Concerned that large defense companies purchasing key suppliers is leading to monopolies and stifling competition, Sen. Elizabeth Warren (D-Mass.) last week asked the Federal Trade Commission (FTC) to review the best ways to maintain competition when these types of deals are proposed, including prohibiting the transactions.

Warren, a member of the Senate Armed Services Committee, sent the letter on July 16 and released it on her website on July 20.

Specifically, Warren singled out the 2018 acquisition by Northrop Grumman [NOC] of the Orbital ATK, which brought in-house one of two suppliers of solid rocket motors to the U.S. aerospace and defense industry. The deal was allowed to proceed once Northrop Grumman agreed to the FTC’s requirement that the solid rocket motor business be firewalled, meaning it would have to operate independently to avoid anticompetitive behavior.

The other supplier of solid rocket motors to the aerospace and defense industry is Aerojet Rocketdyne [AJRD], which has agreed to be acquired by Lockheed Martin [LMT]. However, the FTC is closely scrutinizing that deal and Raytheon Technologies Corp. [RTX], which is headquartered in Warren’s state, has raised concerns given that Aerojet is one of its major suppliers and its acquisition by Lockheed Martin would eliminate the last independent supplier of solid rocket motors in the U.S. (Defense Daily, Feb. 22).

The acquisition of key suppliers is called vertical integration. Up until the past decade at most, the defense industry was consolidating horizontally, with the major prime contractors focused on horizontal integration, which strengthened their capabilities in systems integration. At the same time, these companies were divesting business units that were essentially part of the in-house supply chain, saying could operate more effectively on their own or as part of another supplier.

Now, the defense primes are bringing key suppliers into their fold, a development Warren believes may stifle competition.

“When antitrust agencies have approved these vertical mergers and acquisitions, they have sometimes subjected them to so-called ‘behavioral’ remedies,” Warren wrote FTC Chair Lina Khan. “These remedies seek to protect competition by prohibiting a newly merged firm from using competitively sensitive information to the detriment of its rivals or from disfavoring its rivals that depend on it for supply, distribution, or other inputs. Given the questionable effectiveness of these remedies in numerous markets, I urge the Federal Trade Commission to re-evaluate the best method to protect competition when analyzing vertical deals, including now allowing such transactions to proceed in the first place.”

Warren cited reports that the FTC is investigating how well the “behavioral remedy” is working in the case of Northrop Grumman and its operation of Orbital ATK’s solid rocket motor business. She said if this investigation is ongoing, then it needs to be completed before deciding on the pending acquisition of Aerojet by Lockheed Martin.

Warren didn’t mince words about what would happen if the deal is approved.

“Currently, when the military solicit proposals for missile defense systems from defense firms like Northrop Grumman, Raytheon, Boeing, and Lockheed Martin, it can force these contractors to compete off each other on pricing, timing, and other contractual terms,” she wrote. “However, if Lockheed Martin is allowed to integrate with Aerojet Rocketdyne, the military’s ability to spur this type of competition will be inhibited, and the buyer will have the ability and incentive to raise costs for its rivals, hurting competition and potentially threatening national security.”

Warren wants responses to eight questions she submitted to Khan by July 30. She copied Deputy Defense Secretary Kathleen Hicks on the letter.

Some of the questions include learning what the Defense Department’s role is in helping the FTC assess defense mergers and acquisitions and how many defense deals have been subjected to “behavioral remedies” since 2000.

The wave of horizontal integration in the defense industry began in the early 1990s when William Perry, defense secretary in the Clinton administration, told industry executives to begin consolidating or risk perishing amid cuts in the defense budget. Perry’s “last supper” remarks in 1993 eventually led to mergers between companies like Lockheed and Martin Marietta, Boeing and McDonnell Douglas, and Northrop acquiring Grumman and a slew of other mission systems suppliers that aided in the company’s rise as a leading systems integrator.