New blood may stem industry consolidation.

• Author: McKinley, Craig R.
• Position: President's Perspective

* William J. Perry, the nation's highly respected former secretary of defense, was recently in Washington, D.C., to present his latest book, "My Journey at the Nuclear Brink." It is yet another contribution to a public career that has, by any measure, been extraordinary. I highly recommend it.

In comments he made to defense reporters in Washington, D.C., it was not Perry's observations about nuclear strategy and force structure that caught my attention; rather it was his recollections of the defense industry consolidation that occurred during his time as defense secretary in the early 1990s.

He had hoped that the restructuring of the industry, which followed his famous 1993 "last supper" with senior industry executives, would have resulted in a leaner industry rather than one consolidated into a few large firms.

These comments are conceptually consistent with others recently made by Defense Undersecretary for Acquisitions, Technology and Logistics Frank Kendall expressing his discomfort with United Technologies' (UTC) sale of its Sikorsky Helicopter unit to Lockheed Martin. Kendall observed that, "with size comes power, and the department's experience with large defense contractors is that they are not hesitant to use this power for corporate advantage."

What is the issue here? It is the concern expressed by both of these tremendous public servants that as the defense industrial base has contracted it has resulted in a structure that is--conceptually at least--less conducive to price control and technological innovation, conditions that flow from greater competition. I am sympathetic with the argument, but only to a point.

As many of my previous postings in this column have indicated, at the National Defense Industrial Association we are concerned about the shrinkage of the defense industrial base that has occurred over the past two decades. It is in the nation's best interest to have a competitive and technologically vibrant defense industry that is geographically dispersed and diverse. Our nation, along with many of its close allies around the world, relies on America's "Arsenal of Democracy."

The U.S. defense industrial base is a major strategic asset and key competitive advantage that extends U.S. influence and enhances the nation's capabilities. But this capability largely resides in the nation's private sector, and government leaders must recognize that this circumstance results in their having only indirect influence over corporate...