It’s a boom time for American defense contractors and they can’t keep up with the demand.
The Russian invasion of Ukraine and China’s military build-up US lawmakers are shelling out billions to buy new missiles, planes, tanks and helicopters to support allies and prepare for future conflict. Including the most recent funding tranche passed in December, Congress passed about $110 billion in aid to Ukraine, of which approximately $40 billion will go to arms transfers and purchases.
This puts stress on modern weapons manufacturers. Consider that some 1,600 Stinger missiles, used by individual soldiers to attack aircraft, were sent to Ukraine from American stockpiles, but the United States stopped manufacturing them in 2003. Raytheon, its manufacturer, restarted the production, but does not expect to deliver the weapons in large numbers for a year or more.
Raytheon is one of the top five defense contractors and that number is now getting a lot of attention from the Pentagon, which is calling for more competition in the defense industrial base. A report published last year says the Department of Defense now depends on just five prime contractors, down from 51 in the 1990s.
This was, in part, the result of good news: the great consolidation of the arms industry in the United States was driven by spending cuts following the collapse of the Soviet Union and the the end of the cold war. The “Last Suppermentioned in the table above was a meeting between US Department of Defense official William Perry and the CEOs of major defense contractors, in which Perry said the companies should either consolidate or die because arms spending would fall.
Some of this consolidation, however, has been driven by frantic trading, low interest rates and an arguably lax approach to anti-trust. Faced with a sudden demand for weapons, the Ministry of Defense now wants to postpone mergers that could leave the army dependent on a handful of critical suppliers.
The problem is not so much that the United States does not run out of weapons, but that its transfers to Ukraine stretch its own stocks, which it needs to train and prepare for an unexpected conflict. For an example, the experts estimate that the United States has given more than a third of its stockpile of Javelin anti-tank missiles to Ukraine, which will take years to recover.
Aerojet’s agonizing hunt for a buyer
One of the reasons it will take so long are production delays at Aerojet Rocketdyne, which makes rocket engines for everything from NASA’s Space Launch System moon rocket to Stinger and Javelin missiles.
The Department of Defense stretched its anti-trust muscles in 2022, when it backed an FTC decision to block Lockheed Martin from buying Aerojet. But the company’s struggles have drawn unusually direct criticism from big customers like Raytheon, whose CEO recently call for “adult supervision” in the business.
But the Pentagon really has no other choice. While there were, as recently as 2000, seven companies in the United States making solid-state rocket motors, there are only two today – Raytheon and Northrop Grumman, which (understandably ) got into the business by buying the company Orbital ATK in 2018.
Now Aerojet looks likely to be taken over by L3Harris, now the sixth-largest defense contractor by revenue. The odd name means it’s a product of the consolidation trend – the three L’s are for two former defense executives and Lehman Brothers, the defunct investment bank, which started the company in 1997 and took it over. merged with Harris, a longtime defense contractor. , in 2019.
This acquisition seems likely to be approved because L3Harris is not already a rocket engine manufacturer and because a bigger company behind Aerojet could help get the Javelins to Ukraine faster. But it seems unlikely that more mergers and acquisitions will lead to cheaper weapons or higher production rates in the long run, which is why the Pentagon wants more start-ups and contractors to get into the business. the arms industry, and defense contractors want better long-term planning.