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Raytheon, United Technologies merger threatens Pentagon negotiating ability

The military industrial complex rides higher than ever.

Almost 60 years after President Eisenhower warned about the dangers of too close a partnership between the Pentagon and the defense industry, lawmakers and scholars believe that the Alliance has reached a new power under President Trump.

This week, Raytheon and United Technologies announced plans to merge and create space and defense needs of $ 74 billion in annual sales. The deal is so massive that even President Trump has expressed concern that it may ruin the competition.

One day later, the Ministry of Defense announced a $ 34 billion deal with top contractor Lockheed Martin to build another round of F-35 fighters. It is the only largest defense convention in American history and resets the bar on how much money a company can do with the Pentagon.

Meanwhile, former Boeing practitioner Patrick M. Shanahan runs the Defense Department while Mr. Trump and his national security team have made the promotion of arms exports a key part of US foreign policy. Critics say that the acting Pentagon boss's previous career confuses the line even further between the military and the companies that supply their arsenals and build their ships.

Overall, some analysts argue that developments highlight how the armed forces and their industrial partners have stored power and influence to an unprecedented level.

"These big companies are likely to have more power in negotiating with the Pentagon at the expense of taxpayer interests," said William Hartung, director of the International Policy Center for Arms and Security. "And they want more lobbying, both because they want more money to make campaign contributions and hire lobbyists, and because they want facilities in more states and places, which will give them extra leverage over key members of Congress. [1[ads1]9659002] "Add to this the nominee of the defense secretary is a former Boeing leader and that the president has exercised US companies relentlessly while pushing for more foreign arms sales, and it is clear that the potential of the defense industry is on the rise," said Mr. Hartung, author of the book "War Profiles: Lockheed Martin and Making of the Military-Industrial Complex. "

Industry leaders dispute this characterization.

Military officials note that Mr. Shanahan was cleared of a Pentagon inspector general's investigation into allegations that he falsely favored Boeing while he was working inside the defense ministry. They also argue that Raytheon-United The technology merger will have little effect on the competition because the companies operate on different sides of the defense spectrum.

"They do not compete against each other," retired Air Force Gen. Herbert "Hawk" J. Carlisle, now president and chief executive of National Defense "The other concern is that they are so big, they are so powerful they can dictate terms in some cases," he said, and that's always a concern. what? Boeing is huge. Lockheed Martin is huge. Walmart is big. Amazon is big. "

Companies are making similar arguments and deny that the agreement n dd this week as regulators and shareholders still must approve, will have a direct impact on competition contracts or prices.

"We're complementary, not competitive," said Raytheon, CEO Tom Kennedy, CNBC in an interview this week. He said the combined firm is expected to add jobs, not cut them.

In a press release announcing the deal , United Technologies, Chairman and CEO Greg Hayes, said that the new firm "will define the future of aviation and defense." [19659012] Size and influence

But Mr. Trump and key lawmakers fear that companies may be so powerful that Congress and other institutions can lose their influence.

"When I hear United and I hear Raytheon, when I hear they are merging, does it make it less competitive? It's not already competitive, "said President CNBC on the day the deal was announced." I just want to see competition. They are two good companies. I love them both. But I want to see that we do not damage our competition. "

Despite his reservations, Mr. Trump routinely empties expanding export markets for US defense companies as a central part of his foreign policy. In April 2018, the administration announced a revision of US arms export policy to accelerate agreement approval and to increase the role of Senior officials to close deals The policy also gave greater importance to business interests in sales decisions that have long prioritized human rights.

Some Democrats on Capitol Hill have a more philosophical fear.

"At the same time, I am concerned about the ever-growing corporate culture of Department of Defense and the growing consolidation of the defense industry, said Richard Blumenthal, Connecticut Democrat, in an interview. Both trends can have negative consequences for innovation, competition and costs, while increasing the potential for private companies to unnecessarily affect national security decisions. "

Broadly speaking, lawmakers have long opposed the increasingly porous line between industry and the defense ministry's leadership.

Sen. John McCain raised concerns during Mr. Shanahan's confirmation hearings two years ago to become Assistant Defense Minister, referring to his long career at Boeing, "I have to be sure that the fox will not be put back in the henhouse," said the Arizona Republican, who died in August.

Concerns about the power of the industry are certainly not new. entrepreneurs and "war dealers", a running theme in civil war conflicts until World War I and World War II.

Some historians say the industry's current road is reminiscent of the 1990s, when a series of major mergers changed the face of the defense sector. the agreement that created Northrop Grumman, a merger between Boeing and its former rival McDonnell Douglas and other massive corporate combo nations consolidated power in the defense sector and helped to create today's landscape.

There are clear signs that the industry is in the middle of a similar shift. Northrop Grumman last year completed a $ 7.8 billion purchase of Orbital ATK, a leading defense and space company.

The merger and Raytheon-United agreement, analysts say, are just the last moves in a path that began decades ago. [19659012] "What you see is the culmination of a 30-year trend," said Michael Brenes, a historian from Yale University who has extensively studied the defense industry. "Especially at the end of the Cold War you saw these giant mergers."

Even in this post-war war environment, the government finally drew a line. Federal regulators in the late 1990s raised resistance to a proposed megadeal between Lockheed Martin and Northrop Grumman and eventually killed negotiations between the two companies.

Analysts say the Trump administration is unlikely to take similar action.

"In a very narrow antitrust sense, it's probably less problematic," said Mr. Hartung about the Raytheon-United agreement. "But my major concern is that such powerful companies are basically running the show in the defense industry."

Industry leaders say more consolidation is not necessarily a bad thing.

"I think the taxpayer … might be able to get things a little cheaper," Carlisle said. "I think there is more to this in the horizon … because in many cases it is smart business. "

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