Sale Rumors Blast Off at General Dynamics : Space division: Speculation about unit’s sale is sparked by consolidation goals in the company’s new strategic plan.
The hottest rumor to spread through General Dynamics’ Space Systems Division last week suggested that the San Diego-based rocket manufacturer was being sold to General Electric.
A General Electric spokesman promptly declined to comment on the rumored deal. A General Dynamics spokesman in San Diego dismissed it as the “rumor of the week.” And, Space Systems Division Vice President Michael W. Wynne attempted to squelch the persistent rumor by issuing a two-page memorandum to employees that detailed the strengths of the division, which employs 4,600 in San Diego.
The memorandum, a copy of which was released Friday by the company, noted that General Dynamics does not “comment on rumor and speculation.” But the memorandum also acknowledged that Space Systems was not the “dominant launch vehicle supplier in the international satellite launch market.”
Overnight, it seems, market dominance has become a key phrase among General Dynamics employees.
General Dynamics Chairman William Anders introduced employees to the concept of market dominance last week in a highly publicized speech that detailed the company’s strategic plan. General Dynamics intends to fight hard where it enjoys market dominance--tanks, fighter aircraft and submarines--and deal with businesses that lack market dominance by selling them to competitors, strengthening them through acquisitions or by simply selling off their assets.
Company officials maintain that it’s too early to speculate on which businesses will be sold or bolstered through acquisitions. But General Dynamics employees, aware of a flurry of corporate activity, believe that they have reason to be concerned about their future with the nation’s second-largest defense contractor.
In recent weeks General Dynamics:
* Surprised industry observers by putting its Cessna aircraft operation on the block.
* Said that it would would break up its Services Co. unit and distribute most of its employees among three other corporate divisions.
* Sold its data processing operation to El Segundo-based Computer Sciences Corp.
In each of those instances, General Dynamics was moving in step with Anders’ long-term corporate strategy to focus on businesses where it has the “critical mass” to maintain a “strong competitive edge.”
Anders added to the wave of speculation inside General Dynamics plants late last week when he reportedly told a Wall Street Journal reporter that he--and his board of directors--were not satisfied with the volume of business being handled by the company’s San Diego-based electronics and missile group. Those operations have about 11,000 employees in San Diego.
Wynne’s memorandum, which dealt only with Space Systems, attempted to defuse employee concern by portraying the division as a competitive operation. Space Systems, he told employees, is heavily involved in “three major programs”--Atlas rocket production, the Titan/Centaur rocket program and the production of dipole magnets, which increasingly are being used in scientific and manufacturing applications.
But, given General Dynamics’ strategic plan, industry observers wouldn’t be surprised to see the St. Louis-based company sell its rocket business to a competitor.
“We’ve been following General Dynamics’ (restructuring) with a great deal of interest,” said Scott Pace, deputy director of the U.S. Commerce Department’s Office of Space Commerce. Although General Dynamics has not hinted that it wants to sell off its Space Systems operation, the company’s plan to concentrate on fighter planes, submarines and tanks “comes as no big surprise,” Pace said.
Aerospace industry analysts, however, doubts that General Dynamics would simply work through its inventory of rocket orders and close its doors. Wolfgang Demisch, an aerospace industry analyst with New York-based UBS Phillips & Drew, suggested that a sale of Space Systems to a competitor might make sense.
Demisch suggested that, although the rocket manufacturing and launch business might not fit into General Dynamics’ strategic plan, it might become a tougher competitor if it were owned by a giant corporation--perhaps General Motors’ Hughes Aircraft Co. subsidiary--that already is in the business of manufacturing satellites.
Whichever corporate parent ends up with Space Systems faces a tough market.
“Crowded is a good word to describe the current market,” Pace said of rocket manufacture and launch services.
Rocket manufacturers and launch-service companies now have the capacity to put about 30 medium-sized communications satellites into orbit, although demand has not yet passed 20 actual payloads, Pace said. Demand is also expected to slacken during the next few years, Pace said.
At the same time, however, capacity is on the rise, fueled by new entries--including the Chinese and Russia--and expansions by existing competitors such as the European Space Agency’s Arianespace operation.
Those operations, which are loaded with capacity and hungry for competitors, will “price aggressively to get a toehold,” Pace said. That will create an “over-capacity situation where people start bumping up against each other,” Pace said.
Europe’s Arianespace now controls 50% to 60% of the launch market, Pace said. General Dynamics and McDonnell Douglas’ Huntington Beach-based Astronautics Division each has about 20% of the market, Pace said. Martin Marietta’s Astronautics group has all but abandoned the rocket business, Pace said.
“General Dynamics and McDonnell Douglas are the big domestic competitors right now,” Pace said. “But General Dynamics probably offers a slightly wider range of rockets.”
In his Friday memorandum, Wynne urged the division’s 4,600 employees to “focus your energies on making us the best in all of space . . . (in order to) brighten our future as a business unit and provide the best path for the security we all desire.”
