Defense Business Brief: Lockheed-Aerojet suit clouds M&A outlook; Oshkosh’s hybrid JLTV, Pentagon needs new computers; and more
The Federal Trade Commission’s suit to block Lockheed Martin’s planned buy of Aerojet Rocketdyne is reverberating throughout the defense industry. More than a half-dozen defense executives I spoke with this week believe the FTC ruling will lead to fewer large mergers and acquisitions for the rest of the Biden administration.
“This is the agency's first litigated defense merger challenge in decades,” the FTC noted early in its Tuesday statement.
“The fact that the FTC highlighted that in its first paragraph…while it is a statement of fact, it potentially suggests a changed attitude toward defense industry consolidation in a very consolidated marketplace,” said Jeff Bialos, an antitrust lawyer who served as deputy defense undersecretary for industrial affairs from 1999 to 2000.
The FTC rejected Lockheed’s proposal for what’s known as a behavioral remedy, a measure that would have required the company to supply rocket motors to its competitors. The proposal was similar to the one the FTC imposed on Northrop Grumman when it bought Orbital ATK in 2018.
“The clear headline, in my view, [is] that the FTC declined to use a behavioral remedy, as they did in the Northrop-Orbital case and as they [have] in a number of defense cases,” Bialos said.
Several executives worry that the FTC has weakened the Defense Department’s place in antitrust reviews. We still don’t know whether the Pentagon supported the deal. DOD released a benign statement talking about its role in the process. In its court filing, the FTC redacted the Pentagon’s opinion on the sale.
Lockheed has until Feb. 24 to decide whether to defend itself in court or step away from the deal. Meanwhile, Aerojet’s future is unclear. The company is an essential supplier of rocket motors. For the past year and change, Lockheed argued it would make Aerojet a more viable supplier as the Pentagon has an increased demand for missiles. Aerojet’s stock fell sharply this week after the FTC announced its decision.
Defense consultant Loren Thompson wrote that Aerojet could become a private equity target. Some questioned whether the FTC would allow other defense companies without a missile business to acquire Aerojet. Only time will tell.
Oshkosh unveiled a hybrid Joint Light Tactical Vehicle, branded eJLTV. The truck runs on batteries that charge when it's using its diesel engine. “The eJLTV is capable of running fully electric and offers our military customers an affordable way to electrify their light tactical wheeled vehicle fleets without compromising the off road performance or superior protection necessary in combat operations,” CEO John Pfeifer, the company’s president and CEO, said Wednesday on the company’s quarterly earnings call. “We believe this represents a very strong technical advantage for JLTV customers.”
That’s because when running on batteries, the truck is silent, just like electric cars. But since it also has a diesel engine, it doesn’t need to be plugged in to charge, like a fully electric vehicle. The hybrid truck can also use its batteries to power other equipment, Oshkosh says.
So why does this all matter? The Army is recompeting its JLTV contract this year. Oshkosh is expected to compete against GM Defense, Navistar, and AM General. While the Army might not be looking at buying a hybrid JLTV yet, Oshkosh developing one on its own shows the company is making investments in its products for the future.
The Pentagon’s testing office is out with its annual assessment of dozens of weapon programs. But this year’s public report is a bit different in that it doesn’t get into the details of problems with specific projects. Valerie Insinna over at Breaking Defense reported in December that the Director of Operational Test & Evaluation office would restrict what’s made public out of fear it would allow America’s enemy to exploit the deficiencies in the military’s weapons. Congress was given an unfiltered report. FWIW, this year’s public report references the “Controlled Unclassified Information” version 40 times.
The Pentagon really, really, really, really needs new computers. That’s according to Maj. Mike Kanaan, the director of operations at the Air Force/MIT Artificial Intelligence Accelerator. Kanaan this week tweeted “an open letter echoing some recent servicemember frustrations regarding computers in the Department of Defense. These are voices that have gone unheard for far too long.” You really should read this, here.
Weekend reading: The Government Accountability Office is warning that the Air Force is looking to use unproven technologies in Boeing’s redesign of the KC-46 tanker’s refueling system. “But the Air Force now plans to commit to the new design of the remote vision system before all of the technologies are adequately developed—risking further delays and increased costs,” GAO said in a new report that you can read here.
From Defense One
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