The issues involving the American aerospace giant Boeing had barely subsided when a new situation arose with RTX, the largest contractor for the US Department of Defense.
On October 16, the US Department of Justice announced that “the defense contractor RTX, formerly known as Raytheon, will pay more than $950 million to settle allegations related to inflated federal contracts and bribery of foreign officials.”
According to the DOJ, RTX admitted that its employees “provided fraudulent information to the US Army, leading to inflated contracts worth $111 million for Patriot air defense systems in 2013 and for a radar system in 2017.”
According to federal prosecutors, the company’s employees were also involved in a bribery conspiracy with a senior Qatari Air Force official from 2012 to 2016, which was a violation of the Foreign Corrupt Practices Act.
RTX did not contest the allegations and declared its intention to collaborate closely with an independent monitor for three years as part of a deferred prosecution agreement.
RTX, formed in 2020 through a merger of Raytheon and United Technologies Corp., is one of the top five defense contractors alongside Lockheed Martin, Boeing, General Dynamics, and Northrop Grumman.
The main focus of the fraud case was the sale of Patriot missile systems by Raytheon to the United States Army in 2013. The Army could not conduct competitive bidding because Raytheon is the only company that produces the complex defense system, which includes surface-to-air guided missiles capable of intercepting incoming missiles and aircraft and providing full protection for troops and civilians. Instead, the Army relied on Raytheon’s own declarations about its costs,” said the DOJ.
Prosecutors told the Massachusetts District Court that Raytheon knowingly inflated its cost declarations, resulting in a contract with the Army for Patriot missile systems worth $619 million, with an inflated amount of $100 million.
The DOJ also stated that “in a separate 2017 contract, Raytheon employees falsely inflated the wage forecasts for employees servicing the radar monitoring system for the US Air Force, causing the contract cost to be $11 million higher than it should have been.”
The New York District Court also separately filed bribery charges involving foreign officials. Raytheon employees paid nearly $2 million under fictitious contracts to a Qatari official in hopes of securing government defense contracts. These payments were allegedly for three air defense studies, but Raytheon employees knew that Qatari organizations did not conduct any work or incur any research expenses, according to the lawsuit.
The DOJ’s statement followed a separate August agreement between the State Department and RTX, in which the company agreed to pay $200 million to address export control violations.
RTX, listed on the New York Stock Exchange, disclosed in a July report that it had set aside $1.24 billion to resolve legal issues with federal regulators, wrote The Washington Post.
RTX has also lost much of its expertise in manufacturing Singer Missiles.
In May 2022, shortly after the start of the military conflict in Ukraine, Raytheon received an order to produce 1,700 Stinger missiles from the U.S. Army’s Redstone Arsenal Contracting Command.
Nevertheless, the Pentagon promptly announced that it would not deliver these missiles until 2026. Wes Kremer, a representative for RTX, stated that the company would require at least 30 months to establish a production line for the Stinger. This is primarily due to the time required to build a new facility and train its staff.
According to Defense One, Raytheon was compelled to recall retirees over the age of 70 in order to resume production of the Stinger missile, which was developed during the administration of President Jimmy Carter.
“The Stinger went out of production 20 years ago, and suddenly, in the first 48 hours [of the Ukraine war], it became the star of the show, and everyone wanted more,” said Wes Kremer, president of RTX’s Raytheon division.
“We brought back retirees in their 70s… to teach our new employees how to actually make the Stinger,” Kremer said. “We’re pulling test equipment from warehouses and dusting it off.”
In reality, the prospects of restoring the production of these American missiles are much more uncertain than the company’s leaders suggest. In the past two decades, the Pentagon has not purchased a single Stinger, and the components for these missiles are no longer available on the market. Thus, the ability to replace the thousands of Stingers sent to Ukraine is neither possible nor expected. Greg Hayes, the CEO of Raytheon Technologies, stated in April 2022 that the missile’s entire electronics system would require a complete redesign. This would entail the development of a new missile from the ground up, a task that is unlikely to be completed in the near future.
It seems the company has failed to replenish its engineering ranks. Greg Hayes, the CEO of Raytheon, acknowledged the challenging situation the company faced due to the non-return of previously laid-off employees: “75% of the workforce was supposed to return; this time, only 25% did.”
Pentagon official Ellen Lord openly stated that the situation with the Stingers was much worse than Raytheon described. The bulk of the missile systems were sent to Ukraine. “This is a serious threat to our security,” noted Ellen Lord. She warned that it would take at least five years for America to replenish its stock of anti-tank missiles.
Two years later, it became clear that Ellen Lord was right. Raytheon is calling upon the company’s elderly veterans, who know how to read old blueprints drawn long before the digital age. Raytheon’s inability to create new Stingers from scratch necessitates engaging in “industrial archaeology.”
The generation of engineers and designers who could read traditional blueprints has either retired or passed away, and young workers simply do not understand what is depicted or written. Consequently, RTX experts must scour old operational manuals and technical descriptions, enlisting retired engineers to impart process knowledge.
US analysts agree that the primary flaw in America’s defense industry is its excessive concentration. For this reason, the National Defense Industrial Association (NDIA) gave a failing grade to the U.S. defense industry in a report on February 2, 2022.
The Pentagon’s Office of Industrial Policy (INDPOL) report, “Industrial Capabilities,” identified the monopolization of the military-industrial complex as the primary issue. About 30,000 companies carry out the Pentagon’s contracts, but just six corporations—Lockheed Martin, Northrop Grumman, Raytheon, General Dynamics, and Boeing—place two-thirds of military orders. All others are subcontractors. The lack of competition in the domestic market has severely affected product quality, leading to longer delivery times and higher costs.
The rapid consolidation of the defense industry, or essentially the takeover of small and medium-sized enterprises by defense giants, has led to a significant loss of capacity in this sector.
Without competition, quality suffers. Delivery times and the cost of military products increase. The authors of the INDPOL report cautiously discuss corruption and raiding in the American defense sector, noting that the concentration of assets in a limited number of companies has become maximal. 80% of armored vehicles for the Army and Marine Corps are produced in one plant, while large-caliber gun barrels are manufactured exclusively at the Pentagon’s arsenal, which has long enjoyed the benefits of being a monopoly supplier, resulting in the “complete loss of production capabilities at the level of the world’s best models.”
The critical dependence on a “sole supplier” has led to a shortage of production capacity and skilled workers. In the coming years, a critical shortage of specialists in areas such as metal structure assembly, welding, and casting is expected, which will jeopardize the “long-term needs of the Navy.” Complacent Pentagon strategists have refrained from replacing outdated military equipment, opting instead to progressively modernize existing assets, relying on the successes of the Cold War. This, according to the INDPOL report, has led to the emergence of a generation of scientists and engineers who lack experience in developing, designing, and producing new, technologically advanced combat systems and equipment.
Over the past few decades, the American defense industry has experienced a reduction in both its geographic and human scope as a consequence of the concentration of military contracts in the hands of a small number of monopolists. Since 1979, the US defense sector has lost 7.1 million workers or 36 percent of the industry’s workforce. Firms based in just 15 states concentrate more than three-quarters of the value of major Pentagon contracts.
The Pentagon’s six largest contractors, including Boeing and Raytheon, hold a monopoly that has led to massive fraud and shady schemes, which they carefully conceal to avoid audits.
In 2016, Reuters reported that the “US Army falsified its financial statements by trillions of dollars, as found in an audit.” In response, the US Congress demanded that the Pentagon undergo an audit. In 2018, the Pentagon underwent its first-ever audit and failed.
The US military portal Defence One revealed that it took a Freedom of Information Act request to force the Department of Defense to release a report on the extent of fraud committed by Pentagon contractors, naming nine companies that were suspended from working with the department. The Department of Defense opened criminal cases against about 500 individuals and entities involved in the misappropriation of around $6 trillion between 2013 and 2017. However, only 168 companies and individual contractors received fines or convictions.
The US Department of Defense also failed the next five audits, unable to account for more than half of its assets. In 2022, after 1,600 auditors examined Pentagon assets worth $3.5 trillion and liabilities totaling $3.7 trillion, officials found that the department could not account for about 61% of its assets.
An anti-corruption campaign in the defense industry may fade as another round of presidential elections approaches. The US military-industrial complex is so powerful that no matter who wins the presidential election, the defense industry will remain a concern.