The Pentagon and the Justice Dept. put on a show of unity on Jan. 19 when they jointly announced settlement of a civil collusion case against Alliant Techsystems Inc. and the Aerojet unit of GenCrop. Inc. The deal will save the government $12 million in the purchase of cluster bombs. But behind the scenes, a dispute between antitrusters and the Defense Dept. is heating up. The defense industry is imploding as military budgets plunge. The Pentagon worries that without an orderly consolidation, it may end up without the industrial base it would need in a war.
Contractors fear that the aggressive antitrust stance of the Clinton Administration may get in the way. "For some defense contractors, antitrust has taken the place of the former Soviet Union as the greatest threat to our national security," cracks Steven A. Newborn, litigation director for the Federal Trade Commission's Competition Bureau.
DEFENSE DEMISE. As a result, the Pentagon is plunging into antitrust policy. In an initiative begun under outgoing Secretary Les Aspin and likely to be continued by his eventual succcessor, Under Secretary John M. Deutch has tapped former FTC Commissioner Robert Pitofsky to head a task force studying the Defense role. The panel, which includes representatives of the FTC and the Justice Dept., is to issue recommendations in late February.
A 50% drop in the military procurement budget since 1987 is driving the industry to consolidate. Booz Allen & Hamilton Inc. predicts that 80 of the top 100 defense contractors could be gone by the year 2000. Antitrust enforcers fret that a wave of megadeals, such as the purchase of General Electric Co.'s defense electronics business by Martin Marietta Corp., could eventually destroy competition within the industry.
Contractors say trustbusters just don't get it. The industry is still upset by th FTC's 1992 action blocking a merger between Alliant and Olin Corp. -- the nation's only maker of 120-mm tank ammunition. While industry experts felt a shrinking market would not leave enough business for two producers, the FTC persuaded a judge that a merger would raise ammo prices by $115 milllion during the five-year contract.
MORE SENSITIVITY. Weapons makers, outraged by that decision, want to make sure that such aggressive enforcers as FTC Chair Janet D. Steiger and Assistant Attorney General Anne K. Bingaman develop some sensitivity. For instance, they argue that national security needs should leave room for mergers that ordinarily wouldn't pass muster with Justice or the FTC. They also contend that the Defense Dept. is a tough enough customer to keep prices in check without the trustbusters' help.
The antitrusters, so far are unmoved by the arguments for a national security exemption. "Our guidelines are sufficiently flexible that we really don't have any special cases," says FTC Commissioner Dennis A. Yao. Over the past decade, the government has gone to court to block just 4 of 400 defense mergers -- and won every case. Besides, government lawyers say, they already consider such issues as overhead cost savings and the need to preserve critical research and development teams in reviewing deals.
The task force will probably recommend only minor changes in procedures, such as clearer standards of analysis for defense deals and better coordination between Defense, the FTC, and Justice. But antitrusters worry that the Pentagon's newfound interest in their business could make life difficult. "There is no question that Defense can be an 800-pound gorilla in any litigation," says Robert Litan, deputy antitrust chief at Justice. When it comes to military contractors, Clinton's high-flying trustbusters could get their wings clipped.