Biden Should Shoot This Acquisition Down
Lockheed’s purchase of Aerojet Rocketdyne would strike a blow to competition and innovation.
Correction: A previous version of this commentary and its headline incorrectly referred to the proposed Lockheed Martin acquisition of Aerojet Rocketdyne, and previous acquisitions of other companies, as mergers.
What if I told you that the defense contractor behind the biggest boondoggle in the history of the Defense Department was trying to become even larger by taking over a supplier to potentially eliminate their competition on other massively expensive weapons programs? Well, it’s happening; Lockheed Martin is trying to buy Aerojet Rocketdyne.
But despite this obvious antitrust concern, I am reading that former members of Congress believe that this acquisition will reduce “the time it takes to move innovation from the whiteboard to deployment in the field” and “will be a boon for U.S. innovation and competitiveness.”
But I started an organization, called Centrist Democrats of America, to advocate against just this type of acquisition that will clearly reduce competition, drive down innovation, cost jobs, and ultimately mean a greater burden for taxpayers. Clearly, the Biden administration should give this proposed acquisition a hard look, and perhaps use government antitrust powers to block it.
Here is the background: In December, Lockheed announced its plan to purchase Aerojet Rocketdyne in a $4.4 billion deal. Company officials say the acquisition will bolster our nation’s defense. In reality, this acquisition could eliminate serious competition for the development of new missile technology.
This is because Lockheed is not the only contractor that Aerojet provides propulsion technology to. Boeing, Raytheon Technologies, and Northrop Grumman have all purchased systems from Aerojet, and these competitors will virtually be eliminated from the field if Lockheed and Aerojet combine. Yes, Lockheed would sign a consent decree with the Federal Trade Commission promising not to use their government-sanctioned competitive advantage. Still, the preponderance of consent decree violations has forced the FTC to create an Office of Decree Enforcement and Compliance.
Case in point: the recent Northrop Grumman/Orbital ATK acquisition made Aerojet the last independent solid rocket motor provider in the country. Now, the FTC is currently investigating to determine whether Northrop “violated an order requiring the company to sell its solid motor rocket engines on a non-discriminatory basis to all competitors for missile contracts,” for an $80 billion project they won that Boeing had to forfeit to them.
This proposed acquisition is particularly a concern in the development of hypersonic missiles, or missiles that fly more than five times the speed of sound. Aerojet is a critical provider of Divert and Attitude Control Systems, a high-precision, quick-reaction propulsion system that positions the interceptor to defeat an incoming ballistic missile. For defense contractors, working on DACS typically means partnering with Aerojet. And, in 2017, Aerojet was chosen to “provide the main propulsion for the Boeing and the U.S. Defense Advanced Research Projects Agency (DARPA) reusable Experimental Spaceplane (XS-1).” Lockheed could continue to service this contract fairly — or do what Northrop did and try and freeze out Boeing, again. Either way, Boeing would have to share their intellectual property with Lockheed.
Also, Lockheed just recently closed on its acquisition of the hypersonic technology, facilities, and expertise of Integration Innovation Inc., or i3. Between that, its AllComp acquisition, and the Aerojet purchase, Lockheed essentially locks in domination over the second-generation hypersonic and wipes out competition. And if you want to believe that Lockheed would abide by consent decrees, then you need to ignore some recent history.
Lockheed's own history shows how mergers and acquisitions that reduce competition can mean higher costs for the government. In 2006, the company formed a joint venture with Boeing — the United Launch Alliance — to serve U.S. government space launch needs. ULA consistently ran over budget until Elon Musk’s SpaceX came on the scene to offer real competition; since then, ULA launch costs have dropped by some $80 million.
Finally, in Lockheed’s Q4 earnings call earlier this year, CEO James Taiclet said that he believes the U.S. defense systems should be more like that of China — and implicitly, to allow his company’s purchase of Aerojet. He suggested that government officials should ask themselves: “How does China operate its defense industrial base? How does it organize it and what are the capabilities and velocity again that comes from that?” Shockingly, Mr. Taiclet is seemingly endorsing that our federal government endorse a “state-owned” or monopolistic acquisitions.
Ultimately, I am confident the Biden administration is not a fan of giving defense contractors even more power to dictate our national security parameters. The Centrist Democrats of America has urged the FTC, DoD and relevant Congressional committees to thoroughly review this acquisition.
Allowing Lockheed Martin to drive up costs and drive down competition and innovation? As the president might say, “Come on, man.”
Hank Naughton is an attorney in private practice. He is a former Massachusetts state legislator who chaired the House Committee on Public Safety and Homeland Security and served on the State Department’s International Security Advisory Board during the Obama administration.