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THE LOCKHEED-MARTIN MERGER : View From the Top: What Deal Means

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TIMES STAFF WRITER

How will the proposed mega-merger of Lockheed and Martin Marietta affect employees, facilities, competitors, the defense industry and national policy?

The principals in the transaction, Lockheed Chairman Daniel M. Tellep and Martin Marietta Chairman Norman R. Augustine, discussed the deal, its impact and a wide range of issues facing the defense industry in an interview Wednesday:

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Q: How is this merger going to affect your competition?

Augustine: I was out in the Midwest this morning, and the newspapers there were quoting people from two or three companies, Hughes, McDonnell Douglas. Those people were saying that they didn’t think it would affect them very much.

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I was surprised that that was the reaction. Frankly, I was a little disappointed, because I would hope they would have said this is something we’ve all got to do, and we need to join in.

Tellep: I really believe that the boards of other aerospace companies have got to be putting the question to their management, what do we make of this, what should we do, if anything, in response. If nothing else, I think it’s going to provoke some additional thought.

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Q: Do you think that Lockheed Martin would have so much technical and financial strength that you will be able to steamroll your competition?

Augustine: I think that’s unlikely. It certainly helps us. We’re going to be able to take out a lot of costs, and we’re going to be able to remove duplicative research and development.

But it wasn’t very many years ago that Martin Marietta was about a $5-billion company, and we competed against Boeing all the time--they were a $20-billion company. We did all right. The reason was that they were in a lot of different businesses, and we were in fewer businesses. So you tend to match up your strengths against their strengths.

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Q: Some people are worried that even if this consolidation doesn’t run into antitrust problems, you might wield too much political clout. You will have at least 2,000 employees in states that would represent a voting majority in the House. Is that a concern?

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Augustine: For years we’ve had between 8,000 and 15,000 employees in Colorado, and I don’t ever remember getting a single vote on anything we believed in in the state.

Tellep: Our calculus was based on the technical synergies of the corporation, complimentary businesses, and that was the focus that compelled us to go forward. If there are some collateral political benefits, which is questionable, then that was a tertiary factor.

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Q: What percent of the Pentagon’s acquisition and defense budget would your sales account for?

Tellep: If you just take the R&D; budget, we would represent about 17% of that. About half of that goes directly through us to other subcontractors.

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Q: With defense sales dropping and non-defense rising as a percentage of your revenues, do you see overall sales of the new company growing or falling?

Tellep: Modest sales growth. Single digit.

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Q: With only modest sales growth and a need to improve efficiency, what will happen to employment?

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Augustine: I think in the long term, reasonably we should grow. But the defense budget is still being cut, so the question of whether we’ll add non-defense jobs fast enough to offset the decline in defense is a big challenge. None of us have been able to do that.

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Q: So how much will employment drop in the short term?

Augustine: I really wouldn’t have the faintest idea how to forecast it because I’d have to know what the defense budget was going to be, and I don’t know.

Tellep: Had we done nothing, we probably would have individually had some decrement in employment. So the question is: Does this make it any worse or any better? Certainly near term, there is going to be some dislocation.

What this whole thing is about, it’s not about today, tomorrow, or the next month. It’s really about building a globally competitive, 21st Century aerospace company.

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Q: You have four satellite plants, one is principally commercial and three principally government. Do you need four separate satellite manufacturing plants for your business outlook?

Tellep: We’re going to very carefully study that in the months ahead. That’s an answer that probably shouldn’t come from people at our level. It has to be people who know what machines are where and what business is where and what test equipment is where and so on.

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Q: Did you have the outright blessing of the Department of Defense for this combination?

Tellep: No, we didn’t. The Department of Defense Review Board will be engaged shortly to render a formal report. I think that can’t be done more rapidly than in four weeks, and probably eight weeks.

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Q: Do you have reason to believe the verdict will be favorable?

Tellep: If logic prevails, I think the answer shouldn’t be unfavorable.

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