US: Boeing-Lockheed Granted Monopoly

The Pentagon has given preliminary approval to a joint venture between Boeing Co. and Lockheed Martin Corp. for military-rocket launches, endorsing a rare monopoly that could set a precedent for defense contractors facing slower military spending, said industry and government officials.

After seven months of deliberations and some false starts, the companies have convinced the Pentagon of the venture's projected cost savings, these officials said. Now, the Pentagon is drafting language to provide the antitrust protection sought by Northrop Grumman Corp. and a fledging rocket maker, which contend that their respective satellite and launch businesses would be hurt by the Boeing-Lockheed monopoly.

Final federal approval is still at least weeks away, the officials cautioned, but an important hurdle has been cleared. Pentagon acquisition chief Kenneth Krieg, senior Air Force officials and Pentagon lawyers have agreed to recommend the proposed joint venture to the Federal Trade Commission, which has the authority to approve the deal.

The commission is expected to follow the Pentagon's recommendation, the knowledgeable officials said. Both Boeing, of Chicago, and Lockheed, of Bethesda, Md., have signaled their willingness to accept the competitive safeguards currently being drafted, industry officials said.

"It is becoming increasingly clear that an agreement in principle has been reached" to proceed with the combination, said James McAleese, an industry consultant in McLean, Va., who has closely tracked the debate inside the military. "The only big question left seems to be when the Pentagon makes its recommendation for approval to the FTC."

A Pentagon spokeswoman said the matter is still under consideration and no final decision has been made. Boeing and Lockheed spokesmen said the companies are optimistic that the joint venture will be approved and are continuing to provide information sought by the government.

Boeing and Lockheed are bitter rivals and have been embroiled in a legal dispute for years over proprietary Lockheed rocket documents that were improperly obtained and used by Boeing. Their announcement in May to form the United Launch Alliance and set aside their legal battle -- if the deal is completed -- signaled how desperately they needed to team up in order to salvage their struggling rocket-launch divisions.

The timetable for the joint venture has slipped as the companies struggled to justify projected cost savings of about $150 million a year and Pentagon officials weighed potential legal and antitrust consequences of such a venture.

Approval of the Boeing-Lockheed venture could set a precedent for a deeply consolidated defense industry now confronting Pentagon budget pressures. The Pentagon already accommodates the country's two nuclear-submarine makers by sharing work to keep them operating amid reduced purchases, but it has resisted mergers that create monopolies.

Steven Grundman, a former Pentagon official and now director of aerospace and defense at consulting firm Charles River Associates, said the rocket-launch deal could cross a new threshold to monopoly "depending on the conditions placed on the conduct of the joint venture." The knowledgeable government and industry officials declined to discuss the specific conditions being drafted.

Northrop, a major provider of government satellites based in Los Angeles, wants assurance that the joint venture won't block its contract opportunities. Closely held upstart rocket maker Space Exploration Technologies Corp., of El Segundo, Calif., has similar concerns. Elon Musk, the company's chief executive, said in an interview Friday that he has even broached the idea of the Air Force paying for a demonstration launch of SpaceX's largest rocket as a way of supporting a smaller rival.

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