As a retired Air Force officer and former strategic planner at General Dynamics, I view “taking on” the competition in our defense and aerospace industry as a good thing.  It keeps companies sharp, encourages innovation and reduces costs through the bidding process. However, “taking out” the competition through mega-mergers and creation of monopolies has the reverse effects.

With Defense Secretary Lloyd Austin continuing to fill out the leadership ranks at the Pentagon, one key question taxpayers should ask is if they can collectively rein in such mergers which can harm national security and waste billions of dollars. 

Though the defense industry doesn’t work for the Pentagon per se, DoD does have a regulatory role along with the Federal Trade Commission (FTC) to approve planned mega-mergers and acquisitions.

One case with bad lessons learned is Northrup Grumman’s acquisition of Orbital ATK, a top manufacturer of missile propulsion systems. It was approved in 2018 and the U.S. is still feeling the negative repercussions.

That’s because this vertical integration merger combined one large defense company which manufactures missiles with a defense company which manufactures propulsion systems, respectively. 

Northrup then picked up the $80 billion contract for a modernized ICBM system, a.k.a. the Ground Based Strategic Deterrent, to stop the threat of incoming ballistic missiles. Meanwhile Boeing, the incumbent, could no longer compete after spending dearly on research and development. The FTC continues to investigate the deal for unfair trade practices.

It is a prime example of why enormous deals like these need closer scrutiny and tougher questions from government regulators. 

On the bright side, Secretary Austin, a retired Army four-star general with experience in defense industry leadership, understands the problem. Earlier this year he told Congress that vulnerabilities in the defense sector include companies relying on “sole or single-source suppliers” and “foreign sources,” weaknesses caused by too many mergers.

Newly nominated Air Force Secretary Frank Kendall, an industry veteran and former Under Secretary of Defense for Acquisitions, Technology and Logistics also understands this challenge. He’s been a vocal advocate for fair competition.

In 2015, while serving at the Pentagon, he authored a book entitled, “Getting Defense Acquisition Right,” featuring a step-by-step guide on best practices. He wrote that DoD is “concerned about the continuing march toward greater consolidation in the industry,” and noted the “trend for smaller and smaller numbers of weapon system prime contractors” could lead to a scenario where there are only “at most two or three” very large companies to choose from.

A prescient warning. Especially considering today’s biggest looming defense acquisition currently pending DoD and FTC approval. 

In late December 2020, Lockheed Martin announced a planned acquisition of Aerojet Rocketdyne, the last remaining American company which makes solid rocket motors in a $4.4 billion deal.

For those who don’t follow the defense industry too closely, six of the top ten world arms manufacturers are U.S. companies. Many of them have partnered with Aerojet for missile propulsion systems.

 If this planned Lockheed-Aerojet merger goes through, like the Northrup-Orbital deal, the rest of the U.S. defense industry would be completely frozen out of the missile defense business, or compelled to look overseas to solicit bids from foreign suppliers.

Considering the Biden administration’s Executive Order to “Buy American,” and newly created post of “Made in America” director within the White House Budget Office, outsourcing U.S. defense capabilities to European or Asian companies should logically be a non-starter. Likewise, creating monopolies within our defense and aerospace industry should also be frowned upon.

So perhaps recognizing the challenges to come and hoping to increase the odds for a rubber stamp approval to meet the estimated transaction closure in the second half of 2021, some might say Lockheed Martin picked the rocky Trump-Biden transition especially around the holidays to announce the Aerojet acquisition. Maybe they hoped the outgoing decision-makers wouldn’t have time to even see it, while the incoming team wouldn’t fully be in place until mid-2021, and then be pressured to quickly sign on the dotted line before the advertised “deadline.” 

Let’s hope that is not correct.

But regardless of the timing, with the country $28 trillion in debt, combined with rival powers China and Russia making significant advances in hypersonic missile technology, we can’t afford to waste another day or dollar to make sure our defense industrial base is healthy. A Lockheed-Aerojet merger certainly would not help. 

The Biden team has a chance to get this right. They’ve got key leaders in place and on the way to examine these type of issues carefully and make good decisions. The American people are counting on them.

Scott Vadnais is a retired Air Force officer and former strategic planner at General Dynamics