Business

Pentagon warning on consolidating corporate power may be too late

TED S. WARREN/ASSOCIATED PRESS/2010U.S.-built NORAD F-22 fighter jets fly past the wing of a commercial airline over a mountainous area of Alaska.
TED S. WARREN/ASSOCIATED PRESS/2010U.S.-built NORAD F-22 fighter jets fly past the wing of a commercial airline over a mountainous area of Alaska. ASSOCIATED PRESS

WASHINGTON -- A Pentagon warning last week about excessive consolidation in the defense industry comes ahead of a multibillion-dollar contract award for a new bomber that, depending on who wins, could make the problem worse, some analysts say.

In other words, the warning may prove to have come too late.

"If the trend to smaller and smaller numbers of weapon system prime contractors continues, one can foresee a future in which the department has, at most, two or three very large suppliers for all the major weapons systems that we acquire," the Pentagon's acquisition chief, Frank Kendall, told reporters. "The department would not consider this to be a positive development and the American public should not either. ... With size comes power, and the department's experience with large defense contractors is that they are not hesitant to use this power for corporate advantage."

Kendall's comments come as the defense industry awaits word on which company will develop and procure 80 to 100 Long Range Strike Bombers, which will probably be called B-3s. A team of corporations led by Boeing Co. and Lockheed Martin Corp. is competing against a squad led by Northrop Grumman Corp. for the contract. The planes will cost more than $100 billion, experts say.

Kendall told reporters his comments about consolidation in the defense industry were about "the general situation" and were not made with the bomber announcement or any particular forthcoming deal in mind. But the bomber was not far from the minds of experts as they read his remarks.

If Lockheed Martin's team wins the bomber deal, the company will have designed all three of the latest manned U.S. warplanes: the F-22 and F-35 fighter jets, plus the B-3.

That would give Lockheed Martin extraordinary clout with the government and further consolidate U.S. aviation brainpower and industrial might, some critics warn. If Lockheed Martin wins, the government may not have another company with comparable experience to turn to in a few years, when it comes time to design the next generation of fighters and bombers. Also a concern is cybersecurity -- the risk that centralizing computers in one company could make them more vulnerable to hacking, as happened in Lockheed Martin's F-35 program.

"The reality is a Lockheed Martin victory on the bomber program will pose a risk for all future manned aircraft programs, because it will be difficult to have credible competitions," said John Young, who was the Pentagon's acquisition undersecretary from 2007 to 2009, in an interview.

No matter who wins the B-3 deal, the industry may be in for a shakeup and possibly more consolidation.

A Lockheed Martin win could not only give it unrivaled power but also could lead to the dismantlement of Northrop Grumman as a major company, leaving one fewer strong player in the field, some analysts have said.

If, on the other hand, Northrop Grumman wins the bomber competition, it could set in motion any of several different scenarios in the industry, potentially including Boeing's departure from the military aircraft business.

  Comments