The merger of defense and big business is one of the fastest developing trends around the globe. It doesn’t look like it’ll slow down any time soon.
Shedding light on this phenomenon earlier this week was Joseph Gaspar, the chief financial officer of Elbit Systems, one of Israel’s top defense companies. During his remarks at a Paris air show, Gaspar explained that defense is both an expensive and a “structured, regulated business,” meaning it was almost a necessity to be big to succeed.
Gaspar noted that M&A (merger and acquisition) among firms in the sector began to pick up pace in the 1980s and looks set to continue.
The backdrop of Gaspar’s comments was of course the mega-merger between U.S. giants Raytheon and United Technologies (UTC). To appreciate the size of this partnership, Raytheon and UTC have a combined market value of about $166 billion. Furthermore, the merger was piling on top of other earlier acquisitions: UTC recently bought Goodrich and Rockwell Collins Aerospace. Raytheon over the years has added huge defense businesses to its corporate body such as Hughes Aircraft and the missile business of General Dynamics. Raytheon is the third-largest military contractor in current size. Put it all together, and the Raytheon UTC merger will have annual revenue of $74 billion, making it the second-largest aerospace and defense company in the U.S. by revenue.
The defense and big business trend is a testament to the nature of developing war machines in the modern era. As Gaspar explained: “A jet fighter today is sold for about $100 million. To develop it, it takes about 100 times more. Now who has that amount of money?” Indeed Gaspar’s own company is a good case in point. Elbit is a relatively small firm compared to the U.S. giants the likes of Lockheed Martin and Northrop Grumman. However, it does play key roles in developing the platforms coming onto the stage today, most notably in the aerospace field. Consider the implications of this: A global firm with billions in annual profits, is merely a single cog —albeit an important one— within the broader mega-industry that is modern defense.
