THE Boeing-McDonnell Douglas merger is the most dramatic development to date in a six-year-old consolidation trend in the US defence industry, which analysts say should continue in the face of shrinking government contracts.
The shift toward fewer but bigger defence conglomerates also has the support of the Clinton administration as a means of boosting the competitiveness of US technology firms in the global market.
The $13.3 billion (£8 billion) Boeing-McDonnell tie-up would be the tenth such transaction in the defence sector since 1993.
The previous nine mergers, the most recent of which came earlier this month when Boeing acquired the defence assets of Rockwell International, were valued at around $36 billion.
"At the end of the Cold War," explained Ms Alexis Allen, communications director at the Aerospace Industries Association (AIA), "defense spending dropped dramatically and there was Just not the need for the number of companies that there had been."
While the US Defense Department accounted for 56 per cent of total aerospace business in 1987 according to the AIA, such sales now constitute only 34 per cent of industry business.
In 1996, the association said in a recent study, defence department aerospace purchases will drop $3 billion from the previous year to $38.3 billion.
Faced with slumping government business, defence industries began to consolidate, a development described by the AIA as a "wave that has shown no sign of abating".
But Ms Allen said some industry experts see the trend beginning to recede in 2000.
Analysts cited in the New York Times have said future mergers or acquisitions could involve Hughes Electronics, a unit of General Motors, as well as the Northrop Grumman Corporation and Raytheon.
US defense firms have lately begun a drive to replace lost US government orders with those from overseas, an initiative backed by the Clinton administration and made easier by the efficiencies that come with consolidation.
Exports from US aerospace firms are this year projected to exceed $10 billion for the first time, reflecting a surge in foreign orders placed from the end of the Gulf war in 1991 and 1993, according to the AIA.
Opening overseas markets and promoting sales there of US high tech firms have been key elements in the trade policy of President Bill Clinton, an objective that helps explain the favourable eye cast by his administration on consolidation.
"You have one national aircraft company now, investment banker Mr Felix Rohatyn told the New York Times.
"It says that our policy is based on a definition of markets on a global basis. I believe that's very realistic. Ultimately the marketplace would have demanded it, but the Clinton administration really saw the need and responded."
But the government has also been motivated by considerations of cost, according to Ms Allen of the AIA.
"Consolidation means savings for the government," she said. "If there's a huge plant that's only operating at 50 per cent capacity when it prices its products, there is still maintenance for the other half of the factory - and the workers - that is priced into the product. But if you get that capacity down to the level that is needed, the price goes down."
