BOSTON — THE Defense Department will not sit idly by while the weapons industry goes through a shakeout, says a high-ranking Pentagon official.
This week's Northrop victory in the battle to buy Grumman is but the latest in a two-year series of defense-contractor sales. Further corporate mergers and job cuts in this important sector of the economy are sure to come.
The Bush administration took a passive approach to this turmoil, believing free markets would produce a smaller but adequate force of armsmakers. Under the Clinton administration, defense officials ``are very active participants in defense industrial-base changes,'' said Deputy Secretary of Defense John Deutch in a meeting with Monitor editors and reporters Tuesday.
That does not mean the Pentagon picked a favorite in the battle for Grumman, the Long Island defense contractor that in recent years has fallen on hard times. Mr. Deutch says he did talk to the chief executive officers of the two firms vying for the Grumman prize, Northrop and Martin Marietta, but that the Defense Department hierarchy took a ``hands-off'' attitude to the outcome of the brief struggle.
It does mean that the Defense Department should take a long look at what kind of defense firms the nation should have. Arms-industry overcapacity ranges from about 25 percent to 40 percent, so further brutal competition lies ahead. ``It is in our interest to ensure that what remains meets the long-term defense needs of the nation,'' Deutch said.
Submarine manufacturing is one area Clinton officials have bolstered, by ordering another Seawolf attack sub from General Dynamics's Groton, Conn., yard. Critics say the move is pure pork-barrel politics, but Deutch said it is necessary to make sure two US firms retain the complex skill of making nuclear subs.
The Pentagon has also facilitated Martin Marietta's purchase of its San Diego-based Atlas Centaur booster-rocket division, by agreeing to certain cost changes in contracts. It may pick other sectors where overcapacity needs to be maintained. For instance, by economic standards, ``we have too many ammo producers,'' Deutch said, yet fast production of ammunition is important in case of conflict.
Right now, the Defense Department is buying very few new weapons as it lives off large stocks bought in the 1980s. Procurement spending is only about 40 percent of what it was at the height of the Reagan build-up. But, at some point, now-aging weapons will have to be replaced. ``There's a big bill out there in the future for the modernization of the force,'' Deutch said.
Current plans call for the procurement budget to rise slowly, starting in 1996. But that won't be possible unless further defense savings can be made through cuts in force structure size or reform of defense-acquisition practices.
Deutch's boss, Defense Secretary William Perry, told Congress this week that such reforms as elimination of unnecessary regulations could squeeze up to $6 billion out of the defense budget for more weapons purchase.