Rockwell Plan No Surprise : Firm’s Switch From Government Contracting Is Long Underway

A sale by Rockwell International Corp. of its aerospace and defense operations would be a dramatic move but not a surprising one.

For most of the last decade, Chairman Donald R. Beall’s mission has been to transform the Seal Beach-based company from a government-dependent defense contractor into a high-tech electronics conglomerate.

Rockwell has made no secret of its desire to strip itself of its stodgier business lines. And the defense and aerospace operations are among Rockwell’s stodgiest.

Company revenue from defense and aerospace dropped in 1995 by about 5.3% to $3.4 billion--down $191 million for the year.

Beall and other company officials refused to discuss the fate of the 23,000-employee defense and aerospace operations Wednesday. Sources say Rockwell is testing interest from possible buyers. But in the past, the tall, silver-haired metallurgist has said that growth at Rockwell won’t come from defense work.

In fact, since 1985, Rockwell has replaced about $4 billion worth of annual defense and government revenue with commercial business. The company in its fiscal 1995 got only 28% of its nearly $13 billion in revenue from government sources, down from 61% a decade earlier.

Earlier this year, Beall told an interviewer that he saw Rockwell at the end of the decade as a company “even more focused on commercial electronics.”

Rockwell officials who have been spreading the company’s message of diversification on Wall Street routinely tell analysts that they see future income growth coming from the Newport Beach-based Semiconductor Systems division and the industrial automation and automotive products units in Wisconsin and Michigan.

Beall, who joined Rockwell in 1968 and ran several of its major divisions on his way up the corporate ladder, has insisted that each of Rockwell’s various business units must be a market leader and have growth potential.

If not, the unit gets sold.

And growth potential is the most important part of the equation. Rockwell has sold several profitable units that have led their markets because executives decided the units simply couldn’t grow enough in the future.

In the past decade, Rockwell has sold 27 operating units and currently has its industry-leading commercial and newspaper printing press division on the market as well.

But when it sees potential, Rockwell is lavish in its support. The company has spent more than $400 million expanding its semiconductor systems division, which grew from $250 million in sales in fiscal 1990 to $987 million last year.

Revenue from the Southern California aerospace and defense operation is expected to be stable at best in coming years, said analyst Anthony Ginsberg of Fourteen Research in New York.

At the root of Rockwell’s problem with the division, analysts say, is its relatively small size and lack of focus. It does too many things and has no major aircraft or missile platform, as do companies like McDonnell Douglas Corp., Boeing Co. and Northrop Grumman Corp.

“Rockwell is doing maintenance on the B-1 bomber and the space shuttle,” not building jets, Ginsberg said. “They are also very good in defense electronics, but we’ve seen how other defense electronics companies have been merging. It takes a very large company to be successful in aerospace these days.”

Indeed, Beall initially was interested in buying another defense or aerospace business to make Rockwell a major player. He started considering a sale of the business when he couldn’t find a suitable acquisition, sources said.

But he may have waited too long to go looking for defense acquisitions.

Most of the big defense and aerospace companies have already cemented marriages--most recently, Lockheed Martin Corp.’s plan to acquire the defense operations of Loral Corp., including the company’s 1,100-employee Aeronutronic division missile and weapons control plant in Rancho Santa Margarita.

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Rockwell in Aerospace, Defense

Two of Rockwell’s six aerospace and defense divisions are based in Orange County and employ 6,700 people. The six divisions:

North American Aircraft

* Headquarters: Seal Beach

* Employees: 2,500

* Products: B-1 bomber, parts for Boeing jetliners, advanced aircraft

Autonetics and Missile Systems

* Headquarters: Anaheim

* Employees: 3,200 employees, including 2,650 in Anaheim

* Products: Guidance and control equipment for missiles and ships, global-position finding equipment, transportation management systems

Rocketdyne

* Headquarters: Canoga Park

* Employees: 5,200

* Products: Rocket engines, including main engines for space shuttle; electric power system for space station; laser weaponry, propulsion system prototypes for X-33, a potential space shuttle successor

Space Systems

* Headquarters: Downey

* Employees: 7,100

* Products: Space shuttle orbiters, NAVSTAR Global Positioning Satellites, X-33 vehicle prototypes, antimissile defense systems for Air Force and Army

Communications Systems

* Headquarters: Richardson, Texas

* Employees: 1,000

* Products: Satellite communications systems

Collins Avionics

* Headquarters: Cedar Rapids, Iowa

* Employees: 4,000

* Products: Communication and navigation systems

Source: Rockwell International, Standard & Poor’s Register; Researched by JANICE L. JONES / Los Angeles Times

Sales Split

Aerospace and defense accounted for only about one-fifth of all Rockwell’s $12.9 billion in 1995 sales:

Electronics: 52%

Aerospace: 19%

Automotive: 24%

Graphic systems: 5%

Source: Rockwell International Corp.

Defense Divestiture?

Rockwell International is reportedly trying to sell its aerospace and defense assets, valued at $3.5 billion, in an effort to focus on its core electronics business. The company announced in January that it was seeking a buyer for its graphic systems division. A look at Rockwell’s sales and earnings:

*--*

Sales Year (billions) 1990 $12.4 1991 11.9 1992 10.9 1993 10.8 1994 11.1 1995 12.9

*--*

*--*

Earnings Year (millions) 1990 $624.3 1991 600.5 1992 -1,000.0* 1993 561.9 1994 634.1 1995 742.0

*--*

* Reflects one-time charge related to a change in accounting for retiree medical benefits.

Shrinking Work Force

Seal Beach-based Rockwell has scaled back its number of employees by nearly 50% since 1990:

*--*

Year Employees 1990 31,900 1991 27,600 1992 23,300 1993 21,200 1994 18,500 1995 17,200

*--*

Built by Rockwell

Rockwell has built some of the most famous airplanes in aviation history as well as space program components. Some of the products:

* P-51 Mustang fighter

* B-25 Mitchell bomber

* A-T6 trainer

* F-100 fighter jet

* B-1 bomber

* Engines for America’s first satellite launch (Explorer 1)

* Engines for Mercury and Apollo program rockets

* Space shuttle main engines

* Space shuttle orbiters

Sources: Bloomberg Business News, Rockwell International, Times reports; Researched by JANICE L. JONES and JENNIFER OLDHAM / Los Angeles Times