Pentagon: No more big defense mergers

The Defense Department will try to stop consolidation among the nation's biggest weapons contractors, who are bracing for potentially far-reaching cuts in defense spending because of the nation's yawning budget deficit, a top Pentagon official said in an interview.

Ashton Carter, the Pentagon's top acquisitions official, said he expected the defense industry to go through a period of profound change as it adjusts to a new era of austerity. But he cautioned that the department would take steps to prevent mergers and acquisitions within the ranks of major defense contractors like Raytheon and Boeing, whose numbers have fallen sharply since the end of the Cold War.

"We would not allow any further mergers of the big ones," Carter, the Pentagon's undersecretary of Defense for acquisition, technology, and logistics, told National Journal. "On occasion we will intervene by blocking a transaction if we thought it was excessively short-term focused and had done a poor long-term risk analysis."

In 1993, during a very different era for defense contracting, Carter was one of the participants at what came to be known as the "Last Supper."

Then-Defense Secretary Les Aspin summoned the chief executive officers of the nation's 15 biggest defense contractors to the Pentagon and bluntly told them they needed to start consolidating.

Carter, who served as an assistant secretary of Defense during the Clinton administration, noted that the industry had roughly 40 major players during its Cold War peak. Within a few years of the Last Supper, the industry had shrunk to barely a half-dozen large companies players.

In the interview, Carter said the number of major defense firms shouldn't be allowed to fall any further, particularly since the coming cuts won't be as pronounced as had been the case after the end of the Cold War.

"It won't be like in the 1990s," he said. "I don't expect [the industry] to contract any further."

Still, Carter said it could no longer be business as usual at the Pentagon. The Defense Department's base budget has nearly doubled since 2001, but the Obama administration and Congress have made clear in recent months that the Pentagon budget will be held steady-and possibly even cut-in the years ahead. On Monday, for instance, the House Armed Services Committee recommended cutting $9 billion from the department's fiscal 2012 request.

In the interview, Carter said the department will work to reduce the $200 billion it spends each year on logistics and maintenance by about 5 percent, savings he described as "real money." He estimated that such efficiencies could save the department as much as $100 billion in coming years.

One weapon the Pentagon will use in its fight to rein in runaway spending is what Carter refers to as a "share line," an agreement allowing contractors who bring their projects in below budget to keep some of the savings. If an aerospace firm manufacturer delivered a next-generation drone for $200 million less than had been projected, for instance, it might be allowed to keep $100 million for itself. The government would keep the rest.

"Businesses all over the country are constantly, ruthlessly routing out unnecessary costs and making themselves leaner," Carter said. "We have to provide incentives for [defense contractors] to do that. "

In the end, though, Carter said major defense firms will have to find ways of delivering their products for less money for the simple reason that there is less money to go around.

"The alternative to adaptation is just canceling programs," he said in the interview. "The programs that survive will survive in part because they are being economically managed. And if you're a poorly-run program and you're not performing, that ipso facto puts you on the potential cut list."

Stay up-to-date with federal news alerts and analysis — Sign up for GovExec's email newsletters.
FROM OUR SPONSORS
JOIN THE DISCUSSION
Close [ x ] More from GovExec
 
 

Thank you for subscribing to newsletters from GovExec.com.
We think these reports might interest you:

  • Sponsored by G Suite

    Cross-Agency Teamwork, Anytime and Anywhere

    Dan McCrae, director of IT service delivery division, National Oceanic and Atmospheric Administration (NOAA)

    Download
  • Data-Centric Security vs. Database-Level Security

    Database-level encryption had its origins in the 1990s and early 2000s in response to very basic risks which largely revolved around the theft of servers, backup tapes and other physical-layer assets. As noted in Verizon’s 2014, Data Breach Investigations Report (DBIR)1, threats today are far more advanced and dangerous.

    Download
  • Sponsored by One Identity

    One Nation Under Guard: Securing User Identities Across State and Local Government

    In 2016, the government can expect even more sophisticated threats on the horizon, making it all the more imperative that agencies enforce proper identity and access management (IAM) practices. In order to better measure the current state of IAM at the state and local level, Government Business Council (GBC) conducted an in-depth research study of state and local employees.

    Download
  • Sponsored by Aquilent

    The Next Federal Evolution of Cloud

    This GBC report explains the evolution of cloud computing in federal government, and provides an outlook for the future of the cloud in government IT.

    Download
  • Sponsored by LTC Partners, administrators of the Federal Long Term Care Insurance Program

    Approaching the Brink of Federal Retirement

    Approximately 10,000 baby boomers are reaching retirement age per day, and a growing number of federal employees are preparing themselves for the next chapter of their lives. Learn how to tackle the challenges that today's workforce faces in laying the groundwork for a smooth and secure retirement.

    Download
  • Sponsored by Hewlett Packard Enterprise

    Cyber Defense 101: Arming the Next Generation of Government Employees

    Read this issue brief to learn about the sector's most potent challenges in the new cyber landscape and how government organizations are building a robust, threat-aware infrastructure

    Download
  • Sponsored by Aquilent

    GBC Issue Brief: Cultivating Digital Services in the Federal Landscape

    Read this GBC issue brief to learn more about the current state of digital services in the government, and how key players are pushing enhancements towards a user-centric approach.

    Download

When you download a report, your information may be shared with the underwriters of that document.