Lockheed Martin is optimistic that the Aerojet contract will be accepted

In December 2020, Lockheed Martin signed a deal to buy Aerojet Rocketdyne for $4.4 billion. Aerojet Rocketdyne is a US company that manufactures rocket and missile propulsion systems. Lockheed Martin is a security, defense, and aerospace company that work with the Department of Defense (DoD), NASA, and other commercial agencies. This deal is yet to be approved by the government because the acquisition could decrease competition in the hypersonic missile markets. This is considered a threat to Lockheed Martin’s competitors, such as Raytheon and Boeing.

Since Aerojet was the main supplier of missile engines to these companies, approval of the deal will make Lockheed Martin sell engines and rocket motors to its competitors. This kind of merger has worked in the past. In 2017, Northrop Grumman, an aerospace and defense company, acquired Orbital ATK, a manufacturer and aerospace motors manufacturer. This merger was approved on the condition that Northrop agrees to supply motors and engines to the competitors. A similar scenario could work with Lockheed and Aerojet.

Jim Taiclet, Lockheed CEO, said that this acquisition is critical for the company’s future missile defense, hypersonic weapons, and space businesses. He noted that DoD handled a prime contractor in the same manner, where a space company acquired a propulsion systems supplier. ‘Our overall expectation is that this may be the same lens through which this transaction is viewed,’ he stated. Analysts view this differently. They argue that Lockheed Martin may get regulatory clearance for this deal, but that will not be the defense Mergers and Acquisition test case for the new DoD team. This is, according to Robert Stallard, a research analyst at Vertical Research Partners.

Despite the concerns, Stallard said that the merger should reduce costs to the US military when approved. However, analysts expect the incoming DoD team to give this deal a thorough review to develop the best solution. This is mostly because missiles and hypersonic weapons are projected to become a major US defense market. To argue the importance of this merger, Lockheed seeks to reduce the costs for DoD and NASA. ‘We expect they will see the benefits,’ said Taiclet. With the recent economic times courtesy of the Covid-19 pandemic, the government will be required to do more in this area with a flat budget.

Analysts are concerned that the merger may pose a threat to competitors such as Boeing and Raytheon. They say that it will take weeks or even months before what Biden’s government decides is known. Byron Callan, an analyst in the aerospace field, suggested that competitors could challenge this merger on the grounds of Lockheed becoming a monopoly at other companies’ expense. If this deal is approved, Lockheed Martin will win on the hypersonic weapons, missiles, and space exploration areas.