The Washington Post

Trump questions Raytheon-UT deal

President ‘concerned’ about Pentagon having less contract competitio­n

- BY AARON GREGG aaron.gregg@washpost.com

The morning after manufactur­ers Raytheon and United Technologi­es announced a blockbuste­r merger that would create a giant in the aerospace and defense sectors, President Trump said he was “a little bit concerned” about the deal’s anticompet­itive potential.

Echoing concerns that top Pentagon procuremen­t officials have raised for years, the president said he is worried that the deal would harm the military supply chain by giving government buyers fewer competitiv­e options to turn to for individual weapons systems.

“I’m a little bit concerned about United Technologi­es and Raytheon,” the president told the television network CNBC. He went on to say that the United States “used to have many plane companies,” but “they’ve all merged . . . now we have very few.”

He said too much consolidat­ion at the top of the defense industry could weaken the government’s hand in major weapons negotiatio­ns.

“It’s hard to negotiate when you have two companies and sometimes you get one bid,” you have two companies and sometimes you get one bid,” Trump said. “When I hear they’re merging, does that mean we’re taking away more competitio­n? It becomes one big, fat, beautiful company, but I have to negotiate, meaning the United States has to buy things.”

The Defense Department will have to sign off on the deal before it can be finalized. In previous administra­tions, the White House has generally not been closely involved in those evaluation­s.

In a call with investors Monday morning, executives from both companies offered vague answers when asked whether they have received feedback from the Defense Department on the issue.

But they did say the added scale the merger would provide will allow the combined firm to innovate on a higher level while keeping prices low. And they repeatedly said that Raytheon and United Technologi­es do not compete with each other.

“I think once [President Trump] understand­s the benefits of this merger in terms of what it’s going to do to reduce costs to the government, what it’s going to do to improve the technology of the U.S. government and our defense profile, and what it’s going to do for jobs in this country, I think he’s going to be supportive, as he has been for both companies over the course of this administra­tion,” United Technologi­es Chairman and CEO Greg Hayes told CNBC soon after the president’s call.

For years, Defense Department procuremen­t officials have raised concerns that mergers and acquisitio­ns in the defense sector could hurt competitio­n. Obama administra­tion defense secretary Ashton B. Carter told reporters in 2015 that he wanted to “avoid excessive consolidat­ion in the defense industry to the point where we did not have multiple vendors who could compete with one another on many programs.”

In 2015, Frank Kendall, then the undersecre­tary of defense for acquisitio­n, technology and logistics, said he was afraid that the Pentagon was moving toward a future in which there are “at most two or three very large suppliers for all the major weapons systems we acquire.”

The Trump White House has been engaged on the issue, as well. A White House-commission­ed report released last October concluded that “all facets of the manufactur­ing and defense industrial base are currently under threat,” and there are “entire domestic industries near extinction.”

The union would create a giant in the defense industry with annual sales of $74 billion. It would bring together Raytheon’s expertise in missiles, targeting systems and defense electronic­s with Pratt & Whitney’s jet engine business and Collins Aerospace’s avionics expertise.

But it would also diversify Raytheon into the commercial aviation sector, with an estimated 50 percent of the combined company’s revenue coming from supplying components for passenger jets. And executives from both companies have repeatedly insisted they do not compete with each other.

 ?? MIKE BLAKE/REUTERS ?? Executives of United Technologi­es and Raytheon asserted that the firms aren’t competitor­s and that their proposed merger will allow them to innovate at a higher level while keeping prices low.
MIKE BLAKE/REUTERS Executives of United Technologi­es and Raytheon asserted that the firms aren’t competitor­s and that their proposed merger will allow them to innovate at a higher level while keeping prices low.
 ?? ETIENNE LAURENT/EPA-EFE/SHUTTERSTO­CK ??
ETIENNE LAURENT/EPA-EFE/SHUTTERSTO­CK

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