Mergers of Defense Companies Are Risking National Security, Pentagon Warns

[Sherman A1]

The Defense Department on Tuesday released a report that says mergers and consolidation among its contractors pose risks to the U.S. economy and national security.

Senior Biden administration officials previewed the report ahead of its release. The report lays out steps to block mergers that run contrary to Defense Department interests and reduce barriers to entry for new contractors. It also seeks to ensure that a company's intellectual property protections are not anti-competitive.

The report calls on five sectors to develop plans for durable supply chains, a key concern as the coronavirus pandemic disrupted global supply chains for semiconductors and other goods in ways that created shortages and inflation. The sectors are: casting and forgings, missiles and munitions, energy storage and batteries, strategic and critical materials and microelectronics.

The report suggests that mergers have left national security beholden to private companies. There are only five aerospace and defense prime contractors, down from 51 in the 1990s. Just three sources account for 90% of U.S. missiles.

https://www.military.com/daily-news/2022/02/15/mergers-of-defense-companies-are-risking-national-security-pentagon-warns.html

[EYESORE 9001]

1. I recall much consternation over the merger of Lockheed and Martin Marietta in the '90s

That seems almost quaint now as the pool becomes even smaller.

[zipplewrath]

2. Beware what you wish for

In the mid 90's, the DoD basically told the industry there were too many prime contractors and encouraged them to consolidate. They did. They consolidated down to Boeing, Lockheed Martin (Lockmart, your one stop defense super store!), Raytheon, and Northrup Grumman. The consolidations continue to this day. The problem is that a company can't have just one product line, regardless of how lucrative it is. So they have to merge so as to have several existing and developing product lines at all times. The flip side is that the DoD and the government in general can't provide business for so many prime contractors. So your only remaining choice is for a few prime contractors servicing the contracts that the DoD needs and or wants. The ship has sailed at this point and about all they'll be able to do is top the big 4 from swallowing up any more subcontractors. Their only other choice is to stop hiring prime contractors to supply and maintain whole weapon systems and instead offer direct contracts to subcontractors themselves. In the past that has rarely worked because the DoD isn't capable of coordinating multiple suppliers efficiently, mostly because federal contracting rules make it hard to do so.