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Merger May Lead to Cutbacks in Commercial Ventures : Conversion: Experts predict that Lockheed Martin will dump business lines that aren’t solid money-makers.

SPECIAL TO THE TIMES

Lockheed Corp. and Martin Marietta say their planned merger will accelerate their expansion into commercial markets.

But analysts are skeptical. They say the merger aims chiefly to create a leaner, meaner defense contracting giant. Beyond that, experts figure, the consolidation is a chance for both firms to give their commercial ventures a long, hard look--and dump the ones that aren’t solid money-makers with roots in defense.

Besides defense, “everything will be on the table now,” said Rohit Shukla, executive director of the nonprofit Los Angeles Regional Technology Alliance.

Calabasas-based Lockheed and Martin Marietta, based in Bethesda, Md., announced plans last weekto combine forces, creating an aerospace powerhouse with $23 billion in annual sales.

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Both say their commitment to diversify away from defense remains firm in the aftermath of the merger, the largest defense consolidation in industry history. And the companies’ chief executives predicted that the new Lockheed Martin eventually would grow, after the unspecified job cuts that will come with the merger.

But job applicants shouldn’t hold their breath. Analysts paint a picture of a smaller, tighter Lockheed Martin, pared down to the areas in which it has clear superiority--be those civilian or military.

Commercial markets expected to be emphasized by the new company include space systems, information services and environmental technology. As for other non-defense business lines, “They will shed like you wouldn’t believe,” predicted Shukla.

Ventures such as CalComp, Lockheed’s Anaheim-based computer graphics concern, will be among the first dumped by the new defense giant, he said. Profits at CalComp, which employs 1,600 worldwide, have been disappointing, and Lockheed tried unsuccessfully to sell the firm a few years ago. CalComp officials last week said it was premature to discuss the unit’s future in a merged Lockheed Martin.

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Access Graphics, headquartered in Boulder, Colo., is another computer-related Lockheed venture that’s likely to be a square peg in the new company, said Lior Bregman, an analyst with the investment banking firm Oppenheimer & Co. in New York. “Graphics and computer peripherals never fit, and it still doesn’t fit,” he said.

Even profitable companies such as Burbank-based Lockheed Air Terminal, the airport management company, may eventually be sold, said Shukla. In recent years, the company has expanded from airport management to airport development, and exploring projects in far-flung spots such as Turkey and Siberia. But despite its modest success, the company “does not contribute anything to their core business,” Shukla said.

Lockheed and Martin Marietta have made strides in recent years to diversify away from making weapons and military aircraft. Lockheed is involved in everything from collecting highway tolls to developing commercial launch vehicles. U.S. defense sales shrank from 70% of Lockheed’s total sales in 1991 to 64% last year.

Martin Marietta’s sales outside U.S. defense accounted for more than 30% of sales last year, up from 25% five years ago, said Charles P. Manor, a Martin Marietta spokesman. Martin Marietta’s diversification efforts range from a joint partnership with a firm that dissolves pollutants in molten metal, to providing computer graphic technology for video games to Tokyo-based Sega Enterprises.

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Both companies were on a path toward expanding non-defense to 50% of sales, and that evolution will continue apace with the merger, Manor said. “Everyone has focused . . . on the creation of a defense juggernaut,” he said. “But we did this not just to have a critical mass with (the Department of Defense), but to compete in global markets.”

Some analysts question, though, whether the huge new Lockheed Martin will be any more competitive outside defense. Being big “makes it harder for them to be flexible, adaptable and operate as a commercially successful enterprise,” said Dan Flaming, president of the Economic Roundtable, a nonprofit public policy think tank in Los Angeles.

Lockheed’s more successful commercial offspring include Lockheed Information Management Services Co. in Teaneck, N.J. The company provides systems for processing parking tickets and toll-road collections for local governments. It also has developed so-called “intelligent highways,” which will use sensors to assess fees to commuters as they drive by toll booths.

But the company’s most celebrated defense-conversion efforts are at Lockheed Missiles & Space Co. Inc., based in Sunnyvale.

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The unit is rooted in the development of ballistic missile systems. But it has also worked in space exploration for NASA, developing support systems and tests for the Hubble Space Telescope, and designing pieces of NASA’s proposed manned space station.

Nowadays, the missiles and space division is using its technological base to expand into satellite images for map-making, commercial satellite launch vehicles and advanced materials for aircraft. It has also secured a $700-million contract with Motorola Satellite Communications Division to develop parts of a constellation of orbiting communications satellites called Iridium.

For its part, Martin Marietta is an old hand in space technology. The company makes both the Titan and Atlas rocket systems. “Space is the common denominator,” said Bregman, the Oppenheimer analyst. “All (Lockheed’s) space-related efforts fit very well with Martin Marietta’s.”

The same goes for environmental services, he said. Lockheed’s ventures in that sector are “a perfect fit” with Martin Marietta’s, he said. Besides its agreement with Molten Metal Technology Inc. of Waltham, Mass., Martin Marietta also oversees toxic-waste cleanup at federal Department of Energy facilities.

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Until recently, Lockheed Environmental Systems and Technologies Co., based in Houston, was considered an unimpressive business. Earlier this summer it burst into prominence by landing a $5-billion, five-year federal Department of Energy contract to manage the Idaho National Engineering Laboratory.

Together the companies are poised to take advantage of growing concern over pollution problems overseas, said Shukla of the Regional Technology Alliance. “There are huge markets out there,” he said.

Lockheed Martin will also move rapidly toward commercialization of its military business, Shukla said. “They won’t design from the ground up for a specific customer any more. They will design one product and market it in many ways,” he said.

Military business is likely to be subjected to the same ruthless culling as Lockheed Martin’s civilian operations, added Jim Schwendinger, Los Angeles-based director of national consulting for the accounting firm Deloitte and Touche. “They will decide what they have superiority in, and what they come second in, and they will spin those off,” he said.

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For now, though, both these behemoths are likely to spend some time digesting. “There’s a limit to how much an organization can absorb and assimilate at one time,” Schwendinger said. “It’s going to take them a couple years at least.”


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