Defense contractor consolidation a security concern: U.S. Air Force acquisition head

[June 28, 2019]  By Jamie Freed

SINGAPORE (Reuters) - The number of major U.S. defense contractors has shrunk to the point of becoming a national security concern, according to the U.S. Air Force's acquisition head, who said his service needed to have more frequent competitions to benefit smaller companies.

The comment came after U.S. President Donald Trump this month expressed concern that United Technologies Corp's plan to <UTX.N> combine its aerospace business with that of Raytheon Co <RTN.N> could harm competition and make it more difficult to negotiate defense contracts. The $121 billion deal would be the sector's biggest-ever merger.

Will Roper, assistant secretary of the U.S. Air Force for acquisition, technology and logistics, said when his service was formed in 1947, over a dozen companies could make airplanes.

"Right now we are down to just a couple of companies who can build tactical airplanes for us. We need to do everything in our power to start opening up that envelope again," he told reporters on the sidelines of a defense technology conference in Singapore on Friday.

He said U.S. Air Force tenders for major equipment typically required so much design effort that it was unaffordable for all but the very biggest defense contractors to compete.

"For competition to be positive it has to occur frequently enough that the winners are happy but the losers don't have to fundamentally change their company," he said.

Roper, who oversees an annual budget of more than $40 billion, said because the United Technologies-Raytheon deal was not finalised, the U.S. Air Force did not have a position on it.

United Technologies logo is displayed on a screen at the post where it's stock is traded on the floor of the New York Stock Exchange (NYSE) in New York, U.S., September 5, 2017. REUTERS/Brendan McDermid/File Photo

But he said the service was focused on funding start-ups and working with smaller companies like Kratos Defense and Security Solutions Inc <KTOS.O>, which is developing the $2 million to $3 million Valkryie combat drone designed to fly alongside crewed aircraft.

The Valkyrie is "attritable", which Roper said is defined as expensive enough to be lethal but cheap enough to take the risk that it will not return from a mission.

"In my mind the cap was a missile defense interceptor cost, so nothing more than, say, $10 million," he said.

Boeing Co <BA.N> in February unveiled a larger unmanned fighter-like jet developed in Australia, and Lockheed Martin Corp <LMT.N> is also investing in attritables.

Roper said there would be room in the market for different types of the drones, which could fight alongside F-35s and F-15s controlled by those jets' pilots.

"I think that we will have large systems that are designed to have many takeoffs and landings but not be kept for decades," he said. "I think we'll have very small systems that are somewhere between a weapon and a very small drone that I think of as more reusable weapons."

(Reporting by Jamie Freed; Editing by Christopher Cushing)

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