US antitrust authorities stand to gain high-ranking DOD ally with Kendall nomination for Air Force Secretary

10 May 2021 12:00 am by Curtis Eichelberger

joint venture

US antitrust authorities could gain a powerful ally in Frank Kendall if the former Pentagon acquisitions chief is confirmed as Secretary of the US Air Force.

Kendall has expressed concerns about consolidation in the defense industry and has even advocated for working with Congress to explore legal tools and policies that would preserve diversity and innovation among defense companies.

The 71-year-old lawyer and US Military Academy graduate was nominated by President Joe Biden in April and is expected to be confirmed in the coming weeks. Kendall was previously vice president of engineering for Raytheon, where he managed engineering functions and internal research and development. He has a master’s in aerospace engineering from California Institute of Technology, an MBA from C.W. Post Campus of Long Island University and a law degree from Georgetown University.

— Alignment of views —

“His views are likely to be aligned with the views of the leadership at the two antitrust agencies,” said former Assistant Attorney General Bill Baer, now with the Brookings Institute. “By that, I mean that where there is a risk that consolidation will result in a meaningful reduction in competition, DOD ought to proceed with caution. [Kendall] understands the importance of having multiple bidders in the defense procurement process.”

The Defense Department will have a role in evaluating, along with the US Federal Trade Commission, the impact on competition of the pending Lockheed Martin proposal to acquire Aerojet Rocketdyne. Kendall couldn’t be reached for comment.

Kendall took a public position six years ago when Lockheed Martin, the US’s biggest defense contractor, bought Sikorsky, a maker of helicopters, for $9 billion. The deal was a vertical merger — one where a supplier merged with a company it supplies.

The deal didn’t have any obvious antitrust issues and it was quickly approved by the US Department of Justice. Shortly afterward, Kendall, then-undersecretary for acquisition, technology and logistics, agreed with the DOJ’s decision, but said the Defense Department believed that those types of transactions give rise to “significant policy concerns.”

“Over the past few decades, there has been a dramatic reduction in the number of weapon system prime contractors producing major defense programs for the DoD,” he said. “This transaction is the most significant change at the weapon system prime level since the large scale consolidation that followed the end of the Cold War. This acquisition moves a high percentage of the market share for an entire line of products — military helicopters — into the largest defense prime contractor, a contractor that already holds a dominant position in high-performance aircraft due to the F-35 winner-take-all approach adopted over a decade ago.”

Lockheed Martin spokesman Dan Nelson told Reuters at the time that there was no evidence to support the view that larger defense companies reduce competition or inhibit innovation, and that they should be assessed on the effectiveness of their products, rather than their size.

— DOD priorities —

But that’s exactly what concerned Kendall. He didn’t want to see prime contractors get bigger through mergers with other primes, or by acquiring companies that gave them even more influence.

“With size comes power,” Kendall said. “And the Department’s experience with large defense contractors is that they are not hesitant to use this power for corporate advantage. The trend toward fewer and larger prime contractors has the potential to affect innovation, limit the supply base, pose entry barriers to small, medium and large businesses, and ultimately reduce competition — resulting in higher prices to be paid by the American taxpayer in order to support our warfighter.”

The DOD has supported past mergers that gave the Pentagon short-term savings, even against the advice of the antitrust agencies.

Shortly after Kendall made statements about the threat of consolidation, the DOJ and FTC issued a joint statement saying it was important to maintain enough competitors to restrain price increases and to drive innovation.

“Many sectors of the defense industry are already highly concentrated. Others appear to be on a similar trajectory,” the statement said. However, the agencies said they were committed to "giving DoD’s assessment substantial weight in areas where DoD has special expertise and information, such as national security issues.”

There has been little to suggest lately that the Department of Defense is ready to go on offense against consolidation or vertical concerns, which bodes well for the Lockheed merger. For that to change would likely require a new voice, high-ranking enough to force change. Whether that voice is Kendall’s, or if he’ll be confirmed in time to even weigh in on the current deal, is unknown.

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