Lockheed Looks Beyond Defense : Conglomerate: The company is calling its current strategy to diversify a big part of its future.

Four months ago, Lockheed Corp. acquired General Dynamics Corp.’s military aircraft operations for $1.5 billion, making Lockheed the biggest maker of fighter planes.

At a time of shrinking defense budgets, the move reaffirmed Lockheed’s commitment to defense markets. For many analysts it was also a signal that the company best known for developing stealth military planes, missiles and spacecraft might begin backing away from the nondefense businesses it has pursued in recent years.

But even though Lockheed remains above all a defense and aerospace concern, said Lockheed’s Chairman and Chief Executive Daniel M. Tellep, “the growth in Lockheed’s forecast will come from our nondefense sector.”

Lockheed already has its hands in everything from managing airports, collecting highway tolls and setting up satellite telescopes. Its nondefense operations are growing faster than its traditional defense business, and accounted for 25% of Lockheed’s $10 billion in total sales in 1992, up from 16% in 1988. That growth is coming just in time, because Tellep predicts that in five years U.S. defense dollars will account for just 55% of Lockheed’s total revenue, down from 66% today and 80% five years ago.

Tellep believes the company’s nondefense operations will make up for much of that decline in defense-related work.

He calls Lockheed’s strategy “near-step diversification.” That means he wants to avoid past diversification missteps such as shipbuilding and tunnels, and instead focus on markets where existing skills and technologies can be applied. “We’re not going to move Lockheed into making patio furniture or canoes,” Tellep said.

Still, some analysts are skeptical. They note Lockheed’s recent stumbles in such businesses as environmental services and computer graphics. Two weeks ago Lockheed all but shut down its ailing commercial aircraft maintenance operation at Norton Air Force Base after investing $30 million in the venture. It plans to lay off 400 of the 450 workers there because the slumping airline industry is deferring maintenance.

Moreover, Lockheed’s bid to develop a high-tech train for Los Angeles County with Morrison Knudsen Corp. and Hughes Aircraft was dealt a setback earlier this month when local transit officials recommended awarding the contract to a competing team led by Germany’s Siemens AG.

Even Lockheed’s more successful non-defense businesses--such as information services, airport management and commercial satellites--are viewed by many analysts as unlikely to ever be big relative to its core defense business. “We’re not talking about billions of dollars here,” said John Simon, an analyst at the investment research firm Seidler Amdec Securities.

Some critics of the much-touted strategy of defense industry conversion to commercial markets--an idea backed by President Clinton--see Lockheed’s experience as evidence of why that goal is mostly illusory. Analyst George J. Podrasky at the investment firm Duff & Phelps, believes that Lockheed’s nondefense businesses “are all under review and may be in the process of being de-emphasized.”

Nonetheless, some observers say that Lockheed’s strategy could work. “They’re inching out,” said Robert Paulson, director of the aerospace practice at the management consulting firm McKinsey & Co. in Los Angeles. “The devil in diversification is uncertainty. The farther you get away from products and customers you understand, the more likely you’ll fail.”

Instead, Tellep has high hopes for Lockheed Information Management Services Co. in Teaneck, N.J., which contracts with local governments to process parking tickets, child support payments and toll-road collections.

That’s not exactly high-tech stuff, but Lockheed believes its IMS unit can use some of its aerospace wizardry to solve more mundane problems--like traffic congestion. For some new toll roads under construction in Orange County, for instance, Lockheed IMS is providing technology that will allow commuters to whiz through toll booths at top speed. Drivers will pay their tolls in advance, and be given cards to insert into transponders mounted on their dashboards. Lockheed sensors in the toll booth will pick up signals from the transponders and track the charges.

When it comes to computer systems that handle large amounts of data, “I don’t see a tremendous amount of technological difference between systems that work in space and systems that work on this planet,” said Lockheed IMS President John Brophy.

Analysts estimate that the IMS unit now produces less than 1% of Lockheed’s revenue, and it faces stiff competition from such industry heavyweights as General Motors Corp.’s Electronic Data Systems. But Tellep said he expects IMS revenue to exceed $200 million next year, or a “high double-digit growth” over 1993.

Tellep also sees a bright future for Lockheed Air Terminal Inc., a Burbank company that manages six U.S. airports, including the Burbank Airport, and provides refueling services at facilities around the world. It also manages the Pearson International Airport terminal in Toronto. Lockheed and its partner have a 40-year lease on the Pearson terminal, which was completed in 1991 at a cost of $550 million.

Lockheed Air Terminal is well positioned, Tellep said, to benefit from a worldwide trend toward privatizing airports. If Los Angeles Mayor-elect Dick Riordan’s proposal to lease LAX out to private interests goes through, he said, Lockheed might be one of the bidders.

Even at Lockheed’s vaunted Palo Alto Research Laboratories--the R&D; arm of the huge missiles and space systems group--eyes are now focused on new applications for its technologies.

The missiles and space division has seen its revenue shrink from $5.1 billion in 1989 to $4.6 billion in 1992 because of cutbacks in military and spacecraft budgets. But Lockheed thinks the division can grow by chasing the commercial satellite market, despite tough competitors such as Hughes Aircraft and General Electric.

So now the company that built satellites used to spy on the former Soviet Union has teemed with a Russian aerospace firm to market commercial satellite launch vehicles. A Lockheed telescope aboard a Japanese satellite has been used to study the sun.

And in another project loaded with risk but also great potential, Lockheed has subcontracted with Motorola Inc. to build a proposed global portable telephone network called Iridium, which would provide direct communications to anywhere in the world. It would use 77 satellites and cost more than $3 billion to deploy.

Scientists at the Palo Alto labs are also finding new uses for technology developed for weapons and spacecraft--such as artificial computer intelligence originally designed for projects like the Space Shuttle. This technology, which enables computers to scan and sort information, could be used by banks, for instance, to detect money laundering. Another service Lockheed plans to begin marketing to businesses involves updating archaic software codes on old computers.

Other commercial projects developed at Lockheed’s research labs include technology to help jets avoid sudden and dangerous changes in the direction of wind. A new X-ray testing device warns aircraft operators of fatigue cracks and corrosion. Composite materials designed to make military aircraft more sturdy are being used in a bridge under construction in San Diego.

“We would like to think that maybe as much as 20% or more of our business could be commercial by the turn of the century,” said Ernest Littauer, the Palo Alto lab’s assistant general manager.

Tellep also hasn’t given up on Lockheed’s laggard non-defense ventures. “Things are looking brighter” for the environmental services business, he said, even though so far it has failed to win big toxic cleanup contracts.

He conceded that profits at CalComp Inc. a commercial computer graphics firm that was part of a $1.2-billion 1986 acquisition of electronics company Sanders Associates, haven’t met profit goals. Lockheed tried unsuccessfully to sell CalComp a few years ago. But Tellep said the company is now launching some new products and he expects it to be profitable this year.

But some analysts remain unconvinced.

Despite Tellep’s sunny outlook, analyst Cai von Rumohr at investment banking firm Cowen & Co. believes Lockheed might soon shut down the environmental services unit and again try to sell CalComp.

George D. Shapiro, an analyst at investment banking firm Salomon Bros., said flatly that “none of these other businesses are ever going to be a significant entity for Lockheed.”

Even if the non-defense businesses were to become major players in their own right, Shapiro said it might make better sense for Litton to sell them or spin them off into a separate company--much the same as Litton Industries Inc.’s recent decision to separate its defense and commercial businesses. Tellep said such a move isn’t in the cards.

“We’re going to remain largely a U.S. defense contractor,” he said. “But there are skills we’ve developed for decades and some of those skills are transportable to new markets.

“We plan to do both.”

Lockheed’s Defense Conversion Faced with a shrinking defense budget, defense and aerospace giant Lockheed Corp. has increasingly pursued commercial markets. Lockheed is now involved in projects ranging from managing airports to running highway toll collection systems and telescope photography. Although Lockheed’s nondefense revenue has grown at a faster rate recently than defense, the company’s biggest source of business remains defense. analysts say that Lockheed’s recent acquistion of General Dynamics’ fighter plane operations signals its renewed emphasis on defense. Lockheed Sales (in billions) 1992 *Defense: $7.58 Nondefense: $2.53 1991 *Defense: $7.45 Nondefense: $2.35 1990 *Defense: $7.87 Nondefense: $2.09 1989 *Defense: $8.01 Nondefense: $1.88 1988 *Defense: $8.76 Nondefense: $1.67 *Includes defense sales to foreign governments Source: Lockheed Corp.