Defense Industry Consolidation and Weapon Systems Cost Growth

This thesis is a survey of the cost growth of weapon systems acquisition by the U.S. Department of Defense (DoD). It attempts to assess whether the extensive consolidation of the defense industry has led to any significant reduction of cost growth. The primary data sources for the cost of weapon systems are the Selected Acquisition Reports (SAR), which are published by DoD for the major acquisition programs. After an introductory section, Part 2 of the thesis provides background information and a literature review of U.S. defense industry consolidation. Part 3 examines several merger waves in the history of U.S. industry: First Merger Wave (1897-1904), Second Merger Wave (1916-1929), Third Merger Wave (1965-1969), Fourth Merger Wave (1984-1989), and the Fifth Merger Wave (1992-2000). Part 4 examines relevant legislation and antitrust issues, including the Basic Elements of the Antitrust Legal Framework, the Sherman Act (1890), the Clayton Act-Federal Trade Commission Act (1914), the Hart-Scott-Rodino Act, Horizontal Merger Guidelines, and the Herfindahl-Hirschman Index (HHI). Part 4 also looks at the role of the DoD in the consolidation of the defense industry. Part 5 focuses on the top five U.S. defense industry contractors: The Boeing Company, Lockheed Martin, Northrop Grumman, General Dynamics, and Raytheon. Part 6 describes the methodology of the study, including assumptions and guidelines, cost growth calculations, and data analysis. Part 7 presents the results of the statistical analysis. And Part 8 presents conclusions and recommendations. An overall assessment is made of the current U.S. defense industry to determine if consolidation has improved efficiency and lowered costs, or if further restructuring of the acquisition system is necessary. The original document contains color images.