In December the worlds biggest military contractor, Lockheed LMT Martin, disclosed plans to acquire Aerojet Rocketdyne AJRD . Aerojet is the number-two ranked builder of rocket engines in the U.S., a key player in military and civil-space markets.
Many observers assumed the deal would receive favorable treatment from regulators, because in 2018 Northrop Grumman NOC was permitted to acquire Orbital ATK, Aerojets main competitor in the domestic market for rocket engines.
Orbitals engine business at the time was considerably larger than Aerojets, due mainly to its near-monopoly in the future manufacture of large solid-fuel rocket engines for launch vehicles and nuclear missiles.
It retains that status as part of Northrop Grumman today. In fact, the only opportunity Aerojet has for building large solids in the near future is its role as a supplier to prime contractor Northrop on a replacement of the Minuteman III intercontinental ballistic missile. Northrop secured that contract in 2019.
Aerojet Rocketdyne provides propulsion for the Terminal High Altitude Area Defense, which intercepts ... [+] fast-moving ballistic missiles.
I should mention that I have had relationships of one sort or another with every company mentioned in this commentary. As a result, I have a fairly good grasp of the interests at stake, and in particular the reasons why Aerojet is eager to become part of Lockheed Martin.
I believe the government should approve the proposed merger, but with conditions. The principal condition should be an enforceable guarantee that Lockheed will act as a merchant supplier of rocket engines to the marketplace once it acquires Aerojet, rather than being allowed to leverage Aerojets product lines to disadvantage rivals.
The Federal Trade Commission imposed a similar constraint on Northrop when it acquired Orbital, in the form of a consent decree. The condition is necessary so that when Lockheed competes against companies like Boeing BA and Raytheon in the future for missile work, it does not receive an unfair advantage due to its ownership of former Aerojet propulsion products.
Perhaps at this point you are asking why the government should approve the proposed transaction at all. Why go to the trouble of having to enforce compliance with a consent decree or some equivalent mechanism when the government could simply block the merger?
Here, in descending order of importance, are my five reasons why it is in the interests of warfighters and taxpayers to permit Lockheed Martins acquisition of Aerojet Rocketdyne. Collectively, they make a convincing case for the proposed transaction.
Aerojet is a fragile enterprise that wont survive as a stand-alone player in the marketplace. At $2 billion in annual revenues, Aerojet Rocketdyne is no industrial colossus. In fact, annual revenues are roughly equivalent to only 35 hours worth of sales at Walmart WMT . Moreover, the highly energetic systems it markets carry much more risk than the products of other industries. Its fragility is compounded by the companys dependence on a federal marketplace where major military and civil-space programs can be derailed by an election outcome.
For example, the biggest new opportunities Aerojet has to sell its engines are (1) a next-generation interceptor for missile defense; (2) hypersonic weapons for the Army, Air Force and Navy; and (3) the successor to the Minuteman III ICBM. None of these programs has an assured future. All will be subject to political wrangling, and even if they were not, Aerojet must depend on the good will of the prime contractors to stay on board. What if Northrop decides to kick Aerojet off the ICBM team? Aerojets future is by no means certain.
A different merger partner could be more problematic. Aerojets management recognizes the fragility of its business, and the need to be part of a bigger, better-resourced enterprise. One way or another, the company is going to be acquired. But the pool of potential suitors comes down to two types of candidates: other aerospace companies that have their own conflicts, and financial buyers such as private equity.
Given the risks associated with building rocket engines, there wouldnt be many suitors even in aerospace. Boeing might be interested, but is in no position to do acquisitions at the moment. Raytheon might be interested, but its Pratt & Whitney unit sold Rocketdyne in 2013 and its missile business would raise the same competitive issues as Lockheeds. Private equity would seek to reduce risk and hasten returns, hobbling innovation. Lockheed Martin at least has a similar culture and technology focus.
Blocking the merger would confer an unfair advantage on Northrop Grumman. As the Wall Street Journal reported on December 23, the proposed merger is more a case of vertical integration than elimination of the competition. If the FTC nonetheless decides the transaction raises too many competitive concerns, then what does this say about letting Northrop Grumman acquire Orbital three years ago? Orbital was a bigger player and arguably better positioned in the engine business. Blocking Aerojets acquisition while letting Orbitals stand would amount to implementing a double standard in antitrust cases.
The proposed merger is sure to reduce government costs. Aerojet does 33% of its business with Lockheed Martin (43% if you include sales to the Lockheed-Boeing joint venture called United Launch Alliance). The way the relationship currently works, Aerojet includes a profit margin in the price it charges for its engines, and then Lockheed adds its own profit margin when it bills the government for the finished product. Under federal accounting rules, this fee-on-fee arrangement would disappear if Aerojet became part of Lockheed. Additional savings to the government would accrue from rationalizing infrastructure and workforcesa necessary step to justify the price Lockheed is paying for Aerojet (roughly two times 2020 sales).
Lockheed-Aerojet could stimulate competition in civil space. The civil and commercial segments of the space launch business these days sometimes seem like a chess game between dueling billionaires. Elon Musks SpaceX and Jeff Bezos Blue Origin increasingly dominate the board, with lesser players dwarfed by the resources the worlds two richest men dedicate to their space passions. But their ardor might flag in the future. The government and private satellite operators need other players whose involvement doesnt depend on mercurial personalities. Combining Lockheed and Aerojet will likely bolster competition at a time when the launch sector would otherwise be facing a shakeout.
- Businesses offer help as problems remain in Texas from winter storm - Yahoo News - February 20th, 2021
- Wet Start To The Weekend - Yahoo News - February 20th, 2021
- Chess and Artificial Intelligence (2) - Chessbase News - February 17th, 2021
- What is the secret of Wesley So's success? An interview - Chessbase News - February 17th, 2021
- Artificial Intelligence And The End Of Work - Forbes - February 17th, 2021
- Why Ricciardo said 'yes' to McLaren the second time they asked RaceFans - RaceFans - February 17th, 2021
- Opera Euro Rapid SF: Carlsen and So reach the final - Chessbase News - February 15th, 2021
- Letters: 'Darlington Borough Council has a terrible record of looking after heritage sites, maybe they shouldn't keep Locomotion No 1' - The Northern... - February 12th, 2021
- Fat Fritz 2.0 - The new number 1 - Chessbase News - February 10th, 2021
- 25 Years Ago, Chess Changed Forever When Deep Blue Beat Garry Kasparov - Slate - February 10th, 2021
- Chess In The COVID Era | Webster Kirkwood Times | timesnewspapers.com - Webster-Kirkwood Times, Inc. - February 10th, 2021
- 10 Things We Want From The Legend Of Zelda's 35th Anniversary - TheGamer - February 7th, 2021
- Travis Kelce is the best tight end in football. Just ask any NFL player. - The Union Leader - February 7th, 2021
- 120 things you probably didn't know were created by Black inventors | Venture - Daily Hive - February 6th, 2021
- Red Sox Truck Day approaches and theres a different feeling in the air - BoSox Injection - February 4th, 2021
- The future is augmented - The Bookseller - February 4th, 2021
- How to Use a Chess Engine? Your Quick & Effective Guide - February 3rd, 2021
- Stockfish+NNUE, Strongest Chess Engine Ever, To Compete In ... - February 3rd, 2021
- Top Chess Engine Championship - Wikipedia - January 30th, 2021
- Building My Own Chess Engine Andrew Healey - January 30th, 2021
- Stockfish Chess Engine Download - softpedia - January 30th, 2021
- Play Online Chess at Caissa's Web - January 30th, 2021
- Alto AMT Should it be back? - MotorOctane - MotorOctane - January 30th, 2021
- Does the rift in AI matter to marketing? - MarTech Today - January 30th, 2021
- Scientists say dropping acid can help with social anxiety and alcoholism - The Next Web - January 28th, 2021
- Meet Yash Aradhya, a Bengaluru Formula 4 racer and a recipient of the Pradhan Mantri Rashtriya Bal Puraskar - EdexLive - January 25th, 2021
- Dancing, vacuuming, learning: What's next for robots and their creators? - ASU Now - January 23rd, 2021
- Signature Theatre announces cast and dates for 'Simply Sondheim' review - DC Metro Theater Arts - January 23rd, 2021
- SwitchArcade Round-Up: 'Scott Pilgrim vs. The World', 'Shadow Gangs', and Today's Other New Releases and Sales - Touch Arcade - January 15th, 2021
- Their Uniforms Say Ohio State and Alabama. The Players Are From Everywhere. - The Wall Street Journal - January 13th, 2021
- Ziggurat Interactive Releases First Retro First Friday Pack Of 2021 - Bleeding Cool News - January 9th, 2021
- TV tonight: another day in paradise for detective Ralf Little - The Guardian - January 9th, 2021
- The Board Games Global Market is Expected to Grow at a CAGR of 13% Between 2021 to 2026 - Yahoo Finance - January 6th, 2021
- 50 Best TV Shows To Watch In 2021 - Highest Rated Television Series - OtakuKart - OtakuKart - December 29th, 2020
- Red Bull think they have secret weapon to catch Lewis Hamilton and Valtteri Bottas | F1 | Sport - TechnoCodex - December 23rd, 2020
- HBO's Industry creators and Myha'la Herrold break down season 1 finale - Entertainment Weekly - December 22nd, 2020
- Research at Microsoft 2020: Addressing the present while looking to the future - Microsoft - December 22nd, 2020
- Deals of the Week, December 11 to 18 Growth Business roundup - GrowthBusiness.co.uk - December 18th, 2020
- Turns Out Its Pretty Good: Doomscrolling - The Cut - December 18th, 2020
- A Letter to My Kids - The Good Men Project - December 15th, 2020
- Yakuza Remastered Collection On The Way For Xbox & PC - Bleeding Cool News - December 13th, 2020
- Hitman 3 Gets A New Trailer Showing Off The Features - Bleeding Cool News - December 9th, 2020
- Reflections on 40 years: thanks for the memories (we can remember) - NOLA.com - December 9th, 2020
- AMD Ryzen 7 5800X Review: The Pricing Conundrum - Tom's Hardware - December 8th, 2020
- AI has almost solved one of biologys greatest challenges how protein unfolds - ThePrint - December 8th, 2020
- Demis Hassabis interview: the kid from the comp who founded DeepMind and cracked a mighty riddle of science - The Times - December 6th, 2020
- Online Chess and Working from Home - Chessbase News - December 5th, 2020
- Full Fischer film in YouTube - Chessbase News - December 5th, 2020
- New C360 CEO Howard Wright Sees Broadcast Tech Putting Fans on the Field of Play - Sports Video Group - December 5th, 2020
- This is what would happen if a Hind took on a Cobra - We Are The Mighty - December 5th, 2020
- Hyundai Takes The Wraps Off Its E-GMP Electric Car Platform - CleanTechnica - December 3rd, 2020
- Top 9 Reasons to Rent an RV when you traveling - The Dubrovnik Times - December 3rd, 2020
- Akron flashback: Some childhood toys you never forget - Akron Beacon Journal - December 1st, 2020
- 24 Comments on GM is Paying Cadillac Dealers to Ditch the Brand... - The Truth About Cars - November 29th, 2020
- Skilling Open QF2: Day of the Comebacks - chess24 - November 27th, 2020
- Jelurida Announces Bridge Champ, an On-Chain Version of the Famous Card Game - IT News Online - November 27th, 2020
- The 37 Best Black Friday Smart Home and Kitchen Deals (2020) - WIRED - November 27th, 2020
- The Joylessness of Cooking - The New Yorker - November 27th, 2020
- The Big Bang Theory: 10 Hidden Details About Penny That Everyone Missed - Screen Rant - November 26th, 2020
- Hitman 3 Reveals A New Location With Chongqing, China - Bleeding Cool News - November 25th, 2020
- Conte and Zidane remain best of friends ahead of San Siro reunion - MSN UK - November 25th, 2020
- AMD Ryzen 5 5600X Review: The Mainstream Knockout - Tom's Hardware - November 24th, 2020
- What's Next In AI, Chips And Masks - SemiEngineering - November 20th, 2020
- NFL Week 11: Picks and preview - Yardbarker - November 20th, 2020
- 2020 NBA Draft: Sam Vecenie's likes and dislikes - The Athletic - November 20th, 2020
- We have free android games and apps Birmingham Alive - Birmingham Alive - November 18th, 2020
- Remembering When the Memories Are No Longer Our Own - War on the Rocks - November 12th, 2020
- How To Learn Chess By Yourself: Best Apps And More - Goosed.ie - November 10th, 2020
- So Beats Abdusattorov In Speed Chess Match - Chess.com - November 10th, 2020
- Truss the process: How the Ravens turned a strange week into their biggest win of the season - Baltimore Sun - November 10th, 2020
- 2020 European MotoGP Results and News - Cycle News - November 10th, 2020
- Star Renegades Will Be Coming To Consoles Later This Month - Bleeding Cool News - November 10th, 2020
- Why a great teacher can make all the difference - Blogdottv - November 10th, 2020
- How Disney Helped Fans Live Their Star Wars Stories - Theme Park Insider - November 8th, 2020
- Artificial intelligence, the reality behind the runaway - Pledge Times - November 8th, 2020
- 8 Comments on Bugatti Bolide's Claimed Nurburing Time Isn't Real... - The Truth About Cars - October 30th, 2020
- What happened at the Badger Fire? - Times-News - October 30th, 2020
- Red Bull hopes 'Balance of Performance' plan will win rivals over to engine freeze - RaceFans - October 28th, 2020
- Rybka - Wikipedia - October 28th, 2020
- What the hell is reinforcement learning and how does it work? - The Next Web - October 28th, 2020