Aerojet Rocketdyne is a leading supplier of rocket and missile engines that will strengthen Lockheed’s position in a booming market for space systems. It is closely involved in the Pentagon’s ambitious new intercontinental ballistic missile programs. And the combination should give Lockheed new advantages in hypersonic missiles, a defense-industry growth market where it appears to have an early lead over competitors.
Lockheed executives said the deal would trim costs out of the defense supply chain while also helping maintain the U.S. military’s edge over geopolitical rivals.
“Acquiring Aerojet Rocketdyne will preserve and strengthen an essential component of the domestic defense base and reduce costs for our customers and the American taxpayer,” James Taiclet, the president and CEO of Bethesda-based Lockheed, said in a statement. “This transaction enhances Lockheed Martin’s support of critical U.S. and allied security missions and retains national leadership in space and hypersonic technology."
Aerojet Rocketdyne has revenue of about $2 billion and some 5,000 employees across the country. The company manufacturers the RS-25 engines to be used on NASA’s Space Launch System rocket, which is designed to fly astronauts to the moon, as well as propulsion systems that are already used in several of Lockheed’s defense systems.
Lockheed makes the Orion spacecraft that would fly atop the SLS rocket. The acquisition will give Lockheed a stake in the rocket, which is made primarily by Boeing.
“Joining Lockheed Martin is a testament to the world-class organization and team we’ve built and represents a natural next phase of our evolution,” Eileen P. Drake, CEO and president of Aerojet Rocketdyne, said in a statement. “As part of Lockheed Martin, we will bring our advanced technologies together with their substantial expertise and resources to accelerate our shared purpose: enabling the defense of our nation and space exploration.”
The deal is expected to close in the second half of 2021 and is subject to approval of Aerojet Rocketdyne shareholders.
Depending on how the Biden administration approaches consolidation in the defense sector Lockheed could face tough questions over the transaction. With $48 billion in unclassified contract receipts for fiscal year 2019, Lockheed is the largest defense contractor in the world by a wide margin.
In the late years of the Clinton administration the company’s attempt to swallow up Northrop Grumman was rebuffed by regulators. The Trump administration has taken a hands-off approach to defense acquisitions, allowing large acquisitions by Northrop Grumman and Raytheon to pass through uninterrupted.
Mandy Smithberger, director of the Center for Defense Information at the nonprofit Project on Government Oversight, said the deal could spark concerns over Lockheed’s increasing share of business in the space launch sector.
“Generally the concentration of the defense industry should motivate DOD and DOJ to consider antitrust concerns more vigorously,” Smithberger said.
Lockheed executives say the two companies’ products are complementary and not competitive. They also argued that consolidating Aerojet under Lockheed’s umbrella would eliminate certain fees that are paid to the company as a subcontractor.
“There is full complementarity between the Lockheed Martin portfolio and Aerojet RocketDyne, there is no overlap so to speak in the traditional antitrust bent," Lockheed chief executive Jim Taiclet said.