September 06, 2012
Credit: Credit: DoD photo by Master Sgt. Ken Hammond, USAF
Further big budget cuts could make the U.S. Defense Department rethink its current wariness about additional mergers among top-tier companies in the weapons industry, a top Pentagon official told Reuters on Wednesday.
Senior Pentagon officials told industry last year that mounting budget pressures could result in increased mergers, spinoffs and market departures among weapons makers, although they said they did not believe consolidation was needed among the very largest companies in the sector.
But $500 billion in automatic across-the-board reductions that are due to start taking effect on January 2, on top of $487 billion already planned for the next decade, could change the department’s thinking on mergers and many other issues, according to industry executives and military officials.
Brett Lambert, deputy assistant secretary of defense for manufacturing and industrial base policy, said the department’s position -- first announced in February 2011 -- had not factored in the additional budget cuts known as sequestration.
“If sequestration is not averted, we would have to go back and re-examine everything, including fundamental strategic tenets,” Lambert told Reuters.
The department’s current policy does not forbid mergers among big weapons makers, but says the government is “comfortable” that the current number of prime contractors in the sector would ensure continued competition.
Lambert said any merger proposals -- even at the top tier -- would be examined on a case-by-case basis, he said.
Top executives at weapons makers have warned that additional budget cuts would have a devastating impact on national security and employment in the industry, and could unleash a new wave of consolidation among small- to mid-sized companies.