In 1993, Defense Secretary Les Aspin invited more than a dozen CEOs of big weapons and aerospace companies to dinner at the Pentagon. In what has become known as the Last Supper, he shocked them by saying that, with the end of the Cold War, America had too many defense contractors and that the companies needed to merge or die.
Merge they did. But 15 years later, as the fiasco with the Air Force's tanker contract and widespread Pentagon procurement dysfunction demonstrate, it's not clear that fewer contractors is better. Monopoly-like power exercised by a few dominant vendors is no better, it turns out, in the defense industry than it is in software, electricity or cable TV.
The next president ought to consider undoing what Aspin wrought and spurring a Ma Bell-like breakup of dominant defense companies.
The tanker contract, which could eventually be worth $100 billion, wouldn't have even been nominally competitive without the participation of the European Aeronautic Defence and Space Co., which teamed up with finalist Northrop Grumman.
Boeing, the loser in the competition, protested the Air Force's decision to award the deal to Northrop and EADS, the parent of Airbus. The Government Accountability Office upheld Boeing's appeal based on what it said were flawed procedures by the Air Force.
But the larger point is that the United States couldn't even field a full team at the bidding table.
Outsourcing and globalization may be fine for TVs and tomatoes, but it's another matter for key hardware needed to defend the country.
Since the Last Supper the number of major defense contractors has shrunk from more than two dozen to half a dozen.
Fewer vendors usually means higher prices and shoddy service. Pentagon procurement has never been a model of efficiency and alacrity, but things are as bad as ever despite years of reform efforts.
The Defense Department "is not receiving expected returns on its large investment in weapons systems," the Government Accountability Office found this year after evaluating dozens of major programs and finding most were over budget and years behind schedule. "The final result is lost buying power and opportunities to recapitalize the force."
Why work hard to please your customer when you know you'll get the business anyway?
Fueled by the war in Iraq and the homeland security boondoggle, profits at Northrop, which has a big electronics operation in Linthicum, have more than doubled in five years. Bethesda-based Lockheed Martin's profits have tripled. Boeing's are up nearly sixfold.
