The proposed merger between Raytheon and United Technologies is likely to move forward without government intervention, analysts said, and could lead to another wave of consolidation within the defense industry.
President Trump earlier this week mused that the deal might reduce competition.
But analysts tell Inside Defense the deal is likely to move forward, despite Trump's publicly aired concerns.
Andrew Hunter of the Center for Strategic and International Studies said the planned transaction falls just shy of the standard established by former Defense Secretary Ashton Carter, who discouraged consolidation among the largest defense contractors.
"It's hard to imagine a merger that could be any bigger than this that wouldn't involve the big primes," he said.
He said the deal will likely move forward, but could raise concerns among Boeing and Lockheed. Boeing in 2017 expressed concern about United Technologies' purchase of Rockwell Collins.
"Given that Boeing . . . said this company is going to have too much of our supply chain in one pair of hands" at the time of the UTC-Rockwell Collins proposal, Hunter said, "I think this problem exists and will exist in spades."
"UTC plus Raytheon is going to have a very large piece of Boeing and Lockheed's supply chain," he said.
Frank Oliveri of Washington Analysis wrote in a note to investors that it would be challenging for the Justice Department to block the merger over direct overlap issues.
"[E]ven other novel ways to block the deal, including raising issues about the size of the merged entity (and the possible diminishment of government bargaining leverage) and any vertical issues (e.g. using market power in engines to sell other products) also appear unlikely," he said. These "will be balanced by the DOJ and DOD against the credible claim of cost savings and synergies from the merger being passed on to government customers."
Hunter said he expects the transaction to affect the rest of the market. Already, there is some key reshaping underway, including the merger between Harris and L3, which is set to be completed soon.
"If this deal is approved, I think it definitely opens the door to a series of pretty big deals to come through in the future," Hunter told Inside Defense, noting that he would particularly expect consolidation pressure in the defense electronics market.
James Marceau of PA Aerospace and Defense told Inside Defense he expects larger companies to seek mergers to produce the scale required by the Defense Department. He said the Pentagon's push for both affordability and commercial-style innovation has created a challenge for companies.
"They put themselves in this situation where companies, to compete effectively . . . have no choice but to have this critical mass," he said.