DoD News Briefing
Tuesday, March 10, 1998 - 1:30 p.m.
Mr. Kenneth H. Bacon, ASD (PA)
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Q: You said yesterday that the Department had major reservations, major problems about the Lockheed/Northrop merger in the area of competition. I wonder if you can give us more details on what you meant by that. Also, is the merger picture getting more difficult in the defense industry now as it compresses into fewer firms?
A: First, I'm not in a position to go beyond my statement about our concerns on the competitive effects. This merger proposal is under consideration at the Justice Department right now. We've been meeting with the Justice Department people and we will ultimately give them a letter describing our views on the merger, but we're not at that stage yet. We're not at the stage where we can discuss the specifics of this proposed merger publicly.
Q: How about the merger picture in the defense industry as it is compressed with several mega mergers? Is it becoming more difficult to approve such mergers as it compresses to fewer firms (inaudible)?
A: Well, I've said before, I think it's obvious that we consider each merger proposal on a case by case basis. We look at each case on its own merits. There's still room for consolidation in the defense industry. We think there's still opportunities for cost saving in the defense industry. But we want to make sure that the mergers that do take place preserve an element of competition, preserve companies that are responsive to customer needs, and in that case it's the Defense Department and the taxpayers who pay for the equipment we buy, and also are innovative. And at the same time, look for ways to keep costs as low as possible, the cost of overhead and the cost of production as low as possible, so it's a balance among these four goals -- competition, cost control, responsiveness and innovation -- and that's what the Justice Department is striving for as it evaluates this case, and that's what we're striving for as well as we help them evaluate it.
Obviously there have been $55 billion worth of mergers in the defense industry over the last three or four years, and every big merger does shrink the industry to some extent and makes us pay more attention to competition among the remaining companies, but that's something the Justice Department is struggling with right now as it evaluates this case.
Q: Can you give us a little more idea of what the schedule is now in this building. Are the transactions going to say open 30 more days? Can you give us any sense of at what point the Department then reports to Justice?
A: No, the Justice Department is really the controlling factor here and they should answer questions about the scheduling.
Q: I don't understand after more than a year of this why you can't outline to the American people your reservations about this merger. You clearly define them. Everybody knows in great detail in this building the reservations that are held by the senior people here. Why can't you discuss them?
A: I think that it's inappropriate for me to discuss a case that's primarily under the Justice Department's control. It's their job to make anti-trust decisions, not our job. We're clearly an advisor. At the proper time I'm sure they will be very willing to describe their feelings about this proposal, and I'm sure that we will join them in describing our feelings about the proposal, but now is not the proper time.
We're in the middle of discussions with companies, the Justice Department is, and I think those discussions should continue before people begin talking publicly about specific details.
Q: The one thing they've indicated is, if you do object and Justice does object, they're going to go ahead with the merger anyway, which means a lawsuit and fighting it out in the courts. Will you, as their major customer, continue to finance their legal department's efforts to pursue this merger?
A: We will operate in strict compliance with the laws, whatever the laws are, and I'm not an expert on what we do in terms of financing the legal bills of defense contractors. If you want me to, I'll try to get you the information on what the law is there, but I don't know.
Q: You mentioned that the Department believes there is still room for mergers within the defense industry. Would you tell us what segments of the industry you still see room for merger in?
A: I'm not a security analyst and I'm not up here to encourage or discourage mergers at this time. We'll let the juices of the competitive marketplace figure out where to go beyond this case.
Q: Can you give us any indication of price savings or cost reductions in the major acquisition programs that have resulted from these mergers?
A: I don't have those figures at my fingertips. I know that the company, Lockheed/Martin, has put out some estimates of its own in the past, and they clearly had estimates for proposed savings from this merger as well.
There have been a series of reports that have been done and I'd be glad to get them to you. We sent them to Congress. But I just don't have them right now.
Q: When we asked Secretary Cohen the other day at his breakfast, he had no idea that there had been any savings.
A: I think he said he didn't know what the savings were.
Q: Right. Well, I'm in the same boat. I don't know...
A: We can send you reports that we've done.
Q: You do have reports of savings.
A: Sure. I just don't have them here, but we do have reports and we've done them in the past. In fact you've written about them in the past.
Q: Well, it's claimed savings, right? Any real...
A: I think that all savings are the product of accounting skills to a certain extent. Accountants evaluate the savings and they decide what they are. Somebody has to be a judge of these savings.
Q: Is the Department suggesting any particular divestitures by these companies in order to...
A: I don't think it's appropriate for me to discuss details at this time. It's an open case and I think that I'll just stick with what I've said.
Q: Was the $55 billion stock value, assets, earnings? What was the $55 billion that you mentioned?
A: It's actually a figure I read in a newspaper this morning. I hope it's right. I trust everything I read in the press. [Laughter]
Q: So it's not a DoD estimate.
A: It's not an official DoD figure.
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Q: Any news on the possible redeployment of troops that are in the Persian Gulf now?
A: No. That's a decision the President will make in due course, and right now the troops are staying there. In fact there's been a rather significant but temporary surge in the number of troops there. I think we're up to about 40,000, 44,000 troops there now because the STENNIS Battle Group has entered the area of operations, and the GEORGE WASHINGTON has not come out yet. That's the ship that the STENNIS is relieving -- the GEORGE WASHINGTON. So there's been a temporary surge in numbers, but that will go down to about the new standard level which is about 36,000, when the GEORGE WASHINGTON leaves.
Q: With the current violence in Kosovo, is there any consideration to either deploying or redeploying or returning to their original deployment any U.S. ships, planes, or troops in order to be in a better position to deal with any contingencies there?
A: Not that I'm aware of. No.
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Q: There's a report that Scott Ritter and 50 of his team members have exited Iraq. They apparently visited eight sites and the U.N. has said that all sites were searched to the satisfaction of the inspection team. Is this the readout that the United States government has, that in fact Saddam is living up to the agreement he made with Kofi Annan?
A: A couple of points. The first is that since the agreement with Kofi Annan, inspectors have gotten into sites they have never been able to inspect before and that is a very positive development. It has expanded the reach of the inspectors and therefore, made it easier for them to do the job that they set out to do starting in 1991.
Having said that, there are still many unanswered questions because Iraq has made a number of declarations and has been unable to satisfy the U.N. Special Commission or UNSCOM that it has in fact lived up to these declarations. Let me give you an example.
Iraq has declared that it filled 25 SCUD warheads with biological agents. Under the U.N. Security Council Resolution 687, they're required to destroy all of their weapons of mass destruction including, especially, biological weapons. They have provided no firm evidence to UNSCOM That they have destroyed these 25 warheads filled with biological agents.
They also declared to UNSCOM that they had filled 50 warheads with chemical agents, and they have said that they destroyed all those warheads, but UNSCOM has not been able to confirm the destruction of more than about half of those warheads.
So, Iraq really faces a responsibility here if it wants to live up to the terms of the U.N. Security Council Resolution 687, and that responsibility is to provide unambiguous proof for the statements it's made about the destruction of its weapons of mass destruction, specifically the deadly chemical and biological weapons and the missiles they have to deliver them.
So the mere fact that the inspectors go in and report that they were able to inspect fully, or perhaps report that they didn't find anything doesn't mean that Iraq necessarily is moving closer to compliance, because Iraq still has a lot of unanswered questions that it has refused to allow the inspectors of the international community to sort out at this stage. That's because Iraq has not been able to provide the information necessary to convince people beyond a shadow of a doubt that it really has destroyed some of these weapons.
Q: Was Ritter allowed to work unimpeded, without trickery and harassment? And why is he out? He's not finished.
A: I think he came out, and these are questions you should ask UNSCOM. This is not a U.S. inspection team, this was a United Nations inspection team that went in to do the work and these are questions that you should direct to UNSCOM or to the UN. But my assumption is that he came out because he had completed the particular task he went in to do.
He, like many of the inspectors, go in and out of Iraq on a fairly regular basis. The teams, I gather, are comprised of experts in certain areas. When a team is going off to look at chemical sites you have one type of expert. If it's going off to look at biological sites you have another. If you're going off to look at delivery vehicles or missiles you'd have experts on missiles on the team.
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Q: Back to Iraq and this question of the smuggling. Have you got an answer yet on whether the administration has any military or diplomatic or other measures under consideration to try to reduce that smuggling?
A: We are, as a matter of fact, in the middle of working with our allies, both in the region and elsewhere, to try to reduce the smuggling. We estimate that about $18 to $20 million a month is smuggled out of Iraq and we do have a force there to intercept ships when we can. It's not always easy because they creep along the Iranian coast in Iranian territorial waters. We try to get them when they dart out into international waters.
At any given time there are probably three to four ships involved in the maritime interdiction force. It can go up or down a little depending on who's there. Usually two American ships, and we're supported by ships from other countries -- New Zealand, Australia, the Netherlands, for instance. The English are frequently there with a ship on station. But we are trying to work with other countries, basically countries in the area in two ways. One is to find places to bring in captured ships. One of the problems is that after they capture a ship they have to find a port to bring it into so they can seize the goods and get rid of them, and...
Q: Crude oil?
A: Yeah, it's basically oil. Oil is what's coming out. And so we're looking for ports in which to bring these ships. Secondly, we're working with countries in the area to make sure that they bolster their anti-smuggling defenses so that it will be more difficult for these ships to find places to unload and sell their cargo. That's what we're doing.
Q: Are we working at all, you said other countries in the region. Does Iran come into play in any of these conversations?
A: Iran comes into play in many conversations about the region, but we're not dealing directly with Iran about the functioning of the maritime interdiction force.
Q: What about through Turkey?
A: The main routes for smuggling out of Iraq are principally Jordan, Turkey, through the Gulf, and sometimes there may be some overland smuggling into Syria, but we think that's a very haphazard and generally insignificant basis.
Q: There's a pipeline through Turkey.
A: I don't know whether there is one or if there is, whether it's working.
Q: There is one, and my understanding was that they're getting some through in the pipeline. That's why I was asking.
A: I'll try an get details for you on that. I just don't know.
Q: This smuggling concern, is it a two-way concern? Are there things smuggled into Iraq as well as oil smuggled out?
A: Any attempt by Iraq to violate the embargo against it is of concern to us and of concern to many other countries as well. You know there have been some cases where we found them trying to bring in some gyroscopes which could be used in missile guidance systems which would have been one, against the economic embargo, economic sanctions; and two, would have violated U.N. Security Council Resolution 687 because it would have allowed them to continue work on their missile programs. So yes, we and other countries are very alert to attempts to bring in items that aren't allowed under the economic program.
As you know, the United States has been in the forefront of trying to get food and medical supplies into Iraq in a way that does not support Saddam Hussein's war efforts or repression efforts but meets the legitimate needs of the people of Iraq. It is he that has rejected or held up the so-called oil for food program for years and years. Now it's going forward and it's been recently increased by the UN, although I don't think the new amounts are flowing in yet.
Q: What my question really should have said is, is there new or recent concern about things being smuggled into Iraq? I know there's a continuing concern, but...
A: Not that I'm aware of. No.
Q: You seem to imply that you [are] increasing the number of ships trying to interdict the stuff, that you're working with countries in the area to help.
A: We're working with countries in the area to help in the two ways that I noted. And in addition, I think the maritime interdiction force may have just gone up by one because of a Dutch ship in the area, but Dutch ships go in and out and other allied ships go in and out, but the Dutch did send down a frigate, as I understand it, or a destroyer, and that ship is there now participating in the MIF or about to participate.
Press: Thank you.
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