Posted by on May 24, 2021 7:21 am
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Categories: Competition & Regulation Top Page Links

 

By Kelli Kedis Ogborn

 

The experience of American innovation is radically intertwined with American competition, so much so that competition might be considered the catalyst for innovation. Competition in the marketplace forces companies to think forward and think differently. This thinking-outside-the-box is indistinguishable, happily so, from the defining features of innovation and such exchange of perspectives and ideas depends on a plurality of both.

 

Decision-makers therefore need to examine closely the potential immediate consequences of any large acquisition in the defense space on competition and the ripple effects that could follow for years to come. The highest levels of leadership should similarly strategize enabling a system that encourages young and agile companies to compete
easily and powerfully.

 

In December 2020, defense contractor Lockheed Martin announced its plan to purchase and merge with Aerojet Rocketdyne in a $4.4 billion deal. Through existing contracts and vertical integration, this merger could effectively corner the missile defense market, problematically stifling competition, particularly in hypersonics. This deal is currently under review by the Department of Defense (DoD) and the Federal Trade Commission (FTC) who would do well to remember that markets—and the ideas and technologies that drive them—stagnate to the extent that they cut out or silence alternatives.

 

The experience of history has taught us that similar mergers inevitably result in huge costs to taxpayers and high-level clumsiness in strategic defense thinking. In 2006, the U.S. government permitted the formation of Lockheed Martin and Boeing’s United Launch Alliance (ULA) to support all medium to heavy U.S. government launches. Prior to this union, and this is the crucial point, these two companies competed for space launch missions. After the merger, ULA leveraged its position and costs continued to increase until competition, in the form of SpaceX, was reintroduced and ULA decreased its price by $80 million.

 

Additionally, competition ensures that the most viable technologies rise to the top. The first rocket booster test of the U.S. Air Force’s hypersonic AGM-183A Air-launched Rapid Response Weapon, developed by Lockheed Martin and Aerojet Rocketdyne as part of a $480 million dollar contract, failed. While testing failures are a natural (and necessary) occurrence in the innovation process, such setbacks also point to the need for multiple companies competing to bring the best new technological capabilities to bear.

 

Alongside these powerfully negative examples of competition collapse, members of the defense community are sounding the alarm on a more general narrowing of the contractor field. The DoD’s 2017 Capabilities Report warned against heavy consolidation in the defense space cautioning that it could “narrow industrial capabilities and technology” and “ultimately reduce competition that may otherwise not be in the Department’s or the public’s interests.”

 

Reduced competition and innovation will also harm U.S. national security. China and Russia have each already tested hypersonic missile capabilities. Alarmingly, Russia has deployed two hypersonic weapons within their forces; the U.S. is currently unable to defend against this type of missile. China poses a similar threat: during his confirmation hearing, General Mark Milley noted that China is “outspending us in research and development and procurement,” and Michael Griffin, the Pentagon’s former Undersecretary of Research and Engineering, admitted that, “we are behind on hypersonic defense.” The only way to ensure that the United States is able to adequately provide for its national security is to create an environment where agile, creative companies can consistently bring new ideas, technologies, and innovations to market.

 

Mergers, then, are not always the right answer, especially those that make vertical integration plays as this one does. While this merger secures the undeniable value of being first to market, it falls short in protecting a more fundamental resource—a culture of ingenuity and technological agility. The marketplace in which Lockheed Martin sells would almost certainly become more sluggish, but the cost of lost innovation is not just market oriented. Aerojet is the last independent supplier of rocket boosters and companies looking to compete against Lockheed would almost certainly have to look overseas for sourcing, leaving America at a strategic disadvantage. American interests are far better off having a large talent pool to pull from, to not only counter current threats but also respond as new ones arise.

 

If the FTC and DoD approve this merger, we risk reduced competition, higher costs, and more instability with regards to our nation’s hypersonics defense. A lack of competition in this critical sector, could do irreparable damage to young, agile, and innovative companies eager to enter the ring. In the past, we have accepted acquisitions only to learn of the consequences later.

 

Fundamentally, the market drives innovation that defense can harness; that market should be as open as possible.

 


Kelli Kedis Ogborn is the President and Chief Operating Officer of Advanced Rockets Corporation (ARC), an aerospace startup company specializing in hypersonic flight systems