Trial by Fire Left Lockheed a Strong Survivor : Aerospace: Company’s merger plan with Martin Marietta comes after it beat a hostile takeover attempt and an industry shakeout.


Lockheed Corp.'s plan to create a defense industry behemoth by merging with Martin Marietta Corp. comes after Lockheed survived a hostile takeover threat and the brutal downturn in Pentagon spending to become one of the industry’s strongest players.

Led by Chairman Daniel M. Tellep, Calabasas-based Lockheed used some acquisitions--notably its purchase of General Dynamics Corp.'s F-16 fighter jet division last year for $1.5 billion--to jump from the middle of the aerospace pack to become one of the Defense Department’s biggest suppliers.

Lockheed’s profits simultaneously have climbed steadily over the past three years, with the company earning $422 million in 1993 on sales of $13.1 billion. In the process, Lockheed’s stock has doubled since 1990, closing Monday at $66 a share in New York Stock Exchange composite trading.

Tellep, matching a strategy used by Martin Marietta, Loral Corp., Northrop Grumman Corp. and other healthy defense contractors, believes Lockheed must grow by acquisition to remain a key supplier in the shrinking defense industry. Now, with the $10-billion Martin merger, the proposed Lockheed Martin would become by far the Pentagon’s biggest vendor.


But Tellep’s growth plan for Lockheed has also required the same massive layoffs and other job-streamlining steps that many defense contractors have used to slash costs and therefore absorb the massive cuts in defense spending.

And in Lockheed’s case, that’s caused major economic pain in California.

Lockheed today employs 77,500 worldwide and 20,000 in California. That’s down from 97,200 worldwide at the end of 1987, and Lockheed’s California work force has been cut by more than 15,000 in recent years because of layoffs and transfers.

As recently as 1990, Lockheed employed about 14,000 in the Burbank area alone--not only those who built aircraft but also the scientists and engineers who worked on top-secret projects in Lockheed’s “Skunk Works” division.


Since then, however, Lockheed has all but disappeared from Burbank, having shifted that aircraft production to Marietta, Ga., and moved the Skunk Works to Palmdale, where it still has about 3,000 employees. Lockheed’s missile group in Sunnyvale, Calif., has also cut thousands of jobs.

Lockheed’s merger proposal with Martin Marietta would also presumably result in the closure of Lockheed’s 250-employee headquarters in Calabasas; the companies said the combined Lockheed Martin would be based in Bethesda, Md., Martin Marietta’s headquarters.

The company, which traces its roots to 1913, has been one of the nation’s venerable airplane manufacturers for decades. Besides the F-16 line, Lockheed’s planes include the F-117A Stealth fighter (used widely in the Persian Gulf War), the SR-71 spy plane and the C-130 transport.

Lockheed is the lead partner developing the Air Force’s next-generation tactical fighter, the F-22, which could bring Lockheed billions of dollars of revenue in the 21st Century. However, some in the Pentagon and Congress are pushing to delay development of the plane to save money.


Lockheed is also a leading producer of missiles (including the ballistic missiles fired from Trident submarines) and communications satellites. The company also provides an array of services to the National Aeronautics and Space Administration, including servicing the space shuttles between flights.

Indeed, Lockheed is aggressively trying to find new commercial markets to lessen its dependence on the Pentagon. Tellep told reporters in May that while Lockheed currently derives 62% of its revenue from the Defense Department, it hopes to cut that figure to 40% by the late 1990s.

Lockheed will need new sources of revenue despite its recent gains. The Pentagon not only has been scaling back its orders for the proposed F-22 but has said it won’t buy any more F-16s--built in Ft. Worth--after this year.

The F-16’s backlog still totals several hundred planes, thanks partly to foreign orders. But the fighter jet has recently lost some key sales to foreign governments, which chose McDonnell Douglas Corp.'s F/A-18 and F-15 jets instead.


Some of Lockheed’s other diversification attempts have met with mixed success; its commercial aircraft refurbishing unit, for instance, had to close its facility at Norton Air Force Base earlier this year for lack of customers.

But other efforts look promising, such as Lockheed’s recently formed venture to market Russian-made Proton space launch rockets to satellite customers.

Tellep, 62, has been Lockheed’s chairman since January, 1989, when he succeeded the retiring Lawrence O. Kitchen. Tellep is a UC Berkeley-trained engineer and was heading Lockheed’s missile group when he was tapped for the chief executive post.

But Tellep had held the reins for only a few months when the company drew an unwelcome takeover attempt from Texas financier Harold Simmons. After a two-year battle, Lockheed emerged victorious when Simmons abandoned the proxy fight for control.


Tellep will remain chairman of Lockheed Martin, while Martin Marietta’s high-profile chairman, Norman R. Augustine, 59, will be president. Augustine is expected to become chairman when Tellep retires.

Tellep was quoted earlier this year as saying Augustine is one of the best defense executives in the business.


Defense Consolidation


With the end of the Cold War, the U.S. defense industry has been shrinking through a succession of mergers and acquisitions. Among the most recent:

* Los Angeles-based Northrop Corp. acquired Grumman Corp. in April for $2.2 billion, combining the maker of the B-2 Stealth bomber with a leader in defense electronics and airborne surveillance systems.

* Loral Corp. acquired IBM’s Federal Systems division in March for $1.5 billion, combining a missile maker with a business that sells computer and communications systems to the Pentagon.

* Lockheed Corp. acquired General Dynamics Corp.'s F-16 fighter division in December, 1992, for $1.5 billion.


* Martin Marietta Corp. acquired General Electric’s aerospace division in November, 1992, for $3.1 billion.

* Loral acquired Ford Motor Co.'s aerospace operations in July, 1990, for $750 million.

Researched by ADAM S. BAUMAN / Los Angeles Times

Source: Times reports