03 Dec 15. Former U.S. defense chief laments extent of defense consolidation. Former U.S. Defense Secretary William Perry said on Thursday U.S. defense officials should be “very explicit” when urging weapons makers to reduce industry overhead costs, in order to avoid another round of consolidation.
Further consolidation would be “moving in the wrong direction,” Perry, a close friend and mentor of current Defense Secretary Ash Carter, told a defense writers group.
The legendary “last supper” for top industry executives that Perry hosted in 1993, as President Bill Clinton’s deputy defense secretary, was aimed at reducing overhead costs instead of triggering a massive wave of “unnecessary” and “undesirable” industry mergers, he said.
“We applied the right pressure back in the mid-1990s, but we got some … unintended consequences,” including fewer companies and less competition, Perry said. “As we face this problem in the future, we should learn from that lesson.”
U.S. officials have to be “very explicit that we are not looking for consolidation, that we’re looking for removing excess overhead from individual companies.”
Dozens of companies merged in the 1990s as military spending fell sharply after the Cold War ended. The changes left five large contractors that still dominate the market: Lockheed Martin Corp, Boeing Co, Northrop Grumman Corp , General Dynamics Corp and Raytheon Co.
Overhead costs fell somewhat, but the department would have been “better off with more, smaller firms than with a few large ones,” Perry said.
His comments underscored concerns voiced by Carter and his chief arms buyer, Frank Kendall, in September, when they warned that further consolidation among large weapons makers could lead to higher costs, decreased innovation and less competition.
Carter and Kendall spoke days after the U.S. Justice Department approved Lockheed’s $9 billion purchase of Sikorsky Aircraft from United Technologies Corp, one of the biggest acquisitions in the weapons industry in years.
Kendall told reporters at the time that he hoped to work with Congress to draft legislation that would give the government more leverage to prevent mergers that left the department dependent on a smaller number of larger contractors, even if they did not necessarily have anti-trust implications.
Perry said soaring personnel costs were eating up more of the defense budget now than before, reducing the funds available for new weapons programs and increasing pressures that could trigger a new wave of consolidation. (Source: Reuters)
02 Dec 15. Pentagon sees ‘disproportionate’ arms cuts, impact on F-35. The Pentagon’s chief arms buyer on Wednesday forecast “disproportionate” cuts to weapons programs in the fiscal 2017 military budget, including possible cuts to production rates of Lockheed Martin Corp’s F-35 fighter jet.
Frank Kendall, undersecretary of defense for acquisition, technology and logistics, told reporters the new radar-evading F-35 fighter was the Defense Department’s “most cutting-edge capability,” but other priorities including work on a new nuclear-armed submarine needed funding as well.
Kendall said the military services would finalize their fiscal 2017 budget plans in coming weeks, but he expected some reductions in production rates for key weapons programs.
Kendall told a conference hosted by the Potomac Officers Club that a two-year budget agreement with Congress had provided much-needed stability for the department, and the numbers were “much better than they could have been.”
But the deal still called for a 3 percent cut to the Obama administration’s initial proposal for a fiscal 2017 military budget.
Constraints on cutting training, personnel costs and force structure meant weapons programs would likely take a bigger hit in the fiscal 2017 budget plan, he said.
Kendall told reporters after his speech the Pentagon remained committed to the $391bn F-35 project, its single largest weapons program, but it would be i