Raytheon to challenge Lockheed Martin’s acquisition of Aerojet Rocketdyne

Raytheon CEO Gregory Hayes: “We clearly have some issues.”

WASHINGTON — Raytheon Applied sciences plans to formally oppose Lockheed Martin’s proposed $4.4 billion acquisition of rocket engine producer Aerojet Rocketdyne, Raytheon’s CEO Gregory Hayes stated Feb. 17.

Aerojet Rocketdyne’s engines are utilized by each Raytheon and Lockheed Martin in tactical and strategic missiles the businesses make for the U.S. Protection Division. 

“We clearly have some issues” about Aerojet being acquired by a competitor, Hayes stated on the Barclays Industrial Choose Convention. 

“They’re an enormous provider to us,” Hayes stated of Aerojet. If Lockheed Martin is allowed to purchase the corporate, “you don’t have an unbiased provider on the strong rocket motor facet. It provides us pause as we take into consideration the aggressive panorama going ahead.”

Hayes stated Raytheon will make its case to regulatory companies, together with the Federal Commerce Fee and the Division of Protection. “We’ll see how this entire factor performs out,” he stated. 

Since Lockheed Martin’s Dec. 20 announcement of its intent to amass Aerojet, analysts have anticipated a problem from Raytheon on grounds that the acquisition would give Lockheed an excessive amount of energy over navy missile applications. The consolidation of Aerojet below Lockheed Martin, for instance, would put Raytheon within the place of getting to purchase about 70 % of its missiles’ propulsion programs from its major competitor.

Lockheed Martin’s chief monetary officer Ken Possenriede stated the corporate would “play truthful” as an engine provider to protection primes. “Aerojet Rocketdyne goes to be a extra dependable provider as a part of Lockheed Martin than it might be as an unbiased provider,” he stated on the Barclay’s convention just a few hours after Hayes’ remarks. 

Lockheed Martin’s CEO Jim Taiclet stated Dec. 21 he expects the regulatory evaluate of the acquisition to comply with the mannequin of Northrop Grumman’s takeover of strong rocket motor provider Orbital ATK. Regulators accepted the deal in 2018 given that Northrop agreed to produce motors to its rivals. 

Possenriede argued that vertically integrating Lockheed Martin’s missile manufacturing enterprise with the propulsion provider would enhance the engineering course of and scale back the charges which are charged to the federal government when merchandise are purchased from subcontractors. 

Raytheon is predicted to make the case to regulators that Northrop Grumman’s buy of Orbital ATK ought to be considered as a cautionary story of what occurs when rivals are faraway from {the marketplace}. 

Orbital ATK was the dominant provider of strong rocket motors and buying the corporate helped Northrop Grumman achieve an awesome benefit within the competitors for the Air Power’s next-generation intercontinental ballistic missile. As a result of that benefit was laborious to compete in opposition to, Boeing bowed out of the missile program and Northrop gained by default.

The FTC required Northrop to make Orbital ATK motors out there to rivals on a non-discriminatory foundation.However Boeing identified that such agreements are laborious to implement.

Raytheon additionally contends that possession of Aerojet would give Lockheed Martin an enormous benefit in future DoD procurements of ballistic and hypersonic missiles. 

Aerojet is the only real U.S. provider of a key know-how — the Divert and Perspective Management System — utilized in interceptor missiles acquired by the Missile Protection Company to defend the US in opposition to incoming intercontinental ballistic missiles. Each Raytheon and Lockheed Martin use DACS in missiles they make for the MDA.  

On hypersonic missiles, whether or not it’s enhance glide automobiles or air respiration missiles powered by ramjet engines, Aerojet could be the first propulsion provider. 

Biden administration’s views nonetheless unknown

An enormous unknown is whether or not the Biden administration will view trade consolidation with a special lens than its predecessors.   

Deputy Protection Secretary Kathleen Hicks would play a central position in reviewing trade mergers. Throughout her affirmation listening to Feb. 2, she stated “some consolidation might be inevitable” as a result of the protection market can solely maintain a sure variety of suppliers. “However excessive consolidation does create challenges for innovation,” Hicks stated. “That’s our comparative benefit over authoritarian states like China and Russia … If we transfer all competitors out, clearly that’s a problem each for the taxpayer, however it’s additionally a problem by way of the innovation piece.”

The Pentagon up to now has maintained that the protection trade is made up of personal corporations and it prefers to not intervene with market forces besides in instances of mergers between prime prime contractors. Aerojet executives have made no secret that they wish to be acquired by a big prime contractor like Lockheed Martin to bolster its monetary stability. If the FTC sued to oppose the deal, analysts stated, Lockheed Martin might stroll away however in the end any person would find yourself shopping for Aerojet. 

Business guide Loren Thompson, who works with each Aerojet and Lockheed Martin, stated Aerojet is a “fragile enterprise that gained’t survive as a stand-alone participant within the market.” Aerojet would profit from being half of a bigger conglomerate as a result of at the moment it’s overly depending on navy and civil house applications that “may be derailed by an election end result,” he stated. 

Thompson stated blocking this merger would elevate questions on why the FTC let Northrop Grumman purchase Orbital ATK and now all of the sudden determined that this transaction raises “too many aggressive issues.”

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