The merger announced Wednesday between General Electric Co. and RCA Corp., marrying the nation's sixth-largest arms company to the 22nd-ranking firm, will accelerate a trend toward concentration of the defense industry.
Although neither GE nor RCA sells a majority of its products to the Defense Department, their combined military earnings would place them fourth on the Pentagon's list of suppliers, according to the most recent official figures. General Motors Co. recently vaulted from 23rd to seventh on that list by acquiring Hughes Aircraft Co., which is strong in electronics and other sophisticated technologies, as is RCA.
Both mergers will increase the Pentagon's reliance on a dwindling number of giant companies, financial analysts said yesterday. Between fiscal 1981 and 1984, the top five arms contractors increased their share of the Pentagon's pie from 18 percent to 22 percent, while the top 25 companies' share grew from 44 percent to 51 percent, according to Defense Department figures.
Some financial analysts said the increasing concentration will weaken the Pentagon's bargaining position and its effort to promote competition.
"I would look for more consolidation, which is very dangerous from a military point of view," Gary Reich of Wertheim & Co. said before the GE-RCA merger was announced. "It certainly doesn't provide the industrial base, and it's bad for the industry to be in an oligopoly position."
Howard A. Rubel of Cyrus J. Lawrence also predicted more mergers in the defense industry, but said he saw no harm arising from them. "The government is such a powerful force, it can beat the heck out of you no matter how big or small you are," he said.
Defense Department officials declined comment on the merger yesterday. Industry officials said that the chiefs of the defense groups of the two companies are scheduled to meet with Deputy Defense Secretary William H. Taft IV today.
Only about 14 percent of RCA's sales are to the government, according to a recent Navy study, but its profits, when calculated as a percentage of company investment, are higher in that sector than in any other department. Nevertheless, GE Chairman John F. Welch indicated to financial analysts yesterday that they may not be high enough.
"Their defense business is well run, but it has lower margins than GE's," he said.
Aided by the current suspension of giant defense contractor General Dynamics Corp. for alleged contract fraud, the GE-RCA team appears to have scored its first triumph even before the merger is official. Pentagon officials said the duo is likely to be selected next month to develop computer combat systems for the Navy's next generation of nuclear attack submarines, a job that could be worth billions of dollars.
GE and RCA had teamed before the announced merger to compete against an alliance of General Dynamics and AT&T for the submarine contract, part of which is already held by IBM. When the Navy refused to extend the bidding deadline Wednesday, General Dynamics was excluded and the GE-RCA team was left alone on the field.
Officials said they believe the submarine computer job represents the first contract that General Dynamics may have lost because of its current suspension from Pentagon work, which was announced Dec. 3. Earlier, the Navy extended a deadline to bid for four submarines so that General Dynamics could remain in the running. A General Dynamics spokesman declined to discuss the contracts yesterday.
Analysts said the GE-RCA merger would typify another trend in the defense industry, the acquisition by traditional defense contractors of high-technology and electronics firms that represent the future of the business. General Electric's largest military production line for the military is jet engines for fighters and bombers, while RCA specializes in satellites and the advanced Aegis radars that are the centerpiece of the Navy's New Cruisers and Destroyers.