US is considering partial nationalization of the military aviation industry

(July 15) The US Air Force worries that there are fewer and fewer companies that are capable of making huge costly planes for the world's by far the largest military.

Nationalization to generate competition

Will Roper Air Force acquisition head suggests that the solution for this lack of competition would be for the US government to nationalize chunks of the military aviation industry so that the government will have more suppliers to bid on contracts. However, the nationalization would give the government what would be in effect a monopoly on those parts of the industry.

As military plane projects become more complex only a few companies are left to bid competitively for them. Many companies have merged to share expenses and be powerful enough to bid. The government wants more choice and to see competitors survive even if they must own companies to do so.

There would be huge objections to any such plans

As it is now companies use lobbyists and the hiring of former Pentagon figures to ensure that they negotiate very profitable contracts. These powerful companies would resist any attempt to remove profitable contracts from private companies. Government companies will force the private sector to offer competitive bids and this would cut into profit margins. It could be that the government comes to favor its own companies and the private sector could dwindle as investors find there is little profit to be made in the sector any more.

Nationalization in the US may be difficult

Some companies that are regarded as necessary for the economy could be nationalized if no private investors were willing to support a private company. However, military aviation production is profitable so there is no reason for nationalization from a capitalist standpoint. President Truman tried to nationalize the industry in the 1950's but failed. Obama was able to temporarily nationalize GM to save jobs but this was just temporary. Large US private military aviation suppliers will surely have enough political clout to prevent any scheme that would see government-owned companies compete with them. Critics will no doubt point to the huge expenditures that the government would need to spend to acquire companies in the arms industry.

One analyst, Richard Aboulafia of the Teal Group aviation consulting firm points out that nationalization is not necessarily needed to keep a single aircraft manufacturer alive as has been shown in France, Japan, and Sweden. However, this does not solve the problem of less competition that the nationalization is meant to address.

Previously published in the Digital Journal