Raytheon raises concerns about Lockheed's Aerojet deal

Raytheon is raising some concerns about Lockheed Martin's $4.4 billion acquisition and its impact on the independence of suppliers.

Raytheon Technologies has one big worry from its point of view regarding Lockheed Martin’s agreement to acquire Aerojet Rocketdyne for $4.4 billion and what that would mean for the defense market.

“If that merger actually happens, you don’t have an independent supplier on the solid rocket motor side, and also, I think it gives us pause as we think about the competitive landscape going forward,” Raytheon CEO Greg Hayes said Wednesday at a Barclays-hosted virtual investor conference.

Hayes told attendees Raytheon will therefore put its concerns about the planned deal to the Justice and Defense departments.

Aerojet Rocketdyne is a supplier of solid rocket motors to many other defense companies like Raytheon Technologies and Boeing that make space systems, missiles and other large platforms.

The field of solid rocket motors already narrowed somewhat nearly three years ago when Northrop Grumman acquired Orbital ATK. Federal antitrust regulators stepped in then and a firewall was put in place to silo off Orbital’s rocket motor business from the rest of Northrop.

When Lockheed first announced the Aerojet deal in December, their executives have sought to address concerns about what the absorption of Aerojet would mean for the companies they supply the motors to.

Lochkeed CEO Jim Taiclet was asked the question about the antitrust component and drew a parallel to how regulators viewed the Northrop-Orbital deal.

“Our overall expectation is that may be the same lens through which this particular transaction is viewed because of the similarities there,” Taiclet said then.

At the same Barclays conference Wednesday and a few hours after Hayes' comments, Lockheed Chief Financial Officer Ken Possenriede sought to tamp down concerns over what the combination of Aerojet would mean for customers in the industry.

“We have every intention of continuing to be a merchant supplier across our industry, we're going to continue to play fair, and we're going to be a very effective supplier for all of our defense primes," Possenriede said. "As a merchant supplier under Lockheed Martin's ownership our business plan, frankly, is to offer it to all customers and that was part of our valuation."

Regarding customers in the government, Possenriede said the integration of Lockheed’s missile manufacturing business with Aerojet's propulsion product lineup translates to a more streamlined engineering process. That in turn means cost synergies that are passed onto the government and hence lower fees in buying the product, according to Possenriede.

“We see these costs takeout initiatives that we're focused on and increased efficiencies as more pro-competitive and not anti-competitive," Possenriede said.

Regulatory reviews of transactions involving defense hardware companies can take anywhere between six months to a full year.