U.S. Reps. Mark Pocan (D-WI) and John Garamendi (D-CA) have called on Secretary of Defense Lloyd Austin for more scrutiny of industry mergers following a recent U.S. Department of Defense (DoD) report that labeled consolidation of the defense industry a threat.
In February, the DoD noted that consolidation of the defense industry could reduce the availability of key supplies and equipment, diminish vendors’ incentives for innovation and performance in government contracts and, perhaps most familiar in the era of the COVID-19 pandemic, create supply chain vulnerabilities.
“We write to express concern with defense industry consolidation and urge the Department to assist the Federal Trade Commission in assessing past merger impacts on defense programs; namely, we urge the Department to provide the Federal Trade Commission with relevant data related to the 2018 Northrop Grumman – Orbital ATK merger,” the lawmakers wrote. “In January 2022, the Federal Trade Commission blocked the proposed merger of Lockheed Martin and Aerojet Rocketdyne over concerns that Lockheed would use its control of Aerojet to increase prices, and the increased industry consolidation would result in lower quality goods and services to the Department of Defense.”
The FTC, in turn, blocked that merger with the first defense industry consolidation litigation in decades. However, the congressmen noted the same concerns that scuttled that merger remain for the Northrop-Orbital merger, especially since even when it was approved in 2018, the FTC noted the deal could potentially dampen Northrop’s incentive to provide DoD with the most sophisticated systems at competitive price points, given the dominance the merger would give it in the field.
“Post-merger, Northrop enjoys virtually unilateral power to set prices on some of the most expensive military weapons on the planet, nuclear weapons,” the legislators wrote. “It has dramatically reduced industrial base redundancies in the nuclear triad.”
They also determined that all defense industry mergers should be subject to adequate scrutiny. In this way, the nation could keep a check on defense contractor profiteering, while guaranteeing national security priorities. The legislators added a note from FTC Chair Lina Khan, who recently told House lawmakers that it is within the agency’s legal authority to unwind the Northrop-Orbital deal, though the FTC relies on DoD for information and impact data when it comes to defense industry mergers.