(Editor's Note: This story has been updated with a statement from a Pentagon spokeswoman.)
Lockheed Martin's chief executive said today the company has not yet received "direct feedback" from government customers about its proposed purchase of Aerojet Rocketdyne, but is hopeful "we'll have a mutual understanding of the benefits."
Speaking to analysts on a call this morning, Jim Taiclet addressed questions about whether the company's deal would be approved by the government, pointing to Northrop Grumman's 2018 purchase of Orbital ATK, which was approved by the government with certain conditions related to solid-rocket motors.
"Our overall expectation is that that may be the same lens that this particular transaction is viewed," Taiclet said.
Byron Callan with Capital Alpha Partners wrote in a note today he has "moderate confidence that this deal will be completed, pending better visibility on who is appointed and confirmed at DOD by the Biden administration."
"The proposed purchase of Aerojet Rocketdyne (AJRD) by Lockheed Martin (LMT) is the first test of the Biden administration and its views on defense sector consolidation and structure," Callan wrote. "It may take weeks and months before those views are known."
Callan noted defense prime contractors Boeing and Raytheon Technologies "may see the LMT-AJRD deal as a competitive threat, but we don't yet know if this is true and, if so, how hard they will push DOD and . . . [the] Justice [Department] or [the Federal Trade Commission] on this issue."
"There are two sources of solid propellant motors for weapons in the U.S.: AJRD and Northrop Grumman," he added.
In a statement provided to Inside Defense today, a DOD spokeswoman said the "department's policy is to assess transactions on a case-by-case basis and to support the antitrust agencies in their investigation."
When Lockheed unveiled its last major acquisition of Sikorsky in 2015, Frank Kendall, then the top Pentagon acquisition official, objected, arguing that size begets power.
"While the Lockheed-Sikorsky transaction does not trigger antitrust concerns of having a negative impact on competition and we understand and agree with the basis upon which the Department of Justice decided not to issue a request for additional information about the transaction, we believe that these types of acquisitions still give rise to significant policy concerns," he said at the time.
"The trend toward fewer and larger prime contractors has the potential to affect innovation, limit the supply base, pose entry barriers to small, medium and large businesses, and ultimately reduce competition," he added.
While Kendall has not been named to a role in the Biden administration, he was an adviser to the campaign.
Taiclet today responded to an analyst question on how the company would work with competitors who use Aerojet Rocketdyne as a supplier, arguing Lockheed already acts as a supplier to many of these companies.
"We've already created a company, it's already created a reputation of being a fair player and an effective supplier to other defense primes," he said. "We'll try to embellish and enhance that reputation."
Lockheed executives argued acquiring Aerojet Rocketdyne would make it more efficient and competitive.
Taiclet said the acquisition is an "opportunity to fully integrate a key component of our value chain."
The deal will help "position us for even greater growth in hypersonics, missile defense and space, which are key elements of the National Defense Strategy," he added.
Taiclet told analysts that when Lockheed uses Aerojet Rocketdyne as a supplier, each company charges a fee.
"If we can take out one of those fee levels, if you will, the overall product will be more affordable to our end customer," he said. "But we also know and believe we'll have revenue synergies going forward."
Ken Possenriede, Lockheed's chief financial officer, said during the same call Lockheed is estimating the deal will yield about $100 million in annual pre-tax cost synergies. About one-third of that, he said, would be returned to the customer through cost-reimbursable contracts.
"Think of that as just a starting point," he said, adding that Lockheed will also look for operational synergies, such as through independent research and development, that wouldn't necessarily produce cost savings.
"A significant amount of their contributions will be to our missiles and fire control portfolio," Possenriede said of Aerojet Rocketdyne. That "shows that we're reinvesting significantly in our most profitable business area, which is MFC."
Taiclet said the acquisition would ultimately speed Lockheed's time to market.
The deal "is going to really enhance the attractiveness of Lockheed Martin products in general and going to cut the cost of providing them and increase the margins at the same time," he said. "We think the acquisition gives us a leapfrog affect to getting to that state of play."
-- Additional reporting by Tony Bertuca