Recently, giant Lockheed was described as having a literal “chokehold” on the #1 defense contractor spot. Also recently, Lockheed announced it would buy Sikorsky, the well-known supplier of military helicopters, for $9 billion. Let’s review Lockheed’s powerful grip on lucrative defense contracts and political power– and then see the Sikorsky acquisition strengthens it and leads to more waste.
Lockheed Martin is the giant in the defense spending world. As reported in the trade press, “Lockheed Martin maintained its chokehold on the top position in this year’s Defense News Top 100 . . . with 2014 defense revenues of $40.128 billion.” Out of every defense contracting dollar, nine cents goes to Lockheed Martin.
This is an industry that dearly needs competition to protect the public. Unfortunately, Lockheed sets the pattern for massive concentration in the industry. After its 9% share come four other huge suppliers: Boeing (6.4%), General Dynamics (4.8%), Raytheon (4.2%), and Northrop Grumman (3.3%). Who is next? United Technologies, which has owned Sikorsky. So the acquisition takes a concentrated defense contracting industry and concentrates it further.
Lockheed has an argument for excusing the acquisition. And the Defense Department, which will review it, will probably buy the argument. The argument goes: Sikorsky is a helicopter maker. And while Lockheed makes all kinds of military vehicles and platforms, it does not make helicopters. So in theory, the Sikorsky acquisition does not reduce competition, but just rounds it out.
But of course there is a payoff for Lockheed. These days, a helicopter is important in defense sales the way a submarine, destroyer or plane is. They are military platforms. Expensive weapons like missiles, and expensive electronic systems go aboard them. Lockheed sells what goes on those platforms.
So now when the Sikorsky unit of Lockheed gets the award of a helicopter contract, the other units of Lockheed will have a leg up – maybe a lock on – selling the Defense Department the weapons and electronic systems to go aboard. In May 2014, the Navy awarded a Lockheed-Sikorsky team a $1.24 billion contract for the engineering and manufacturing phase of a presidential Sikorsky helicopter with communications and mission systems installed by Lockheed. If Lockheed could win that prior to the acquisition, how much easier and more lucrative it will be now.
Now consider the political reach of Lockheed. I have written before about the F-35, Lockheed’s problem-plagued fighter. Specifically, this year the Congressional Republicans have loaded the defense spending bills with billions more in F-35 purchases than the Defense Department asked. That was part of where the Treasury dollars went from the Congressional decision, via a gimmick of a spending fund, to spend way over the sequestration ceilings on defense (while cutting domestic programs like food stamps).
How did the Congressional Republicans succeed in getting the defense authorization, with excess funding for the Lockheed F-35, through both the House and Senate? (Although, the bill may be veto bait for President Obama — but that is a separate story.) Lockheed has more than 1300 domestic suppliers on the F-35 project in 44 states. And, to leverage its influence on the Senators and Representatives in those 44 states, Lockheed spends $68 million a year on lobbyists.
Sikorsky will add its increment to Lockheed’s political reach. Just as other contractors become identified with their location, so Sikorsky is identified with Connecticut. Connecticut is known as a defense-minded state, with General Dynamics there building submarines. Now Lockheed will receive major help from the very defense-minded Connecticut delegation, and to some extent, help from the rest of the New England delegation.
Lockheed’s power to expand wastefully the defense budget is by no means limited to the F-35. The Air Force will soon compete the Long Range Strategic bomber (LRS-B). Lockheed is competing for the LRS-b with Boeing as its partner. That LRS-B is one of the main pieces of the trillion-dollar wasteful spending that will buy all over again a Cold War strategic nuclear triad. Lockheed’s muscle would help get that trillion dollar program launched.
And, the Army will soon compete the new helicopter in its Joint Multirole Helicopter and Future Vertical Lift. Sikorsky has been expected as strong candidate for this hugely expensive program. And, Lockheed was on a competing team. Now Lockheed wins this, either way.
Not long ago, William D. Hartung wrote an expose, “Prophets of War: Lockheed Martin and the Making of the Military –Industrial Complex.” Looks like it is more timely today than ever.
Lockheed Tightens Its Wasteful “Chokehold” on Defense Funds – Forbes.