In the wake of the Federal Trade Commission’s (FTC) rejection earlier this year of Lockheed Martin’s [LMT] proposed acquisition Aerojet Rocketdyne [AJRD] on grounds that it would reduce competition for missile propulsion technology, two House Democrats on Thursday asked the Department of Defense to scrutinize competitive impacts from the 2018 acquisition by Northrop Grumman [NOC] of Orbital ATK, which competes with Aerojet on missile and rocket motors.
Citing FTC concerns from 2018 that Northrop’s acquisition of Orbital ATK could limit competition around pricing, Reps. John Garamendi (Calif.) and Mark Pocan (Wis.) said in their letter to Defense Secretary Austin that “Post-merger, Northrop enjoys virtually unilateral power to set prices on some of the most competitive military weapons on the planet, nuclear weapons. It has dramatically reduced industrial base redundancies in the nuclear triad.”
Northrop Grumman is the prime contractor for the Air Force’s ICBM replacement program, the Ground Based Strategic Deterrent [GBSD]. The company ultimately was the only bidder for GBSD after Boeing [BA] withdrew from the competition.
Garamendi and Pocan also highlight that it’s within the power of the FTC to undo a merger, highlighting recent testimony by the commissions chair, Lina Khan, that it has the legal authority to do so.
“However, for defense industry mergers, the agency relies on the Department of Defense for information on a merger’s impact on prices and quality,” the two Democrats tell Austin. “We urge you to share all relevant information on the impact of the Northrop-Orbital merger with the Federal Trade Commission.”
Separate from its missile propulsion and rocket motors business, Orbital ATK also provided Northrop Grumman with launch vehicles, full missile systems, a munitions business, satellite capabilities and more.
Garamendi and Pocan also cite a February 2022 report by DoD’s acquisition office that shows dwindling competition in the defense industrial base for missile and weapons systems, aviation platforms, ships and more since 1990 due to a wave of consolidation over the decades since.
The DoD report called out missiles and munitions as defense sectors facing diminished capacity and competition as fewer competitors exist and barriers to entry are high.
“For example, any company storing or using energetic materials requires larger property investments, due to quantity-distance limitations and explosion-proofing of equipment and buildings,” the report said. “These additional costs, while necessary and appropriate, can heavily burden any entrant into the market.”
The congressmen’s concerns mirror those of Sen. Elizabeth Warren (D-Mass.), who sought a close examination of the Lockheed Martin deal for Aerojet and in March, nearly two months after the FTC said it would block the acquisition, introduced a bill that would have prohibited that and similar deals.