Hicks Warns Against ‘Extreme Consolidation’ in Defense Industry

President Joe Biden’s nominee to serve as the Pentagon No. 2 civilian said she is concerned by the consolidation of America’s weapons makers and suppliers, signaling that the Biden administration could increase U.S. government scrutiny over the merger and acquisition of major defense firms.

“Yes, I am concerned,” said Kathleen Hicks during her Senate confirmation hearing, when asked by Sen. Richard Blumenthal, D-Conn., about the shrinking number of submarine suppliers. “Some consolidation is probably inevitable [because] the Defense Department isn't sized ... in many areas to maintain a large base, but extreme consolidation does create challenges for innovation.”

Eliminating competition could lead to higher priced weapons and stymie innovation, she said.

Hicks' comments come amid a federal regulatory review of Lockheed Martin’s planned $4.4 billion acquisition of rocket-maker Aerojet Rocketdyne. While Hicks did not mention that deal, as deputy defense secretary she would play a key role in determining the Pentagon’s official opinion of the merger, which is ultimately approved by the Federal Trade Commission and Justice Department.

Lockheed’s acquisition comes three years after rival Northrop Grumman acquired rocket maker Orbital ATK. If the deal is approved, Northrop and Lockheed would be the only two makers of solid rocket motors used in intercontinental ballistic missiles and missile interceptors. Boeing said Northrop’s acquisition of Orbital ATK prevented it from placing a bid in an $85 billion contest to build new ICBMs. That left Northrop as the only bidder and eventual winner.

Aerojet is a major supplier to Lockheed, Boeing, and other defense companies, including Raytheon Technologies, which uses the company’s rocket motors in its missiles and missile interceptors. 

During the Trump administration, several high-powered defense-related mergers and acquisitions occurred.  L3 Technologies merged with Harris, United Technologies acquired Rockwell Collins and then merged with Raytheon, and the Northrop acquisition of Orbital ATK.

“I always say competition is our friend, competition typically brings out the best in everyone,” said Trump’s top weapons buyer, Ellen Lord, a former defense executive who served as the defense undersecretary for acquisition and sustainment, last month shortly before leaving the Pentagon. “That being said, I feel very strongly about not interfering in capital markets and I believe we need a free marketplace where companies decide themselves what they want to do.”

Some within the Pentagon opposed Lockheed’s 2015 acquisition of helicopter maker Sikorsky, however the Obama administration ultimately approved the deal. 

Hicks coasted through her Senate Armed Services Committee confirmation hearing Tuesday as lawmakers focused the bulk of their questions on nuclear weapons, military sexual assault, and how to respond to China’s growing military arsenal and influence in the Pacific.

“I would say, in general terms, areas that concern me are quantum computing advances, hypersonic missile capabilities, and technology and challenges, perhaps to the U.S. asymmetric advantages in the undersea domain,” Hicks said of Chinese and Russian advancements.

Hicks also pledged to “increase the speed and scale of innovation in our force.”

While the defense secretary typically is the face of the Defense Department both in Washington and overseas, particularly on policy issues, the deputy secretary traditionally serves in an important behind-the-scenes role, overseeing day-to-day operations at the Pentagon, the military budget, and weapons acquisition.

Hicks also would oversee the Deputy's Management Action Group, a powerful panel of Pentagon military officers and civilians who determine service spending levels and the types of weapons purchased.

Since Defense Secretary Lloyd Austin has recused himself from all matters involving Raytheon Technologies because he was previously one of the defense contractor’s board members, Hicks would likely have the final say on decisions involving the company.

Defense experts describe  Hicks as being uniquely qualified to oversee the Pentagon’s budget and weapons programs at a time when defense spending is expected to decline. Robert Gates, a Republican who served as defense secretary under Presidents George W. Bush and Barack Obama — said Hicks played an important role in crafting Pentagon and strategy and budget decisions.

“At a time of significant challenges internationally and great uncertainty surrounding defense budgets and programs, Dr. Kath Hicks is exceptionally well qualified to assist Secretary Austin in realistically ensuring that budgetary decisions and military strategy are integrated in order to fully protect our country,” Gates said at Tuesday’s hearing.

If confirmed, Hicks will oversee the  military’s efforts to institutionalize emerging technologies, including artificial intelligence and hypersonic weapons, amid a declining budget.

“We're definitely not going to have the 3 percent to 5 percent real growth [in the defense budget] that defense leaders in the previous administration were talking about needing,” said Chris Brose, head of strategy at Anduril Industries and a former top advisor to Sen. John McCain. “The challenge now becomes, how do you scale the best, most promising capabilities into real programs of record that can make an impact at scale and really provide enduring military advantage for the United States? And then how do you simultaneously begin to make divestments in order to free up resources that you're going to need for modernization?”