WASHINGTON: Pentagon leaders are worried adversaries are using the global economic disruption to snatch up critical businesses key to the US defense industry, and is considering stepping in to halt such transactions, the military’s top acquisition official said today.
“What I am concerned about is nefarious [merger and acquisition] practices,” as companies struggle to stay afloat, the Pentagon’s top acquisition official, Ellen Lord, said today. “We’ve talked a lot with other nations, particularly in Europe, and we’ve seen a lot of shell companies coming in where the beneficial owner ends up being one of our adversaries. I’m particularly concerned about that,” Ellen Lord said.
Her staff is working with members of Congress to come up with possible legislation “so that we have the statutory tools to intervene here,” she added. “We have to be very, very careful about the focused efforts some of our adversaries have to undergo economic warfare with us, which has been going on for some time.”
Pentagon acquisition teams aren’t overly concerned about the big prime contractors who are receiving awards and up-front payments to keep production moving. Instead, they are worried about how those primes are pushing money down to smaller companies, and making sure those companies stay in business.
“I believe that the major primes are flowing down — they have committed — but I always like to trust, yet verify,” Lord said. “I encourage all of those companies to be as transparent and forthcoming as they can be because we have a responsibility to the taxpayer as well as the mid-tiers and the small companies to make sure that actions we take at the prime level do go down all the way through the chain. However, I need to rely on CEOs of major primes to come forth with that data.”
Lockheed Martin has already moved some $256 million in early payments to its suppliers, and has promised to grant advance payments of about $450 million altogether. BAE Systems has said it will move $100 million into its supply chain, and General Dynamics has moved about $300 million into its vendor base. Durning earnings calls earlier this week, Boeing CEO David Calhoun said the company is “accelerating some progress payment receipts” to smaller suppliers, while Northrop Grumman plans to push about $200 million into the chain early to keep suppliers afloat.
Lord also disclosed that fewer than 20 defense companies have applied for $17 billion worth of federal loans made available for contractors suffering loss of business due to the COVID-19 pandemic.
“The challenge is that this $17 billion dollars worth of loans comes with some fairly invasive, kind of, riders on it,” she said. At issue is that the Treasury Department is seeking an equity stake in publicly traded companies that take some of the money. “For public companies it may not be as interesting as for private companies, so that’s one of the differentiators I’m seeing,” Lord said.
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