Two broad issues that will shape defense in the 2020s could be better defined in the coming months. One is Pentagon competition in the defense sector, and the other is nationalism and the protection of domestic defense capacities. To a degree, the two are co-mingled, but there are some milestone events to weigh.

In early July, President Joe Biden signed the “Executive Order on Promoting Competition in the American Economy.” There were some specific steps outlined for the defense secretary to take, including a review of the state of competition in the defense industrial base and a report on a plan to avoid contract terms that “make it challenging or impossible for the [Defense Department] or service members to repair their own equipment, particularly in the field.” There is new leadership at the Pentagon and at the Federal Trade Commission (FTC).

One key issue will be whether Lockheed Martin’s acquisition of Aerojet Rocketdyne will be supported by the Pentagon and approved by the FTC with conditions that are acceptable to Lockheed Martin and Aerojet Rocketdyne. The Northrop Grumman-Orbital ATK deal set some precedents, but this is a different administration in 2021. The outcome of the deal should set the tone for some aspects of defense mergers and acquisitions in 2021-24.

The other deal to watch is the proposed acquisition of Ultra Electronics by Cobham Ltd., which is wholly owned by Advent International, a U.S. private equity firm. There have been indications of UK twitchiness over this deal on national security grounds because of U.S. ownership of a UK defense contractor. Under Advent’s ownership, Cobham’s aerial refueling business was sold this year to Eaton.

The UK government is stepping in directly to enter or enhance businesses relevant to its security. In 2020, it invested in OneWeb, which is deploying a satellite broadband service, and last month Sheffield Forgemasters was nationalized. “Buy America” policies embraced by the U.S. and most recently by the Biden administration have rankled international companies seeking U.S. opportunities, but the U.S. is not the only country seeking to protect security-relevant businesses.

These issues are part of the wider matter of competition in defense markets that the Pentagon will assess, per the executive order. Ideally, the review will assess competition more broadly, as a way to introduce innovation and better value rather than as static metrics such as market share/dominance and supplier concentration. There are a few other points the review should thoroughly explore as well.

First, are there instances where a monopoly supplier could be challenged by new competition? There is a neat case study of this in the expendable launch market, where the Pentagon granted a mandate to United Launch Alliance that was subsequently cracked open by SpaceX. There are also ways to create competitive pressures on monopoly suppliers without opening up their specific programs to competition. For example, while Huntington Ingalls has a monopoly on construction of nuclear aircraft carriers, it must be on its toes in case other types of platforms or concepts of operation offer better value. 

Second, where is there healthy competition in the defense industry that is delivering best-value goods and services to the Pentagon without ruinous behavior by competitors? What lessons can be more broadly applied to Defense Department industrial and acquisition policies and behaviors?

Third, looking out over the next 10 years, are there market segments where competition could change because of down-selects on current major competitions? The Army’s Future Armed Reconnaissance Aircraft and Future Long-Range Assault Aircraft are examples. If both programs are awarded to Textron or to Lockheed Martin, there could be less competition for future medium- and heavy-lift rotary aircraft in the U.S.

Finally, to what extent is the structure and market power of the largest defense contractors affecting competition? A report just released by the Center for Security and Emerging Technology, titled “Ending Innovation Tourism: Rethinking the U.S. Military’s Approach to Emerging Technology Adoption,” states: “Today, many small companies have developed a fear of working with the large defense primes, either due to past negative experience or rumors they will have their intellectual property stolen.” That may be an unfair assertion, but it bears further exploration and is unlikely to be unique to defense.

The views expressed are not necessarily those of Aviation Week.