Lockheed Jet Fighter Deal Near : Aerospace: Acquisition of General Dynamics’ unit would move Lockheed toward top of combat airplane business.

Lockheed is expected to announce as early as today that it is acquiring General Dynamics’ Ft. Worth military aircraft division in a deal that investment sources valued at roughly $1.5 billion, it was learned Tuesday.

If the deal is completed, it would represent the biggest step in the consolidation of the military aircraft industry, giving Lockheed the majority share of the Air Force’s new F-22 jet fighter program and the long-running General Dynamics F-16 program.

Calabasas-based Lockheed would emerge from the deal poised to become the leader in the combat aircraft business, eclipsing longtime industry leader McDonnell Douglas. Lockheed would have aircraft sales of roughly $5 billion annually and, importantly, forge a stable mix of old and new programs to carry it through the 1990s.

Lockheed’s purchase price, when compared to the Ft. Worth division’s sales, is higher than other recent defense industry mergers. The Calabasas company was willing to pay more because it believed that the deal offered a strategic competitive advantage, a knowledgeable investment banker said Tuesday.

“It reflects the strategic advantages that went to the winner and were denied to the seller,” the banker said. “This is a landmark acquisition. It is a big acquisition, but also it reflects the fact that companies can no longer simply do nothing.”

A General Dynamics official said the deal was scheduled to be announced this morning on the East Coast. The investment banker said General Dynamics’ board of directors approved the deal late Tuesday.

General Dynamics stock was up $4.75 a share to close Tuesday at $101 on the New York Stock Exchange, although trading volume was relatively light. Lockheed shares rose 50 cents to close at $52.25.

Lockheed outbid Northrop for the General Dynamics unit. It is not known whether other aircraft companies also submitted bids. Both Northrop and Lockheed have vowed to remain in the aircraft business.

Northrop recently acquired a minority share of LTV Corp.’s aircraft subsidiary and has an option to acquire all of it after three years. The unit makes structures for commercial aircraft, a business in which Northrop already participates and is hoping to expand.

But by seeking General Dynamics’ Ft. Worth division, Northrop signaled its intent to remain a combat aircraft producer. The firm’s B-2 bomber program will be completed in the mid-1990s, and it faces a potentially lean future after that. During the Cold War, seven companies built combat jets, but just three or four companies have active programs today.

Industry experts said Lockheed would most likely merge General Dynamics’ F-22 operations with its own F-22 activities in Marietta, Ga., giving the firm a two-thirds stake in a development program that will run well into the next century.

In addition to its combat aircraft operations in Marietta, Lockheed operates its Skunk Works in Palmdale, which has had considerable success in producing top-secret aircraft for the Air Force. It is believed to have been the prime contractor for a secret high-speed reconnaissance aircraft.

And beyond the combat aircraft business, Lockheed supplies the P-3C Orion submarine patrol aircraft and the C-130 Hercules transport aircraft. In all, Lockheed had $2.2 billion in 1991 aircraft-related sales.

The Ft. Worth division, General Dynamics’ largest operation and biggest money maker, earned $164 million on sales of $2.7 billion in 1991.

The combined Lockheed and General Dynamic aircraft business would have $4.9 billion in sales. By comparison, McDonnell Douglas had $5.93 billion in sales in 1991. But Lockheed’s sales will likely grow significantly with its F-22 program, while McDonnell’s sales from the F-15 jet fighter will decline as that program winds down.

Experts speculated that Lockheed would leave General Dynamics’ F-16 program in Ft. Worth, because its production is near completion and the cost of a move could not be justified.

General Dynamics had long considered the Ft. Worth operations as part of its four core businesses that it would not sell, but in October it began to consider divesting its aircraft, tank, space-launch systems and shipbuilding operations.

The change in strategy came after the company was unsuccessful in finding other defense firms willing to sell their own operations that would strengthen General Dynamics’ core units. Thanks to its divestment strategy, General Dynamics stock price has more than doubled in the past year and tripled from its low point in 1991.

Earlier this year, General Dynamics sold its missile business to Hughes Aircraft for $450 million. It has cash of more than $1 billion and presumably that could double after the Lockheed deal.

A large number of recent aerospace acquisitions have been made at prices of about one-third of annual sales. The General Dynamics deal was made at slightly more than half its annual sales, a significant premium that reflects the limited number of healthy combat aircraft producers offered for sale.

If McDonnell Aircraft Co., the combat aircraft unit of McDonnell Douglas, were offered for sale, it also would command a premium price, investment sources noted. So far, McDonnell has not shown any indication that it would consider selling the unit.

Details of the acquisition price were unavailable Tuesday. The General Dynamics plant in Ft. Worth is owned by the government, which would not be reflected in the sale price. It is not clear what liabilities Lockheed would acquire from General Dynamics, so the value placed on the deal would be subject to some fluctuation, the investment banker noted.

Lockheed almost certainly would not accept the liability for the Navy A-12 attack jet termination. The Pentagon contends that General Dynamics owes the government $675 million, but the company says the Pentagon owes it money.

It is also unclear whether Lockheed is assuming responsibility for any environmental liabilities.

Times staff writer Amy Harmon contributed to this report.

The Deal

What General Dynamics will keep:

Products: -- Submarines (Trident nuclear missile submarines and attack submarines) -- Land Systems (M1-A1 and M1-A2 Abrams tanks) -- Space Systems (Atlas II, Titan/Centaurs) -- Other (MD-11 fuselages, defense electronic systems, financing and leasing, etc.) -- 1991 Sales: $6.03 billion -- 1991 Earnings: $228 million -- Employees: 63,600* -- Principal plants: San Diego; Lima, Ohio; Groton, Conn.; Kingstown, R.I.; Warren, Mich.

What the company is selling:

Products: -- Military aircraft (F-16 jet fighter, one-third of next-generation F-22--shared with Lockheed and Boeing) -- 1991 Sales: $2.72 billion -- 1991 Earnings: $164 million -- Employees: 19,000 -- Principle plants: Ft. Worth.

* As of Dec., 1991