warren-to-ftc:-block-l3harris-aerojet-deal,-undo-northrop-orbital-atk

Update: This story was updated to include remarks from L3Harris Technologies Chairman and CEO Christopher Kubasik.

WASHINGTON ― Sen. Elizabeth Warren, an outspoken critic of corporate consolidation, wrote Friday to the Federal Trade Commission to urge it to oppose L3Harris Technologies’ $4.7 billion bid to buy Aerojet Rocketdyne.

“This deal between Aerojet and L3Harris would reduce competition in the shrinking defense industry to a new low, and I encourage the FTC to oppose this dangerous transaction,” Warren, D-Mass., wrote in a letter to FTC Chair Lina Khan as well as Commissioners Kelly Slaughter and Alvaro Bedoya, who are Democrats.

Warren also urged the agency, which screens for potential antitrust violations, to unwind Northrop Grumman’s 2018 purchase of Orbital ATK, one of just two suppliers of solid rocket motors along with Aerojet Rocketdyne. Such a move would make the industry more competitive, Warren said.

If allowing the Orbital ATK deal spurred other companies to consolidate, “the remedy is not to approve yet another acquisition that would reduce competition,” Warren said.

The FTC, in allowing Northrop Grumman’s $7.8 billion acquisition of Orbital ATK, sought to address anticompetition concerns by requiring behavioral remedies. Since 2019, the FTC has been probing “a potential issue” with Northrop’s compliance with those remedies, according to the company’s filings.

Warren in her letter called on the FTC to discuss any findings and legal action under consideration.

The FTC last year sued to block defense giant Lockheed Martin’s effort to buy Aerojet due to concerns it would hurt competition in the defense industry.

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Warren, who vocally opposed that deal before it was scuttled, noted the FTC’s opposition then was because the new entity would have had the incentive to raise costs for rival firms. The L3Harris-Aerojet combination, she said, “would present similar threats to competition and national security.”

She noted Lockheed, Raytheon, and Boeing are all dependent on products only Aerojet is able to produce. If L3Harris were to own Aerojet, it would be in a position to force other companies to buy its other products, she said.

“This lack of competition in solid rocket motors represents a national-security threat,” she said.

The letter pointed to broader consolidation within the defense industrial base, “from a competitive market with over 50 firms to an oligopoly of five massive rivals,” and quoted a 2022 Pentagon industrial base study’s concern that insufficient competition will lead to shortfalls in capacity.

Warren cast the evolution of L-3 Communications into L3Harris Technologies, which involved the combination of more than 30 companies over 20 years, as “evidence of anticompetitive intent, and its acquisition of the last remaining independent U.S. supplier of missile propulsion systems must be viewed in that context.”

“L3Harris’s acquisition of Aerojet defines anticompetitive enhanced market power and would adversely affect customers, including reduced product quality, reduced product variety, reduced service, and diminished innovation,” Warren wrote. “In this case, the ‘customer’ is the American people and the Department of Defense.”

L3Harris Chairman and CEO Christopher Kubasik has said the combined entity would be a neutral merchant-supplier of propulsion technology. On the company’s quarterly earnings call Friday, he said the company has responded to the FTC’s questions and that L3Harris executives had met with Pentagon officials to explain the proposed deal.

“It’s just being transparent, being responsive and getting the data request in, in a timely manner, so the process can work. So we’ll see how it plays out. But so far, everything is tracking,” Kubasik said.

Kubasik told investors buying Aerojet offers an entry into lucrative markets for space launch vehicles, missiles, missile defense and hypersonic weapons.

“The other day, someone said hypersonics is the future, and the reality is hypersonics is now,” Kubasik said. “This could be the crown jewel of the acquisition, and we believe there’s significant growth opportunities that are well supported by the budget and the customers.”

Joe Gould is the senior Pentagon reporter for Defense News, covering the intersection of national security policy, politics and the defense industry. He served previously as Congress reporter.

 

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