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Heavy Hitter : Lockheed-Martin Union Creates Biggest Pentagon Contractor

TIMES STAFF WRITER

The nation’s biggest defense contractor was formed Wednesday as Lockheed Corp. and Martin Marietta Corp. completed their historic $10-billion merger, setting the stage for another wave of layoffs in the shrinking U.S. aerospace industry.

Lockheed Martin Corp. was created after shareholders for both companies overwhelmingly approved the deal at separate meetings in Chicago. The new company has 170,000 workers, annual sales exceeding $22 billion and plants or offices in all 50 states.

The marriage, announced in August, is the most dramatic example of the industry’s rush to merge and economize as a way to deal with the drop in defense spending. It also symbolizes how the manufacture of U.S. weapons is now largely in the hands of only a few giant firms.

The merger also reflects Southern California’s dwindling role as a mainstay of the U.S. aerospace industrial complex. Lockheed Martin chose Martin Marietta’s home of Bethesda, Md., for its headquarters, formally ending Lockheed’s long domicile in the San Fernando Valley.

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For more than 50 years, Lockheed built thousands of airplanes in Burbank, employing up to 90,000 people there during World War II. But it has gradually shifted most of that work to Georgia and other sites, though its famed secret “Skunk Works” airplane-design group remains in Palmdale with 3,800 workers.

In surpassing McDonnell Douglas Corp. as the biggest U.S. arms maker, Lockheed Martin makes military aircraft, missiles, launch rockets and other spacecraft, and a panoply of defense electronics. Its products include the F-16 and F-117A fighters, Titan launch rockets and Trident missiles.

Indeed, some competitors argued that a merger of Lockheed and Martin might violate antitrust laws by strangling competition in some areas, such as spacecraft production. But the Pentagon and the Federal Trade Commission cleared the merger without requiring any major sales of assets.

“Starting this afternoon, we’re one new company,” Norman R. Augustine, president of Lockheed Martin and former chief executive of Martin Marietta, told a news conference in Chicago. “I, for one, can’t wait to go to work.”

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But many others are likely to soon be out of work, because of cuts in Pentagon spending and Lockheed Martin’s plans to eliminate overlapping operations. “Clearly there will be some downsizing,” Augustine said.

He and Daniel M. Tellep, Lockheed Martin’s chairman and former chairman of Lockheed Corp., said they do not yet know how many jobs will be lost but that specific figures should be available by June 30.

The layoffs have already started. About 100 of the 250 employees at Lockheed’s former Calabasas headquarters have been given layoff notices. Some of the remaining workers are moving to Bethesda, and about 45 will remain in Southern California but will eventually be moved to a smaller office, a spokeswoman said.

Wolfgang H. Demisch, aerospace analyst at BT Securities Corp. in New York, estimated that a 10% employment cut--17,000 people--will probably be the minimum reduction at Lockheed Martin in the coming months.

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“And that’s not because of the consolidation, that’s strictly because the (defense) business is still heading south,” he said. “Unfortunately, I don’t think Lockheed Martin will be able to buck that trend.”

As Lockheed Martin reduces overlap in its ranks, another 10,000 jobs could be lost, other analysts have estimated.

Lockheed’s missiles and space group in Sunnyvale, Calif., where 11,000 people work, is considered especially vulnerable, because Martin brings three such facilities of its own to the new company. The Skunk Works is seen as less likely to take a major hit.

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But Tellep said more people would have lost their jobs had Lockheed and Martin stayed apart and separately tried to weather the slide in defense spending.

“More than ever, we are convinced this is creating a stronger company with a bright future, rather than had we stayed on independent paths,” Tellep said in a telephone interview before the shareholder votes.

Tellep, 63, plans to remain chairman and chief executive of Lockheed Martin until he retires in 1996, when Augustine, 59, is expected to succeed him.

In the merger, each of Lockheed’s shares was swapped for 1.63 shares of Lockheed Martin stock, and Martin Marietta’s shares were swapped for the new stock on a 1-for-1 basis.

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Lockheed Martin’s stock begins trading today on the Big Board under the symbol LMT.

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Times staff writer Patrice Apodaca contributed to this report.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

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Forming a New Defense Giant

Lockheed Corp.'s merger with Martin Marietta Corp. creates the nation’s largest defense contractor. Highlights of the new company: * Name: Lockheed Martin Corp. * Headquarters: Bethesda, Md. * Chief executive: Daniel Tellep * 1995 sales*: $23.4 billion * 1995 profit*: $1.1 billion** * Total debt*: $3 billion * Employees: 170,000 * Major products: Military aircraft, satellites, space launch vehicles, missiles, defense electronics, technology services.

* Merrill Lynch & Co. estimate

** Excluding any possible special charges related to the merger’s costs

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TOP 10 DEFENSE FIRMS

The nation’s largest defense contractors, ranked by the value of Pentagon prime contracts awarded in the fiscal year ended Sept. 30, 1993, in billions of dollars:

Company Defense Contracts Lockheed Martin $11.6 McDonnell Douglas 7.5 Northrop Grumman 4.7 General Motors (Hughes Aircraft) 4.1 Raytheon 3.2 United Technologies 3.1 General Dynamics 2.1 Loral 1.7 Boeing 1.7 General Electric 1.6

Sources: Lockheed Corp., Martin Marietta Corp., Merrill Lynch & Co., Defense Department

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