Rockwell Sees Role for U.S. Defense in the Next Century

In a move that provides a good tip on the future of the defense business and that also raises provocative questions about America's military role in a changing world, Rockwell International--a smart company--is bidding for a Defense Department order.

Rockwell, teamed with Lockheed, said last week it would compete for one of five design contracts on a new Navy aircraft that the Pentagon will award in December.

It will be a small contract to begin with. The Pentagon will give five contractor teams $20 million each to design a new Navy bomber, now dubbed the AX, that would serve as the principal weapon aboard U.S. aircraft carriers early in the next century.

Ultimately, the AX could become a $50-billion order for 575 planes. So it's no wonder that every major defense contractor has entered the competition.

But Rockwell's entry is significant because it marks a shift in direction for a company that has reduced its dependence on the Pentagon in recent years. Sales to the Defense Department were 26% of Rockwell's $12.4-billion revenue last year, down from 50% in 1986. The balance came from electronics for communications and commercial air travel, from truck axles, factory automation and printing presses--and from building the space shuttles and engines for the proposed space station.

Such diversity is no accident. Rockwell, a shrewd outfit with roots in the tough auto supply business--it was Pittsburgh-based Rockwell Standard before it bought North American Aviation in 1968--has always had a less than reverent attitude toward military business. "If you can't compete in commercial business, I guess you better stay with military business," Rockwell's now-retired Chairman Robert Anderson used to say.

(Rockwell has avoided recent troubles over Pentagon cost overruns--although on Thursday a federal prosecutor charged it with having defrauded NASA on the space shuttle program. The company will contest the charge in court.)

Its current chairman, Donald Beall, a 53-year old engineer with an MBA from Pitt, doesn't talk like Anderson. But he has steered the company resolutely to civilian business, notably in Rockwell's 1985 purchase for $1.6 billion of Allen-Bradley, the Milwaukee-based maker of factory automation equipment.

Yet last week the company said forthrightly that it wants to be in the defense industry. "We're in the military aircraft business, and we intend to stay," said Sam F. Iacobellis, Rockwell's chief operating officer.

Analysts said Rockwell may see opportunities for acquisitions in a defense industry shakeout. "I wouldn't be surprised if Rockwell took a look at some properties for sale, the defense business of LTV for instance," said analyst Paul Nisbet at Prudential Bache.

The AX bomber could be a factor in that shakeout, replacing the A-6 attack plane on which Grumman depends and eclipsing Northrop's troubled B-2 Air Force bomber in the battle for scarce Pentagon dollars. Congress sharply limited funds for the B-2 just last week.

But before business people and investors get to thinking about specific weapons, they should examine the U.S. government's assumptions that seem to underlie the proposed AX program, or the B-2 bomber. Those assumptions say the world won't really change--that in 2010 and 2020 world peace and global commerce will still be protected by U.S. carrier task forces and U.S. bombers ready to fly anywhere.

That seems improbable because the threat such forces were designed to combat--a unified Soviet Union leading a Warsaw Pact coalition--is no more.

The new threat comes from small erratic powers--Saddam Hussein's Iraq, or a nuclear-armed Iran perhaps, or North Korea, or who knows which country next.

And to be sure, such threats cannot be dismissed. The blunt reality is that a military force will be needed to keep world commerce free from disruption.

But that is where the big questions begin. Should that future peace-keeping force be the U.S. Navy, patroling the world as it does now with 13 carrier task forces--carriers, nuclear bombers, frigates and other support ships? Or the U.S. Air Force sending long range bombers equipped with radar-evading stealth technology to any trouble spot?

Should the U.S. Army guard the outposts of the global economy, as a century ago it protected the frontiers of the American West?

If the answer is yes, then the bigger question is: Who's going to pay for it all?

The answers are being prepared. "Who pays in dollars and effort are the issues we're studying right now," says Michael Rich, a senior analyst of RAND Corp., the Santa Monica research firm that is working on several studies for the Defense Department.

The choices are challenging. If U.S. taxpayers are to continue to foot the bill, then we should stop borrowing money from nations that benefit from peaceful world trade and demand that they simply pay tribute. On the other hand, if other countries pay for U.S. forces to patrol the world, then understandably they will want a say in the mission and deployment of those forces.

Such issues are seldom expressed in debates about Pentagon contracts, but maybe they should.

Rockwell obviously has thought about them and decided that whoever pays for it, the U.S. military will have a sizable, continuing role in the world.

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