Allied-Signal Picks L.A. as Site of New Aerospace Group
Allied-Signal said Tuesday that it will locate in Los Angeles the headquarters of a new aerospace group composed of existing units of its Garrett and Bendix operations that were merged earlier this year.
At the same time, the conglomerate, based in Morris Township, N.J., said it will increase its focus on its aircraft components operations and “will not pursue a major expansion of its defense systems business.”
Analysts said the announcement dispels recent speculation that Allied-Signal was preparing to acquire a major defense contractor, possibly Singer, which is the target of a hostile takeover attempt by Florida investor Paul Bilzerian.
“A lot of people were concerned that they were going to make a big acquisition in defense,” said Laurence W. Lytton, an analyst at the investment banking firm of Drexel Burnham Lambert in New York. “This announcement is telling the world they don’t have such plans. They are taking a conservative tack--and people want to see that in the current environment.”
Apparently reflecting the company’s announcements, Allied-Signal stock rose $2.125 to $33.50 on the New York Stock Exchange, where it led the list of most actively traded stocks.
The reorganization and shift in focus, a company spokesman said, was prompted in part by recent Defense Department policy reforms that have increased contractors’ costs and reduced profits in government work.
“The facts about the defense market are widely known, and the outlook for defense budgets this year and next year are well known,” Dennis J. Signorovitch, an Allied-Signal spokesman, said. “We made a business decision based on those facts.”
Site Undetermined
Nonetheless, analyst Lytton said the announcement constitutes a message to Congress and the Pentagon that defense reforms are damaging to the defense industry:
“A lot of the measures that the Congress and the Pentagon have instituted have been counterproductive. They are going to destroy the defense industrial base. They want to increase competition, but they are going to reduce it. They want to increase innovation, but they are going to reduce it.”
Under the reorganization announced Tuesday, the new Allied-Signal Aerospace will be based in Los Angeles at an as-yet-undetermined facility operated by Garrett.
Allied-Signal posted aerospace and defense sales of $4.5 billion in 1986, representing 46% of its corporate revenue. Automotive operations contributed 29% of revenue, and engineered materials, such as special fibers and plastics, contributed 25%.
Allied-Signal Aerospace will include various aircraft operating divisions that are expected to have 1987 sales of about $3.5 billion. Those divisions include the Los Angeles operations of Garrett AirResearch Group and Garrett Auxiliary Power Division as well as Bendix Avionics Group in Olathe, Kan.; Bendix Fuel Controls Division in South Bend, Ind.; Bendix Wheels and Brakes Division in South Bend, and Garrett Engine Division in Tucson, Ariz.
The aerospace company will also include the defense systems group, whose 1987 sales are estimated at about $1.3 billion. The group makes such products as sonar, torpedo engines and defense electronics.
The location in Los Angeles of the Allied-Signal Aerospace headquarters, which had been planned for Arlington, Va., will involve a small number of employee transfers, Signorovitch said. The reason for the move is to bring executives closer to aircraft markets here.
The merger of Garrett into Allied-Signal dissolved it as a separate corporate entity. Garrett, founded in Los Angeles by John Clifford Garrett in 1936, was bought by the Signal Cos. in 1963. Allied acquired Signal in 1985. The various Garrett operations today employ nearly 6,000 persons in Torrance and Los Angeles.
