Lockheed Martin/Aerojet Rocketdyne: FTC Staff Analyzes New Data Indicating Deal Could Harm Camden, Arkansas-Area Engineers

Published on Dec 15, 2021

FTC staff is analyzing five years of job postings data from the Camden, Arkansas area indicating that Lockheed Martin’s (LMT) proposed $4.4 billion Aerojet Rocketdyne (AJRD) takeover could harm competition in the city’s labor market for engineers, sources familiar with the matter said.

The deal would combine the Camden region’s two largest employers of engineers, shrinking an already consolidated regional market for that occupation, according to data compiled by labor research consultant Emsi Burning Glass. The data, which a third party recently supplied to the FTC, shows the deal’s potential negative impact on the employment options on Camden-area engineers generally as well as specific types of engineers—particularly industrial and mechanical.

Covering the period from September 2016 to October 2021, the data is far more comprehensive than previous information the third party shared with the agency about the deal’s effect on Camden’s workforce. Although close to wrapping up its nearly 10-month review of the merger, agency staff is considering whether the deal would harm Camden-area workers faced with fewer post-merger employers, one of the sources said.

The deal is likely to create labor monopsony harm in the city of 11,000, many of whom are employed by the merging parties or other defense contractors, said a leading economist who viewed the data.

“It’s very clear the merger will cause a worrying increase of labor concentration in this market,” said Marshall Steinbaum, an assistant professor of economics at the University of Utah, who’s not involved in the case.

Responding to criticism from Steinbaum and others that U.S. antitrust agencies have in the past allowed mergers that harmed workers, the Biden administration is increasingly prioritizing labor monopsony concerns. Last week, FTC Chair Lina Khan, who has instructed staff to examine deals’ ramifications for workers, joined new DOJ antitrust chief Jonathan Kanter and White House officials at a two-day workshop on promoting competition in labor markets.

For “too long merger review did not focus enough on the effects on workers,” said Tim Wu, senior White House adviser on technology and competition, at the workshop.

But the Biden administration is seeking to change that. DOJ last week unsealed a criminal antitrust complaint against Mahel Patel, who news reports identified as a former aerospace executive at  Raytheon’s Pratt & Whitney subsidiary, for allegedly orchestrating a conspiracy with rivals to not poach competitors’ engineers and other skilled workers. In announcing the charges, Kanter said the antitrust division has “prioritized rooting out conspiracies in labor markets.”

And last month, the department sued to block Penguin Random House’s proposed acquisition of rival Simon & Shuster based on a labor monopsony theory that the deal to combine the rival publishers would lead to lower advances for best-selling authors.

These actions, though, are no guarantee that the FTC will ultimately find that the Lockheed/Aerojet deal would hurt workers in Camden or anywhere else. Staff already has concerns that the transaction would harm competition in markets to supply the Defense Department with missile systems and has prepared for a potential lawsuit to block the deal by soliciting signed statements from third parties and deposing Lockheed and Aerojet executives.

Antitrust enforcers have evaluated many such cases, but labor monopsony issues are largely untested in court.

Steinbaum said, though, the data appeared solid and that he and three co-authors used similar job postings information and methodologies in an award-winning paper last year to show that U.S. employers hold a high degree of power in U.S. labor markets.

Jobs data. The Emsi Burning Glass data offers intriguing evidence of the deal’s considerable impact on Camden, which is near the 18,000-acre Highland Industrial Park. A former naval munitions base, the business park is used by Lockheed, Aerojet, Raytheon, General Dynamics Ordnance and Tactical Systems, and other defense-related companies to make, test and store sophisticated weapons systems.

The data shows that Lockheed and Aerojet are the main sources for engineering job opportunities in the Camden area.

In the past five years, companies posted 4,454 unique engineering jobs in the region, according to the data. Of those postings, Lockheed advertised 1,546, or 34.7%, and Aerojet, 1,427, or 32%. No other companies came close: Over that same period, Raytheon, General Dynamics, defense contractor TransDigm’s Esterline Technologies and ordnance supplier Armtec Defense Technologies posted 834 jobs—combined.

Adding up the job posters’ squared market shares results in an Herfindahl–Hirschman Index of 2,321, which U.S. enforcers say indicates a moderately concentrated market. It’s just below the 2,500 threshold for a highly concentrated market.

When the shares of Lockheed and Aerojet are combined, the HHI shoots up to 4,542, signaling a highly concentrated post-merger labor market.

The HHIs for engineering specialties in the five-year period are even more concerning. A pre-merger HHI for mechanical engineer postings is 3,140 (highly concentrated) compared with a post-merger 5,451 (highly concentrated). The pre-merger HHI for industrial engineer postings is 2,424 (moderately concentrated) vs. 4,568 (highly concentrated) post merger.

Transactions that increase a market’s HHI by more than 200 points in highly concentrated markets “are presumed likely to enhance market power,” according to the FTC and DOJ’s Horizontal Merger Guidelines, and federal courts have almost universally found that such transactions are presumptively anticompetitive.

The concentration is most evident in environmental engineer postings data over five years—an HHI of 4,577 pre-merger compared with 8,097 post merger. That particular labor market has evolved recently, and Aerojet now is advertising nearly all the job openings, essentially becoming the region’s monopsonist for the occupation. That development raises antitrust issues, but they’re not worsened by the merger.

Regardless of the timeframe used—average monthly, quarterly or year to date—the data shows a moderately or highly concentrated market in Camden becoming even more highly concentrated post merger.

From July through September of this year, Lockheed Martin and Aerojet posted 34% and 32%, respectively, of the job openings for mechanical engineers in the area, leading to a pre-merger HHI of 2,741 and post-merger index of 4,917.

In the same time period, Lockheed and Aerojet accounted for 32.3% and 21%, respectively, of job postings for industrial engineers, resulting in a pre-merger HHI of 2,371 (moderately concentrated) and post-merger figure of 3,729 (highly concentrated).

An Aerojet spokesperson declined to comment. Spokespeople for the FTC and Lockheed didn’t respond to requests for comment.

Engineering growth. The data’s indications that the deal would limit Camden-area engineers’ employment options stand in stark contrast to opportunities opening in the profession elsewhere.

“The demand for engineering thinkers is on the rise across the country,” said Rick Guerra, president and CEO of the National Society of Professional Engineers, who declined to discuss the merger’s impact on Camden. “Wherever you go, they’re [employers] fighting for the same thinkers, the same graduates.”

Job growth for industrial engineers will increase 14% in the next 10 years, according to DiscoverE.Org, a website promoting science and technology careers. Growth for mechanical engineers over that same period will be 7%, while environmental engineering jobs will rise 4%.

All three types of engineers are vital for defense contractors. Industrial engineers help improve manufacturing and other processes, while mechanical engineers, sometimes called the profession’s general practitioners, are involved in everything from product design to troubleshooting.

Environmental engineers look for ways to minimize pollution and handle waste produced by plant operations.

Pandemic-related lockdowns have made employers more comfortable with engineers working remotely, giving some the flexibility to seek jobs around the country, Guerra said. In defending the deal, Lockheed could argue that Camden-area engineers wouldn’t accept lower post-merger wages, and would instead relocate.

But many people still are tied professionally to a particular region, and LinkedIn data shows many Camden workers have lived in the area since college or grew up there.

If Lockheed and Aerojet merge, engineers probably will find Camden a less attractive place to make money, the University of Utah’s Steinbaum said. The job posting data is convincing enough that the FTC should consider filing a suit to stop the deal, he said.

“This is essentially an orthodox [horizontal] challenge, other than it’s in the labor market,” he said. “On its face, this is a strong case.”