US defense industry is highly concentrated, says Pentagon

The US defense industry has become concentrated in the hands of so few groups in recent years that a lack of competition poses a national security risk, according to a Pentagon report released Tuesday.

Since the 1990s, the number of major aircraft construction and defense contractors has risen from 51 to five, a senior US government official said, referring to Boeing, Lockheed Martin, Raytheon Technologies, General Dynamics and Northrup Grumman. “It’s a national security issue, but it’s also a huge economic issue,” he added.

“The absence of competition means that large groups do not feel obliged to prove that their products are better or to keep prices low, which also means less innovation and a lower value for money for the taxpayer.”

According to the Pentagon report, the reduction in the number of groups capable of competing for Department of Defense contracts touches all arms sectors.

Tactical missile makers went from 13 to three in 30 years, aircraft builders from eight to three, and satellite builders from eight to four.

Today, 90% of US missiles come from just three suppliers, according to the report.

“Such consolidation (of the large groups) leaves the Department of Defense increasingly dependent on a handful of companies for critical defense capabilities,” the report adds.

The Department of Defense concluded that the US government should make efforts to help small companies that “stimulate innovation by filing on average 16.5 times more patents than large companies”, to respond to bids.

The day after the blockade on the purchase of the missile manufacturer Aerojet Rocketdyne by the giant Lockheed Martin, made by the US competition regulator, the Pentagon advocated that the government intervene directly to prevent mergers that would further limit the number of groups empowered to enter the competition for contracts.

“The number of small companies in the defense sector has decreased by 40% over the last ten years. If no action is taken, the Department of Defense could lose an additional 15,000 vendors over the next ten years,” the document concludes.