The world's largest defense contractor — with headquarters in Montgomery County — is being sued by the Federal Trade Commission (FTC) to stop a $4.4 billion aerospace purchase that it says will “harm rival defense contractors” if it is allowed to go through.

The FTC filed a lawsuit last week to block Lockheed Martin’s proposed vertical acquisition of El Segundo, Ca-based Aerojet Rocketdyne Holdings Inc, which it billed as America's last independent supplier of rocket propulsion systems. 

Aerojet supplies state-of-the-art propulsion, propulsion and weapons systems that are critical components for missiles manufactured by Lockheed and other major defense contractors. The agency's complaint alleges that if the deal goes through, Lockheed will use its control of Aerojet to cripple competing defense contractors and further consolidate several key markets for national security and defense. This is the agency's first legal action to block a defense industry merger in decades.

“The FTC is suing to block Lockheed Martin, the world’s largest defense contractor, from eliminating Aerojet, our nation’s last independent supplier of key missile inputs,” said FTC Bureau of Competition Director Holly Vedova. 

“Lockheed is one of a few missile middlemen the U.S. military relies on to supply vital weapons that keep our country safe. If consummated, this deal would give Lockheed the ability to cut off other defense contractors from the critical components they need to build competing missiles. Without competitive pressure, Lockheed can jack up the price the U.S. government has to pay, while delivering lower quality and less innovation. We cannot afford to allow further concentration in markets critical to our national security and defense.”

The U.S. Department of Defense (DoD), at the Pentagon, was also involved in the making of the lawsuit including a review of the acquisition by Lockheed Martin and interviews with the department’s impacted stakeholders in conjunction with the FTC. Accordingly, the DoD assessment was provided to the FTC for discussion and final decision to move forward with the lawsuit.

North Bethesda, Maryland-based Lockheed Martin’s American missile rivals include Raytheon Technologies, Inc. (NYSE: RTX), northern Virginia-based Northrop Grumman Corporation (NYSE: NOC) and The Boeing Company (NYSE: BA). Moreover, they are prime contractors in the DoD’s missile systems supply chain developing, manufacturing, maintaining, and procuring a variety of weapons, including missile systems, hypersonic cruise missiles, and missile defenses.

Undermining national security

Consequently, the FTC and DoD said there would only be one other competitor if the Aerojet purchase is completed, and Lockheed would control critical propulsion parts that rivals require to compete. Northrop Grumman competes for contracts to supply propulsion systems for hypersonic missile systems and cruise missiles to the primary defense contractors. Bethhhe

Nevertheless, part of the complaint argues that Lockheed could deny, restrict or otherwise disadvantage competitors by blocking access to critical propulsion and weapons systems. The lawsuit also outlines price gauging, quality of product and delivery times could also be a concern as well as Aeroject’s possession of confidential information from other contractors. The FTC says as a result, the U.S. government will suffer because the cost of missile systems, missile defense kill vehicles, and hypersonic cruise missiles is likely to rise with innovation and quality declining, undermining national security and defense interests.

Four-to-zero

The FTC will file a complaint with the United States District Court for the District of Columbia seeking a preliminary injunction to terminate the settlement pending administrative proceedings. The move comes as the Commission panel voted 4 to 0 to issue an administrative complaint and to allow FTC employees to seek a preliminary injunction. The proceedings are expected to start on June 16.

Lockheed Martin Corporation had revenues of over $67 billion in 2021. The company has a market capitalization of approximately $105 billion, making it the second largest publicly traded company in the Washington, D.C. area.