US Deputy Defense Secretary John Hamre has warned that Wall St demands for strong quarterly returns could undermine the long-term health of the defence industry. At the same time, British Aerospace has been elevated to the status of a US company, opening the door to further transatlantic tie-ups.
Hamre has indicated a growing concern in the Pentagon that cost-cutting by the US defence industry to bolster short-term earnings could compromise the country's industrial strategic interests. There is concern that companies are slashing research and development expenditure to pander to investors as US defence company stock prices come under pressure.
"All of us (in the Department of Defense) are indispensably tied to the health and well-being of our partners in the private sector," says Hamre. The US Government needs to provide industry with long-term stability, in the form of stable defence budgets and multi-year defence contracts, and "eliminate policies that put all the risk on our partners in the private sector."
The DoD is signalling that corporate consolidation at a prime contractor level has reached the point "where we're losing competitive opportunity because of concentration".
It intends to scrutinise any further proposed amalgamations, following an earlier decision to block the merger of Lockheed Martin and Northrop Grumman.
The focus, instead, will be on promoting the building of industrial links with Europe in the form of joint ventures, alliances and smaller second tier mergers.
Hamre's decision to award BAe US company status clears the way for it to expand its local presence, which currently totals 19,000 employees, mainly as a result of its planned merger with Marconi.
Source: Flight International
