Warren: FTC Should Oppose Aerojet-L3Harris Merger
“This deal between Aerojet and L3Harris would reduce competition in the shrinking defense industry to a new low, and I encourage the FTC to oppose this dangerous transaction.”
Washington, D.C. – U.S. Senator Elizabeth Warren (D-Mass.), a member of the Senate Armed Services Committee (SASC), sent a letter to Federal Trade Commission (FTC) Chair Lina Khan and FTC Commissioners Alvardo Bedoya and Rebecca Kelly Slaughter urging them to oppose the merger of L3Harris Technologies (L3Harris), the sixth-largest U.S.-based defense contractor, and Aerojet – the last remaining independent U.S. supplier of missile propulsion systems. On December 18th, 2022, L3Harris announced that it would acquire Aerojet.
This merger announcement marks the latest action in what has been a decades-long industry consolidation. In 1990, the Department of Defense could turn to 13 contractors for tactical missiles, eight to make fixed-wing aircraft, and another eight to build ships. Today, there are only three missile and three aircraft makers, and only two surface ship builders. Similarly, there were eight satellite manufacturers in 1990; today there are only four. Tanks and other tracked vehicles are now made by a single company.
“Waves of merger activity and consolidation have transformed our nation’s defense industry from a competitive market with over 50 firms to an oligopoly of five massive rivals, “(a)nd nearly 20,000 small businesses have been pushed out of the defense market in the last decade alone,” wrote Senator Warren.
Since 1997, “L3Harris has ridden a wave of mergers and acquisitions to become the sixth largest weapons contractor in the United States and the 13th in the world.” Originally known as L-3 Communications, “(t)heir first move was to acquire a few divisions of Lockheed Martin, which had only recently formed as the result of a merger between Lockheed Corporation and Martin Marietta. L-3 Communications then went on something of a shopping spree, buying as many as 30 companies between 1997 and 2017.” In 2018, it merged with Harris Corporation, a prominent surveillance and electronic-warfare company. With the consummation of that deal, L3Harris and its Wall Street backers had effectively bought its spot as one of the biggest defense contractors in the world.
Simultaneously, Aerojet and Pratt & Whitney Rocketdyne, both of which made rocket propulsion systems, merged in 2013 to create Aerojet Rocketdyne. Aerojet Rocketdyne is “now one of only two U.S.-based firms that produce rocket motors at large scales” – and the only independent producer, since 2018, when Northrop Grumman, the world’s fourth largest weapons maker, bought Orbital ATK – leaving scant competition for a critical component of many advanced weapons. In October 2022, prior to announcing the Aerojet deal, L3Harris announced that it planned to purchase Viasat’s military communications unit for $2 billion.
“The FTC should take seriously the threats that further consolidation would pose to competition in the defense sector and to our national security by opposing this deal in the same way that it opposed Lockheed Martin’s acquisition of Aerojet. Currently, when the military solicits proposals for missile defense systems from defense firms like Northrop Grumman, Raytheon, Boeing, and Lockheed Martin, it can force these contractors to compete off each other on pricing, timing, and other contractual terms. The FTC opposed the Lockheed Martin-Aerojet acquisition because if it had gone through, the military’s ability to spur competition would have been inhibited because the newly integrated entity would have had the ability and incentive to raise costs for its rivals, hurting competition and potentially threatening national security,” continued Senator Warren.
Although some have argued that L3Harris needs to buy Aerojet for Aerojet to be competitive with Northrop Grumman following its acquisition of Orbital ATK, the letter explained how approving yet another acquisition would reduce competition. In the letter, Senator Warren also called for the FTC to make the industry more competitive again by unwinding the Northrop Grumman-Orbital ATK acquisition, particularly in light of allegations that Northrop Grumman has violated the conditions the FTC required for that deal.
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