The Aerospace Industries Association on Thursday pushed back against comments made by the Pentagon’s chief weapons buyer, who in unusually strong language raised concerns about consolidation in the defense industry.
Frank Kendall, the Undersecretary of Defense for Acquisition, Technology and Logistics, said this week that continued consolidation of major defense firms could limit competition, stifle innovation and eventually result “in higher prices to be paid by the American taxpayer in order to support our warfighters.”
And Kendall said he feared a future where the Pentagon “has at most two or three very large suppliers for all the major weapons systems that we acquire.”
But in its statement, David F. Melcher, the chief executive officer of the AIA, said that as defense spending tightens and there is continued budget uncertainty, “it’s no surprise that industry is looking to become leaner and more efficient.”
“With fewer programs for which to compete, the stakes for individual companies grow even higher—loss of a contract competition could mean the end of a company’s ability to compete for defense work,” he said.
Kendall said his concern was sparked in part by Lockheed Martin’s acquisition of Sikorsky, a leading military helicopter manufacturer. While the Pentagon and Justice Department did not stand in the way of the transaction, Kendall said it represented the most significant change in the industry “since the large scale consolidation that followed the end of the cold war.”
Bethesda-based Lockheed is the world’s largest defense contractor—it manufactures the F-35 Joint Strike Fighter among other high-profile weapons systems-- and the Sikorsky deal makes it even bigger.
“With size comes power, and the Department’s experience with large defense contractors is that they are not hesitant to use this power for corporate advantage,” Kendall said. “The trend toward fewer and larger prime contractors has the potential to affect innovation, limit the supply base, pose entry barriers to small, medium and large businesses, and ultimately reduce competition.”
Lockheed also pushed back against Kendall’s comments, saying “there is no evidence to support the view that larger defense companies reduce competition or inhibit innovation.”
The company relies on small and mid-sized companies for its supply base, it said, adding that “defense companies should continue to be assessed based on the performance and effectiveness of the products and solutions offered, no on the size of their company.”