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| July 23,1998 |
| July 23,1998 |
Lockheed Martin and Northrop Drop Merger Bid
by Chris Hellman, Senior Research Analyst, Center for Defense Information
chellman@cdi.org
After months of negotiations to address the U.S. government's anti-trust concerns, Lockheed Martin Corp., the nation's leading defense contractor, has abandoned its plans to merge with Northrop Grumman. The plan, which would have created a company with annual revenues of $37 billion, was halted this past March when the Defense and Justice Departments announced their intentions to pursue litigation to block the merger.
In announcing the lawsuit, the Justice Department stated that it was "fundamentally opposed to the proposed combination between the two companies." Ostensibly the government's objections focused on what effect the merger would have on competition in the defense industry, particularly in the area of defense electronics. The move marked a central shift of attitude for the Pentagon, which previously had encouraged consolidation in efforts to foster an orderly downsizing of the defense industry in the post- Cold War era. The Defense Department allowed six mergers each worth over $1 billion in 1997 alone, and both Lockheed Martin and Northrop Grumman were the products of mergers that had occurred in the past three years.
Since the government's announcement, representatives of the two companies have been meeting with Pentagon and Justice officials in an effort to negotiate an agreement that would allow the merger to go forward. Proposals included spinning off specific portions of the two companies and creating internal "firewalls" or other safeguards to avoid creation of a monopoly.
Even as late as the start of last week an agreement still seemed possible. Defense Secretary William Cohen had stated publicly on several occasions that the Pentagon favored a negotiated settlement. In an interview with "Defense Daily" the Secretary said "there are proposals that can be worked with a lot of hard work and effort and good faith; I think the best solution would be to resolve it without having to go to court."
Yet by mid-week negotiations had collapsed. Assistant Secretary of Defense for Public Affairs Kenneth Bacon said that "efforts have not produced an agreement that satisfies the government's concerns about vertical and horizontal integration [in the defense industry]," and indicated that the Justice Department was proceeding with its plans to try the case in court. Lockheed Martin announced its decision to call off its merger bid after the stock market's close on July 16.
Announcing the withdrawal of the company's bid, Lockheed Martin CEO Vance Coffman stated, "Our inability to reach an acceptable solution, combined with our concern over the litigation with our principal customer, necessitates this decision." However, according to William Kovacic, a professor of antitrust law at George Mason University, it is likely that "the Pentagon heaved a sigh of relief" when notified of Lockheed's decision.
Kovacic believes that the Pentagon hasn't developed a good process for reviewing the costs, benefits and the impact on industry competition of such mergers, particularly down at the program levels and the levels of the service chiefs. He feels that while the government had a good case, it couldn't have won it without DoD "standing firm" with the Justice Department in court. Yet litigation would have revealed the inadequacy of the Pentagon's review process.
Meanwhile, the future of Northrop Grumman has become a topic of some speculation. Relegated from the first tier of U.S. defense contractors, which includes Lockheed, Boeing and Raytheon, Northrop will now likely compete against second and third tier companies as a subcontractor for industry leaders. Some political leaders, such as Congressman Norm Dicks (D-WA), a member of the House National Security Committee, feel that some sort of government assistance is appropriate. In an interview, Congressman Dicks said, "I think the Defense Department has an obligation to help them, having opposed this merger."
Other industry experts believe that Northrop's future may lie in developing closer ties to, if not actually merging with, a foreign partner. A number of European companies have indicated an interest in getting into the U.S. defense market by working with U.S. firms. For example, the British firm General Electric Co., PLC, which earlier this year agreed to purchase Tracor, a defense subcontractor, has indicated an interest in acquiring at least a portion of Northrop's business.
Either way, Professor Kovacic believes the Pentagon wants to see Northrop in a stronger position to compete with industry leaders. "I think the Pentagon would like to have a fourth option," said Kovacic.
Regardless of Northrop's fate, it is unlikely that further consolidation will occur among the first tier of U.S. defense contractors. Having blocked Lockheed and Northrop, the first major merger in the defense industry to be challenged by the government, all future top level mergers will undergo greater scrutiny. Lockheed's inability to negotiate an agreement with the government is a clear signal to other industry giants the bar has been raised.
For additional background information on the proposed Lockheed-Northrop merger, see "Justice Department to block Lockheed Northrop merger" Weekly Defense Monitor, March 26, 1998 at http//www.cdi.org/weekly/issue12.html#1
Addressing a Post-Cold War Threat: Small Arms
by Rachel Stohl, Research Analyst, Center for Defense Information
rstohl@cdi.org
The end of the Cold War has changed the face of conflict. At an increasing rate, conflicts are now intra-state, not inter-state. The weapons of war have changed as well. Millions of small arms and light weapons, those that can be carried by an individual, are responsible for the majority of casualties in modern conflicts. According to United Nations estimates, 90% of civilians injured during a conflict are wounded by small arms and light weapons.
Awareness of the dangers and problems caused by small arms and light weapons has been increasing in the past few years. In response to the growing concern about small arms, the international governmental community is addressing the problems associated with the small arms trade for the first time. On July 13, representatives from 21 governments met in Oslo, Norway, with the intention of establishing a global campaign to control the spread of these weapons. According to Norway’s Deputy Foreign Minister, Aslaug Haga, "The goal (of the meeting) was to give a substantial boost to the process to develop a strategy [to deal with the problems of the accumulation and uncontrolled proliferation of small arms]."
The 21 countries represented at the meeting were: Belgium, Brazil, Burkina Faso, Canada, Colombia, France, Indonesia, Japan, Germany, Mali, Mexico, Mozambique, the Netherlands, Norway, the Philippines, South Africa, Sweden, Switzerland, United Kingdom, United States, and Zimbabwe. Critics of the meeting emphasized that some of the world’s largest arms producers, such as Israel, Russia, and China, were not represented at the conference. However, conveners of the conference pointed out that it was often common to begin deliberations on a subject with like-minded countries first, before involving a larger group of states. They did not feel that the absence of some producing countries hindered the proceedings.
One of the largest issues the governments faced was whether the focus of such efforts should be on the illicit or legal trade of small arms. The controversy centers on the reality that a very fine line often exists between the legal and illicit trade of these weapons. To tackle the problems caused by the small arms trade, Canada proposed a treaty intended to restrict small arms sales. Unlike other conventional weapons, there is no international treaty that specifically addresses small arms. Some countries, such as the United States, were not supportive of the Canadian treaty because it could "impinge on foreign policy and commercial interests by barring covert sales in support of liberation groups and sales to companies." Conversely, some countries felt that the treaty wasn’t strong enough "because it did not deal with sales to dictatorial governments or to regions with conflicts."
At the end of the two-day meeting, the 21 countries were able to produce a two-page "agreement of common understanding." Recognizing that "the great number of casualties and the extent of human suffering caused by the use of small arms in war-torn societies calls for urgent action," the statement outlines possible measures to "strengthen controls in the legal trade of small arms and prevent illicit transfers."
A Reuters report spelled out some of the details. "The document identifies preventative proliferation measures such as enhanced transparency and improved information on legal transfers of weapons, better identification markings on arms and improved cooperation among police, customs, and intelligence agencies. It suggests additional steps in the area of reduction of existing stocks of weapons which are often present in post-conflict situations where large numbers of arms are unaccounted for and become available for illegal use or export. It also endorsed eight global and regional initiatives already under way such as Mali’s proposal for a West African moratorium, the United Nations’ expert panel on small arms, and the OAS Convention against the illicit trafficking in conventional arms."
The "agreement of common understanding" also discussed the role of non- governmental organizations (NGOs) in the small arms debate. The role of NGOs in international diplomacy has increased dramatically since the successful conclusion of the campaign to get a treaty banning anti-personnel landmines. Early drafts of the conference statement recognized the importance of NGOs in the small arms issue and referred to NGOs as "important partners." However, some countries, including the United States, did not want NGOs to play a large role in the small arms issue because of the pressure they exerted during the landmines campaign. As a result, the released draft of the agreement says that "governments bear the primary responsibility for addressing these issues" and that "non-governmental organizations contribute to our work." NGOs worldwide were not satisfied with this language and remain committed to increasing their involvement in the international process.
The meeting was seen as a useful exercise and important first step in dealing with the topic of small arms world-wide. Future meetings are already being planned to consider the multitude of questions raised by the deliberations, including conferences in Belgium, Canada, and Switzerland.
Bosnia: A Learning Ground for Military Planners
by Tomas Valasek, Research Analyst, Center for Defense Information
tvalasek@cdi.org
Without much fanfare, NATO recently made some cosmetic changes and approved new guidelines for the peacekeeping force in Bosnia, the Stabilization Force (SFOR).
Cosmetically, as of June 20, Operation "Joint Guard" gave way to Operation "Joint Forge" and was given an open-ended mandate. On substantive matters, NATO members, led by the United States, made it known they intended to reduce troop levels after the September elections in Bosnia.
The Clinton Administration has been coming under increasing congressional pressure to cut the U.S. troop commitment to SFOR. Critics charge the unfunded cost - around $10 billion - is draining the defense budget and weakening the military.
At the same time, the U.S. government’s accounting arm the General Accounting Office (GAO) found that the situation in Bosnia may require the continuing "robust" presence of international troops. The GAO summed up reasons for a continued international presence in Bosnia thusly: "Bosnia for all intents and purposes lacks functioning, multiethnic governments at all levels; a large number of those indicted for war crimes remains at large; about 1.3 million people have not yet been resettled as Bosnia’s political leaders continue to prevent people from returning to their homes across ethnic lines..." The agency concludes that the "conditions will have to improve significantly before international military forces could substantially draw down [and] it will likely be some time before these conditions are realized."
The impact of the American mission in Bosnia is felt on several fronts. Congress recently struck down a $1.9 billion White House request for Bosnia, arguing that the military spending limits should be raised if the operation is to continue. The United States is also beginning to run short on troops. For example, many units with specialized tasks Broadcast Public Affairs Detachment, Rear Tactical Operations, etc. are only found in the Army reserve. Under the Presidential Selected Reserve Call-up authority, involuntary reserve service is limited to 270 days. The Pentagon has a policy of not requesting a second call-up for reservists who have already served their 270 days. Therefore, some types of units have been simply used up. The GAO lists seven unit types that are not available for redeployment, from Public Affairs to Air Terminal Movement Control Teams. As the follow-on force for SFOR will place an even higher emphasis on specialized tasks such as policing and civil affairs, the troop availability problem will only worsen.
Carlos Westendorp, International High Representative in Bosnia, highlighted just how critical this problem of the lack of specialized units could become. In speaking about the proposals to cut back on SFOR's overall strength, he said: "I do not see in the coming two years any reduction in SFOR presence, but perhaps in their composition ... [we] need smaller, more specialized and mobile units which could, for example, help control civil unrest and demonstrations." What he obviously did not address is the sources of these highly specialized units.
Despite the problems, all countries involved in Bosnia agree they must stay in order to finish implementing the Dayton peace agreements. Following NATO’s decision to extend SFOR’s mandate, Germany and the U.K. quickly pledged 3,000 and 4,800 troops, respectively. A new (albeit modest) 147-member Eurocorps contingent arrived in Bosnia in June. But if Mr. Westendorp is correct, many more troops from many more nations -- including the U.S. -- are needed.
The obvious lesson here is that NATO nations need to reevaluate their defense requirements in light of the probability that peacekeeping operations, which require types of units not necessarily as readily available under "normal" warfighting planning assumptions as infantry or armor units, will be more prevalent. Instead of treating peacekeeping situations as ad-hoc "emergencies," nations could better tailor their defense budgets and force structures toward meeting the increasing need for these combat service and combat service-support units.
Alternatively, these missions might be given to special "crisis relief" organizations that fall outside the traditional military force structure but have a number of military style capabilities such as logistic supplies and airlift assets. This alternative would preserve the types of skills needed to sustain peacekeeping operations when regular military forces are not required in large numbers and reduce the operations tempo of specialized military forces.
U.S. Military Dominance: Does it Really Increase Our Nation's Security?
by Oscar Lurie, Research Associate, Center for Defense Information
olurie@cdi.org
The recent release of the annual State Department's report on terrorism is but the latest in a series of public statements about what government officials see as a trend toward increased danger to Americans at home and abroad.
The question is perhaps more pertinent in the post-Cold War 1990s, when the U.S. is the world's dominant military power, than in past decades. In part this may the result of the fact that our permanently stationed and forward deployed forces are more conspicuous by their unchallenged dominance. Another factor is that terrorists now seem more willing to consider the use of chemical and biological agents against American citizens both abroad and in the U.S. and are less constrained by geography from attacking the American homeland.
While Americans abroad, both military and civilians, have been targets of terrorism, to date the U.S. mainland has been relatively immune. The only recent "transnational" fatalities in our own country occurred in the 1993 bombing of the World Trade Building in which six people died. Of the 123 attacks on Americans in 1997 reported by the State Department, only four were in North America; the vast majority targeted businessmen in Latin America. But authorities agree that this situation is likely to get worse.
Nonetheless, in his November 1997 report on the proliferation of weapons of mass destruction, Secretary of Defense William Cohen warned that "the United States faces a heightened prospect that regional aggressors, third-rate armies, terrorist cells, and even religious cults will wield disproportionate power by using -- or even threatening to use -- nuclear, biological, or chemical weapons against our troops in the field and our people at home." The reason for this dire prediction, according to Mr. Cohen, was simple: "Indeed, a paradox of the new strategic environment is that American military superiority actually increases the threat of nuclear, biological, and chemical attack against us by creating incentives for adversaries to challenge us asymmetrically."
That same year DoD’s Defense Science Board (DSB) noted that "chemical and biological warfare agents...are relatively easy to obtain, can be developed and produced with modest facilities and equipment, can be lethal even in small quantities, and can be delivered by a variety of means."
More recently, in April of this year, Senator Richard Shelby, Chairman of the Senate Select Committee on Intelligence, predicted that "an asymmetric attack against the United States -- one requiring limited resources, which targeted American vulnerabilities, and left no trace of its author -- might present an increasingly attractive option to a country determined to extract revenge or humiliation on the United States."
A fair question, given all this concern, is, "What is being done?"
Currently DoD spends about $35 billion annually developing and testing new weapons which are designed to fight a major force-on-force war. Unfortunately, this vast expenditure, at a time when the U.S. faces no conventional military competitor, has virtually no relevance to the serious threat that our political leaders and their advisors have described. The F-22 fighter plane, the Joint Strike Fighter, and the F/A-18 E/F, for example, right now have a combined annual price tag of $48 billion, a cost that will rise in the coming decade. But none of these planes will be used (or be useful) in thwarting possible terrorist attacks against targets in America and little if any utility in protecting Americans stationed overseas.
One reason for the past inattention to this problem was described during recent Senate testimony by a member of the DSB: "There are a number of challenges that have historically been regarded as "too hard" to solve: the nuclear terrorism challenge, defense against the biological and chemical warfare threat, and defense against the information threat. The DSB Task Force believes that these challenges should be addressed and that doing so will make a substantive difference in the nation’s ability to respond to these distinctly different and serious threats."
In its April report, the DSB suggested, by what it did not include in a list of measures that would be useful in countering transnational terrorism, that military weaponry had virtually no role to play. It said, "Defense and consequence management against chemical weapon and biological attacks can be very effective. Vaccines, detectors, masks, collective protection, and prompt medical treatment combined can make a huge difference in the outcome of an attack, perhaps reducing casualties by three orders of magnitude or more. [Because speedy reaction is essential]...civilian protection begins with the local and state first responder community -- law enforcement, fire and rescue, medical and emergency management personnel."
Finally, on May 22 of this year, President Clinton met the problem head-on when he announced a new approach to the problem. He called for a multi- faceted program that involved the nation’s public health and medical surveillance systems; insured that all federal, state, and local authorities were given the training and equipment to do their jobs; created a civilian stockpile of medicines and vaccines; and deployed specifically trained National Guard units to help local authorities to manage the consequences of a terrorist attack that employed chemical, biological, or even nuclear materials.
America cannot turn its back on the rest of the world by succumbing to a siege mentality and trying to isolate ourselves from international problems, including international terrorism. But our civilian leaders and military commanders must balance our international commitments and concerns about American "interests" abroad with the increased threat to American citizens at home that such involvement might induce. In this regard, it is important to weigh the impact that unnecessary forward stationing and deployments have on the perception of some that America wants to dominate, not cooperate with, the rest of the world. To the extent that this perception can be countered by revising our military posture, the Administration and Congress should seriously consider making changes to our current policy of forward stationing and routine deployments of troops and ships.