“I’m a little bit concerned about United Technologies and Raytheon,” the president told the television network CNBC. He went on to say that the United States “used to have many plane companies,” but “they’ve all merged . . . now we have very few.”
He said too much consolidation at the top of the defense industry could weaken the government’s hand in major weapons negotiations.
“It’s hard to negotiate when you have two companies and sometimes you get one bid,” Trump said. “When I hear they’re merging, does that mean we’re taking away more competition? It becomes one big, fat, beautiful company, but I have to negotiate, meaning the United States has to buy things."
The Defense Department will have to sign off on the deal before it can be finalized. In previous administrations, the White House has generally not been closely involved in those evaluations.
In a call with investors Monday morning, executives from both companies offered vague answers when asked whether they have received feedback from the Defense Department on the issue.
But they did say the added scale the merger would provide will allow the combined firm to innovate on a higher level while keeping prices low. And they repeatedly said that Raytheon and United Technologies do not compete with each other.
“I think once [President Trump] understands the benefits of this merger in terms of what it’s going to do to reduce costs to the government, what it’s going to do to improve the technology of the U.S. government and our defense profile, and what it’s going to do for jobs in this country, I think he’s going to be supportive, as he has been for both companies over the course of this administration,” United Technologies Chairman and CEO Greg Hayes told CNBC soon after the president called in.
“There is nothing anti-competitive about this deal,” Hayes added.
Lt. Col. Mike Andrews, a spokesman for the Defense Department, said in an email that the agency’s undersecretary of defense for acquisition and sustainment, Ellen Lord, "is engaging with Industry Leadership to understand the implications and governance as a result of this acquisition. We look forward to working with Raytheon Technologies Corps. to provide the best capabilities our warfighters deserve, at the greatest value to the taxpayer.”
For years, Defense Department procurement officials have raised concerns that mergers and acquisitions in the defense sector could hurt competition. Obama administration defense secretary Ash Carter told reporters in 2015 that he wanted to “avoid excessive consolidation in the defense industry to the point where we did not have multiple vendors who could compete with one another on many programs.”
In 2015, Frank Kendall, then the undersecretary of defense for acquisition, technology and logistics, said he was afraid that the Pentagon was moving toward a future in which there are “at most two or three very large suppliers for all the major weapons systems we acquire.”
The Trump White House has been engaged on the issue, as well. A White House-commissioned report released last October concluded that “all facets of the manufacturing and defense industrial base are currently under threat,” and there are “entire domestic industries near extinction.” The report identified 300 instances in which important weapons components such as large gun barrels and submarine propeller shafts that are produced by just one company, by a “fragile” supplier that may be unable to meet demand, or by a foreign supplier.
Monday’s call to CNBC was not the first time Trump criticized a specific defense contractor over consolidation. Last June, on the eve of announcing plans to direct the Defense Department to create a new “space force,” Trump criticized Lockheed Martin and Boeing’s United Launch Alliance joint venture, saying: “I don’t like when Boeing and Lockheed get together because the pricing only goes up, but that’s okay in this case. . . . I don’t know, I don’t love that stuff. We’re going to have to talk about that.”
It is unclear whether the merger between Raytheon and United Technologies will necessarily hurt competition.
The union would create a giant in the defense industry with annual sales of $74 billion. It would bring together Raytheon’s expertise in missiles, targeting systems and defense electronics with Pratt & Whitney’s jet engines business and Collins Aerospace’s avionics expertise.
But it would also diversify Raytheon into the commercial aviation sector, with an estimated 50 percent of the combined company’s revenue coming from supplying components to passenger jets. And executives from both companies have repeatedly insisted they do not compete with each other.
“We are complementary, not competitive,” Raytheon chief executive Thomas Kennedy told CNBC. “I can’t remember the last time we competed with United Technologies.”
Raytheon is considered one of the five major prime government contractors ― meaning it holds contracts directly with the government for major defense systems. United Technologies’s subsidiaries tend to operate as parts suppliers for other companies’ prime contracts, and not as defense platform providers; Pratt & Whitney builds the engine that powers Lockheed Martin’s F-35 Joint Strike Fighter, for example.
Byron Callan, a defense analyst with the investment bank Capital Alpha Partners, said Trump’s apparent skepticism should have little bearing on the deal.
“We don’t see Trump’s CNBC comments on the deal as impactful,” Callan wrote in a note to investors. “He expressed concern ‘if they have the same products.’ They don’t.”
The tie-in between Raytheon and United Technologies comes after a long stretch of blockbuster mergers in the defense industry.
In 2017, Northrop Grumman bought Orbital ATK, a Dulles, Va.-based company that was one of the few remaining midsize defense technology companies. Last year, General Dynamics bought a large IT services contractor called CSRA for $9.7 billion, winning a short-lived bidding war. CACI bought LGS Innovations, a defense research and development company that grew out of Bell Labs.
And the military technologies giants L3 Technologies and Harris Corp. recently announced a $33.5 billion merger to create L3 Harris Technologies, which would compete closely with Raytheon in the defense electronics space.