Lockheed Urging Israel to Rethink Fighter Jet Deal : Aerospace: Calabasas-based Lockheed thought it had a sale, but then McDonnell Douglas swooped in with its F-15E.

Lockheed Corp. is lobbying Israel to reconsider its tentative decision to purchase up to 20 fighter planes from McDonnell Douglas Corp. for $1.8 billion--a deal that Lockheed several months ago thought it had all but sewn up.

The battle has major significance for the rival aerospace giants because the contract could be the last big foreign order of fighter jets for years to come.

“It’s certainly acknowledged (within the industry) that there are going to be fewer and fewer sales potentials,” said McDonnell Douglas spokesman Paul Guse. “So every sale is important to companies.”

And the stakes are particularly high for Lockheed because the United States has said that after 1994 it will order no more F-16s--the plane Lockheed wants to sell to Israel. “They’re battling ferociously to get additional business,” said analyst George Podrasky at the investment firm Duff & Phelps.

Israel is expected to announce its decision by February. Meanwhile, it’s an old-fashioned aerial dogfight between the two companies.

Lockheed Chairman Daniel Tellep recently met with Israeli Prime Minister Yitzhak Rabin in New York in an appeal to allow the company to prepare a new proposal that would accommodate Israel’s changing defense concerns.

Lockheed spokesman Joe Stout, who confirmed the meeting, said that Lockheed might offer to enhance the F-16 with technology from its F-117 stealth fighter jet, which played a major role in the Persian Gulf War with its pinpoint bombing accuracy and ability to fly undetected by radar.

(Stout was willing to discuss Lockheed’s position on the Israeli order. However, McDonnell Douglas spokesman Guse said the company would not comment publicly because no deal has been signed yet.)

Some big sales of defense planes to foreign governments in recent years have helped American contractors avoid even bigger layoffs caused by declining U.S. defense spending.

Last year, Saudi Arabia agreed to purchase 72 McDonnell Douglas F-15s for $5 billion, and Taiwan ordered 150 Lockheed F-16s for $5.8 billion. Also, Finland last year purchased 64 McDonnell Douglas F/A-18s for $3 billion and Switzerland ordered 64 F/A-18s in June for $2.3 billion.

But opportunities for more foreign sales are dwindling, said David Vadas, an economist at the Aerospace Industries Assn., a trade group.

“The major powers that have the cash to spend have made their orders, which are going to consume their resources for at least a few years,” Vadas said. “So the Israeli deal is the last potential sale of that size.”

The F-16 is produced at Lockheed facilities in Fort Worth, Tex. About 17,000 workers are employed at the division, but Lockheed expects that number to fall to 13,000 by the end of 1994 as production slows. (Lockheed acquired the operation earlier this year from General Dynamics Corp.)

At its peak in the mid-1980s, the division produced about 180 F-16s a year. But this year, Lockheed will deliver 91 F-16s, and only 12 planes are on order by the United States in the 1994 budget.

Since the first F-16 was produced in the late 1970s, Israel has purchased a total of 210, according to Stout.

Stout said Lockheed began bidding about 18 months ago for the latest Israeli purchase, which would be financed by the U.S. government. At the time, Lockheed’s competition was McDonnell Douglas’ F/A-18 naval attack fighter.

Both Lockheed’s F-16 and McDonnell Douglas’ F/A-18 are high-speed jets that have been used to enforce the “no-fly” zones over Iraq and Bosnia. The two aircraft are often pitted against each other for defense contracts because of their similar capabilities.

“Several months ago, it became apparent to us that Israel had lost interest in the F/A-18,” Lockheed’s Stout said. “It was apparent that we won that competition.”

But after the Israeli-Palestinian peace accord was signed in September, Lockheed heard that Israel had begun considering buying McDonnell Douglas’ F-15E--a jet capable of flying longer missions without refueling.

Soon after, it was reported in the aerospace trade press that McDonnell Douglas had won the order for the F-15Es. Israeli officials have not confirmed the report.

About 5,000 McDonnell Douglas employees work on the F-15, most of them in St. Louis. U.S. sales of the F-15 have also been winding down--from a peak of 124 delivered to the Air Force in 1977 to 14 in 1993.

Israel has agreed to give Lockheed time to prepare its new proposal, Stout said. Although a decision is expected within two months, financial analyst Wolfgang Demisch at the investment firm BT Securities Corp. said there could be delays as Israel tries to get the best deal possible.

* C-17 SETTLEMENT

McDonnell Douglas will take a $450-million charge against earnings. D2