Wednesday, February 16, 2011
Banks may not be the only too-big-to-fail businesses the U.S. government is determined to help succeed. The presence of the Department of Defense’s top weapons buyer at a military industry investment conference has demonstrated the importance placed on the well-being of the largest defense contractors by Washington, which wants the industry to remain profitable.
Although Ashton Carter, under secretary of defense for acquisitions, technology and logistics, delivered some sobering news to defense companies at the conference—that the administration won’t stand for any mergers involving the Big 5 (Lockheed Martin, General Dynamics, Raytheon, Northrop Grumman and Boeing)—he reiterated the point that their profitability is a prime concern of the Defense Department. The Obama administration will encourage the merger of smaller companies.
“If the Pentagon wants the military industry to be healthy and profitable, it can pretty much ensure that outcome,” wrote Joe Nocera of The New York Times.
That’s what Washington has been doing for decades now. Even after the conclusion of the Cold War in the early 1990s, the Defense Department gave the industry direction to ensure its future success.
At a special dinner in 1993 hosted by then-Secretary of Defense Les Aspin, the top 15 contractors were told it was time to consolidate some of their operations. The result was today’s Big 5, after General Electric Aerospace, Martin Marietta and Lockheed turned into Lockheed Martin, after McDonnell Douglas folded itself into Boeing, and after Grumman joined Northrop to create Northrop Grumman, to name just the biggest of the mergers.
-Noel Brinkerhoff
From Pentagon, a Buy Rating on Contractors (by Joe Nocera, New York Times)
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