The massive consolidation of the defense industry since the cold war has led to increased costs and threats to the readiness of soldiers, a report finds.
The decades of mergers and acquisitions in the American defense industry have led to the US military with less equipment and taxpayers burdened with unnecessary debt. A Pentagon report aims to reverse the trend of consolidation.
A Department of Defense report, released on Tuesday, provided details of the post-Cold war surge in mergers that have reduced the amount of American prime contractors for defense between 51 and 1990 to five in the present: Lockheed Martin, Raytheon, General Dynamics, Northrop Grumman, and Boeing.
“Since 1990, there have been massive levels of consolidation within the defense industrial bases,” a senior Biden administration official said. “That has increased to a point where it threatens the nation’s security and also increases taxpayer value.”
This report forms part of the broader effort from the Obama administration to reform the competition policy and break down powerful corporations’ dominance across the entire economy.
It also indicates an increasing feeling within the military that consolidation among defense contractors could have been too much, leading to higher prices and supply chain issues.
The report noted a drop in tactical missiles between 13 and 3, fixed-wing aircraft providers between 8 and 3, and satellite companies between 8 and 4. The report stated that 90 percent of rockets today come through three different sources.
A lot of the consolidation started in the 90s under an order of Pentagon planners who advised firms to combine after the US began to decrease its military spending following the end of the cold war.
In the intervening time, the people who conceived that policy have acknowledged that it was too much.
William Perry, the former defense secretary, was instrumental in triggering an era of mergers during the 1990s during an industry-related dinner that was later dubbed the “last dinner” and acknowledged in 2015 that consolidation has reduced competition and pushed up costs.
Biden administration officials claim they want to boost competition in the business by scrutinizing mergers closely, urging smaller companies to compete for defense contracts, and creating more redundancy in supply chains. They also said they would be more strict with suppliers when insisting that they surrender some of their intellectual properties.
In a signal of the new direction, Lockheed Martin dropped its $4.4bn offer to purchase Aerojet Rocketdyne, a maker of rocket engines. Aerojet Rocketdyne at the weekend following it was discovered that the Federal Trade Commission sued to oppose the purchase as it could reduce the amount of competition and increase prices in the space industry.
Pentagon officials did not speak about the arrangement. However, a top administration official told the AP: “The president has been seeking a more thorough application of the antitrust laws in various areas, including this sector.”