COST-CUTTING

Northrop Grumman Corp Chief Executive Wes Bush told Reuters the Pentagon had firmly signaled its opposition to mergers among the handful of big prime contractors left after a massive wave of consolidation in the 1990s.

“(That) The department has taken a certain position today is reflective of their view of the budget situation. If that is not the reality of the future, then I think they’ll go back and re-look at that,” Bush told Reuters.

He suggested such mergers might be needed if companies were to continue driving costs lower, in line with the Pentagon’s cost-cutting initiatives. “Ultimately the ability of companies to support the affordability agenda of the department is connected to the market environment,” he said.

Linda Hudson, chief executive of the U.S. arm of BAE Systems, told Reuters last month the scale of change would not reach that of the 1990s, when mergers pared two dozen companies down to just a handful after the end of the Cold War.

She said Pentagon officials opposed mergers at the top of the food chain, but added that such high-level deals could still be on the horizon, depending on how deep the coming budget cuts turn out to be.

“If budgets are cut enough, there will be consolidation at all levels,” Hudson said.

Dennis Muilenburg, chief executive of Boeing Defense, Space and Security, said he did not expect consolidation among the biggest companies, whose numbers had already been reduced sharply over the past two decades.

“At the large-scale level we don’t anticipate consolidation, nor are we advocating it,” he said. “There simply is not additional space to consolidate at that level,” he said.