Defense cuts will spur mergers, says incoming Lockheed Martin CEO
John Amis/AP file photo
Consolidation among largest contractors would reduce competition, raise prices.
Uncertainty surrounding Pentagon budget cuts could trigger a round of defense-industry mergers and acquisitions, Christopher Kubasik, incoming chief executive of Lockheed Martin, told the Wall Street Journal.
If Congress fails to reach a compromise on the federal budget by January 2013, the Defense Department will have to cut its budget by $500 billion. With this cloud over the defense industry, consolidation "would absolutely be a scenario. It would not surprise me," said Kubasik, according to the report.
Ashton Carter, the Pentagon's top weapons buyer, said in 2011 that the Defense Department would welcome consolidation in a new era of tighter budgets, but did not welcome mergers and acquisition activity among the biggest contractors, Reuters previously reported.
"The department is not likely to support further consolidation of our principal weapons systems prime contractors," Carter had said. Mergers can reduce competition in key markets and raise the prices of goods.
A wave of mergers and acquisitions took place two decades ago when defense spending was reduced after the Cold War. Lockheed Martin, Boeing, Northrop Grumman, General Dynamics and Raytheon consequently emerged as among the biggest suppliers to the Pentagon, according to the report.