Washington – While the Justice Department has given Lockheed Martin’s proposal to purchase Sikorsky Aircraft the thumbs up, the Pentagon on Wednesday frowned on the deal, saying it would lead to too much consolidation in the defense industry.
Pentagon procurement chief Frank Kendall said the Defense Department would not dispute Lockheed’s $9 billion agreement to purchase Sikorsky, but said “it still gives rise to significant policy concerns.” He said the department would ask Congress to “explore additional legal tools and policy” to ensure the defense industrial base remains diverse.
“This transaction is the most significant change at the weapon system prime level since the large-scale consolidation that followed the end of the Cold War,” Kendall said. “This acquisition moves a high percentage of the market share for an entire line of products –military helicopters — into the largest defense prime contractor, a contractor that already holds a dominant position in high-performance aircraft due to the F-35 winner-take-all approach adopted over a decade ago.”
Kendall also said “with size comes power, and the department’s experience with large defense contractors is that they are not hesitant to use this power for corporate advantage.”
In a statement, Lockheed Martin and said “we respectfully disagree with the general conclusion and rationale behind today’s Department of Defense statement on consolidation by the defense industry.”
“There is no evidence to support the view that larger defense companies reduce competition or inhibit innovation,” the company said. “We understand and respect the Department’s concern about maintaining a proper balance between an efficient and competitive industrial base. However, we believe that defense contractors should continue to be assessed based on the performance and effectiveness of the products and solutions offered, not on the size of their company.”
Sen. Richard Blumenthal, a member of the Senate Armed Services Committee, said “I am sympathetic and sensitive to the Pentagon’s very valid concerns that further consolidation could adversely impact the innovation, competition and value that have been the hallmark of Sikorsky helicopters for almost a century.”
He said he would work as a member of the Armed Services Committee with the Pentagon “to provide the necessary authorities to preserve the strength and diversity of the defense industrial base.”
Blumenthal also urged Lockheed Martin to invest in Sikorsky.
Rep. Rosa DeLauro, a Democrat whose 3rd congressional district is home to Sikorsky Aircraft, located in Stratford, said “Lockheed Martin is the right home for Sikorsky.””
“I look forward to seeing Lockheed’s $9 billion purchase of Sikorsky go through and the world’s best helicopters continue to be built in Stratford,” DeLauro said.
Sikorsky is a subsidiary of United Technologies, which put the helicopter maker on the market earlier this year.
Unlike others who considered bidding for Sikorsky, such as Textron and Eurocopter, Lockheed Martin does not make helicopters.
But Lockheed Martin and Sikorsky are partners on several large military helicopter contracts — the Marine One presidential helicopter, a new search and rescue helicopter for the Air Force and a lucrative, $2 billion contract to repair, overhaul and modify more than 1,700 Navy Black Hawk helicopters.
While the Justice Department has approved Lockheed Martin’s purchase of Sikorsky, the deal must still win regulatory approval from the European Union, China and other countries where one or both companies have business interests.