Defense Mergers Are a Win for National Security
Much metaphorical ink has been spilled—or as my favorite Los Alamos National Lab computer scientist colleague put it—“electrons inconvenienced” since the June announcement of the proposed merger between Raytheon and United Technologies.
Unfortunately, most of those electrons have been “inconvenienced” for little purpose, as the arguments pro and con have missed the main point. For the ordinary citizen, the merger should be judged by two criteria: is it good for the national defense and is it good for the American taxpayer? Put another way, does the merger promote competition and innovation?
Before answering those questions in detail (hint: the answers are yes on all counts), let’s examine the arguments offered in recent months by various analysts.
Much of the discussion has focused on the advantages and disadvantages of corporate mergers and the value to the stockholder. Those questions were best answered by those with a financial interest, the stockholders themselves, who have approved the deal.
Others have noted that President Trump previously expressed reservations about the merger, fearing that it might harm competition. Under Secretary of Defense, Ellen Lord has since reassured the public noting this August that "there are no major concerns that I know of right now." While Ms. Lord's statement was a strong positive signal that DoD will ultimately sign off on the merger, it must still be approved by the Justice Department.
Curiously, others have cited the Lockheed Martin F-35 program manager's statement that he has "no concerns" that the merger would affect that program as evidence of Lockheed Martin's approval of the merger. They argue that a Lockheed objection would demonstrate that the proposed merger is good for competition and that their tacit endorsement is cause for concern. It should be obvious, though, that the F-35 program manager does not speak for the corporation as a whole and that corporate Lockheed has remained silent.
Yes, the new Raytheon-UTC will be a defense powerhouse, but this merger will be good for competition.
Over time, the Department of Defense has become the single largest organization in the world, with an annual budget approaching a trillion dollars. DoD employs several million service members, federal civilians, and contractors in continuous global operations. An organization this large, especially a government organization this large, must rely on contractors to perform complex tasks.
In today’s military operations, we rely on integrated, precision systems to accomplish results. The reality of modern warfare is that it takes a sophisticated organization to mesh data systems, satellite and ground communications systems, and military hardware into an effective solution. Building hardware is not easy but manageable. Integrating complex systems to work together reliably under the stress of combat and harsh weather is the difficult, exquisite art of our defense industry. Such integration inevitably demands a number of engineers with expertise in a variety of fields, and the management expertise to make it work. Systems integration is a tough problem that industry hasn’t mastered, and it takes a large, skilled, and experienced company to even have a chance. As a result, DoD today largely must rely on two behemoths, Lockheed Martin and Boeing, to take on such significant challenges.
Wouldn’t it be better if we had three large prime contractors competent to bid on today’s multi-billion dollar contracts? Isn’t if preferable to have three bidders the next time we need to upgrade Air Force One or Marine One rather than two? There’s little doubt that a third competitor will force all bidders to work more diligently to win a major solicitation.
As far as the effect on competition goes, the pending merger makes sense and is a win for the American taxpayer and that marketplace. Raytheon Technologies will now join Lockheed and Boeing in the fight for large contracts.
What about innovation? Will we somehow lose our innovative edge by this merger?
Unfortunately, we're years past the point where an innovative small business can win a large weapons system contract on its own. Innovation is not dead, however. Small businesses with new approaches are blooming daily and still face an impossible task trying to gain notice in the Defense acquisition bureaucracy.
The good news is that large companies are constantly seeking new ideas and are pursuing relationships with innovative small businesses to build creative solutions in their quest to win large contracts. For a small business with an exciting new technology, this merger is a positive development. Innovators will now have three large corporations bidding for their services, rather than today’s two.
To those who believe the interests of national security, competition, innovation and the American taxpayer are the primary concerns, the answer is obvious. The planned merger of Raytheon and United Technologies into the new Raytheon Technologies should be approved. The competitive bids of the future will be fiercely contested.
Thomas Hawley is the former Deputy Undersecretary of the Army and previously served for sixteen years as a professional staff member on the House Armed Services Committee.