Pentagon: No more big defense mergers

Acquisition chief predicts industry will go through a period of profound change as it adjusts to a new era of austerity.

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."

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.