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February 28, 2012November 12, 2013Loren B. Thompson, Ph.D

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As Military Demand Weakens, Who Will Lead Defense Sector Consolidation? (From Forbes)

February 28, 2012November 12, 2013Loren B. Thompson, Ph.D

The Obama Administration is forecasting that the Pentagon’s purchasing power will decline by 22 percent between the recent peak year of 2010 and 2017 (the last year of the latest five-year spending plan). It is already clear that a disproportionate amount of the cuts will come in technology accounts, with weapons outlays declining by perhaps a third from the peak in after-inflation terms before bottoming out. That means the defense industry will need to go through another round of rationalization in which some suppliers exit the business and others agree to be acquired. But unlike when the Cold War ended, Pentagon policymakers today look ill-disposed to encouraging mergers and the biggest companies in the sector all have disincentives to going first. That means sector consolidation could be led by lesser-known companies such as BAE Systems, ITT Exelis, and Alliant Techsystems — perhaps catapulting them to the top of industry rankings. I have written a commentary for Forbes that you can read here.

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