh. Northrop Grumman Corporation acquired Orbital ATK for $9.2 billion, expanding its line of weapons offered to the Pentagon. General Dynamics Corporation took over CSRA, which provided information technology services, for $9.6 billion.

The Trump administration did not mind even in the apparent case of a world-class monopoly when Raytheon acquired United Technologies Corporation. As a result of this transaction, the corporation became the second largest defense company in the world.

The report that has appeared, of course, does not mean a "red light" for all mergers and acquisitions. After all, even Federal Trade Service Commissioner Lina Khan, known for her antitrust lawsuits, still allowed Amentum to complete its acquisition of rival PAE for $1.9 billion. True, both of them are more specialized in the provision of military services. But there is a clear signal to US big business that from now on, all acquisitions will be scrutinized with regard to the consequences for the diversity and novelty of weapons.