TRW-Northrop combination seen as stimulus by some

Northrop Grumman Corp. is expected to encounter little difficulty winning regulatory approval of its proposed acquisition of TRW Inc., even though the transaction will concentrate some critical aerospace and defense technologies among fewer large players.

According to Aviation Week & Space Technology, the consensus of some former Pentagon officials and various industry observers is that there is no significant overlap of products and technologies, and that the combination is more likely to stimulate rather than inhibit technology innovation.

"The industry is down to the point where each transaction is a special case and must be reviewed on its own merits, and this particular merger offers the opportunity for greater competition in many areas, like in the space systems field," said Jacques S. Gansler, undersecretary of defense for acquisition, technology and logistics during the Clinton administration. He noted, however, the government still needs to exercise oversight in various contractor relationships to guard against vertical integration.

The U.S. Justice Department currently is reviewing the transaction and is well past the point where it issued a second request for information from Northrop and TRW. Moreover, it is seeking and receiving data from such Northrop competitors as Boeing, Lockheed Martin and Raytheon.

Thus far, Lockheed Martin is the only one that is opposed to the transaction, according to officials familiar with the review. The fact that the new Northrop Grumman will become a third major competitor in the area of space-based systems—equal in mass and financial clout with Lockheed Martin—is the reason for its opposition.

"The thought that Lockheed Martin would be substantially disadvantaged because of our merger with TRW is hard to understand, because their space business would be significantly larger than ours," said Northrop Grumman Vice President Al Myers. "Dating back a long time, Northrop Grumman has maintained a policy of making its subsystems and components available to everyone who wants them, and we will continue to practice that policy."

The central question is how much more consolidation is likely to take place. The answer is probably more than most observers think, according to the report.