Consider potential Lockheed Martin-Aerojet Rocketdyne merger’s impact on the hypersonics race
A series of recent missile tests by North Korea has once again underscored how important it is for the United States to maintain a strong missile defense as well as offensive missile deterrent.
But America has unfortunately already fallen behind one of its main geopolitical foes and other rivals in the Asia-Pacific region, China, with regards to the key missile technology of hypersonics. These weapons, which can move up to 20 times the speed of sound and can evade existing missile defenses, represent the next generation of missile technology. Yet while China has already deployed a ground launched hypersonic weapon and its testing of an air launched version is currently underway, the United States will not field its first hypersonic weapon until at least next year.
Current trends in the defense industry also threaten to exacerbate this deficiency.
In December 2020, Lockheed Martin announced its plan to merge with Aerojet Rocketdyne in a deal valued at $4.4 billion. This risks not only setting the United States further behind in the hypersonics race, but it also puts our traditional missile forces in jeopardy. Should this merger be approved, competition and modernization efforts within the missile defense industry and for hypersonic missiles in particular, would be greatly undermined.
As Aerojet is the sole remaining independent provider of propulsion systems in the United States, approval of this merger would grant Lockheed a near monopoly on the critical propulsion technology of many current and future Missile Defense Agency Interceptors as well as on hypersonic technology.
Aerojet provides the majority of solid rocket motors for the Navy’s SM-2 anti-ship missile and the SM-3 interceptor used in the AEGIS Ballistic missile defense system. The company is also the sole propulsion provider for the Divert and Attitude Control System, a key component of the Terminal High Altitude Area Defense missile defense system used by the U.S. Army. Ending the independence of this key supplier will likely leave the other major defense contractors unable to compete to procure or will force them to look to overseas providers to fill their propulsion needs.
Lockheed Martin meanwhile, just completed the strategic acquisition of the hypersonic portfolio of Integration Innovation Inc. (i3), giving them full control over the company’s hypersonic design, development and production expertise. By acquiring Aerojet, one of the leaders in hypersonic propulsion technology, Lockheed would be squarely in control as the contractor of record for 2nd-generation hypersonic technology.
It has been confirmed many times before that industries without competition lead to reduced innovation incentives and skyrocketing costs. A perfect example, with regards to the defense industry in particular, is what happened with the Ground Based Strategic Deterrent program. Soon after Northrop Grumman acquired Orbital ATK, another provider of propulsion systems in 2018, the $80 billion GBSD program was ultimately awarded to Northrop without contest. The program’s incumbent contractor, Boeing, lost access to key supplier Orbital in the wake of the merger and could not submit a bid in time. The Federal Trade Commission has now opened an investigation into whether Northrop “acted in a restraint of trade and violated an order requiring the company to sell its solid motor rocket engines on a non-discriminatory basis.”
Due to these recent developments, the nation’s top anti-trust regulator has raised concerns about similar vertical integrations such as the Lockheed-Aerojet merger. In response to specific concerns raised by the U.S. Senate about deals in the defense industry, Lina Khan, chair of the FTC, said she believes that the remedies her agency has previously provided to encourage competition have proven inadequate. Moving forward, she suggested, a better solution may be to “more frequently consider opposing problematic deals outright.”
All of this leaves the Department of Defense and FTC with a critical decision. Given the significant implications for national security and the taxpayer, it is imperative these officials thoroughly consider the potential impacts of the Lockheed-Aerojet merger before making a final decision. Too often before regulators have rushed into approving consolidation in the defense industry to the detriment of taxpayers and the broader defense supply chain. But in a time of great uncertainty and national security risks, there is little room for additional error if we are going to win the hypersonics race and keep our country safe.
Bob Dees, a retired U.S. Army major general, is a graduate of the Industrial College of the Armed Forces. He has an extensive background in national security, weapons system development and defense economics.