McDonnell and Raytheon Discuss Merging Their Aerospace Lines

Defense giants McDonnell Douglas Corp. and Raytheon Co. have held exploratory talks about a possible full or partial merger of their aerospace and defense lines, or perhaps some other business combination, industry sources said Tuesday.

But the sources said the talks were at a very early stage, and they noted that such discussions are routine among companies in the same industry and usually do not result in a definitive agreement.

Indeed, St. Louis-based McDonnell, the nation’s largest producer of military airplanes, has been holding potential merger talks with several companies during the last year but has yet to announce a deal.

Industry sources revealed in March, for instance, that Seal Beach-based Rockwell International Corp. was looking to shed its space and defense operations and that McDonnell was a leading candidate to acquire them. But nothing has materialized from those talks.

McDonnell, which had sales of $14.3 billion in 1995, has been noticeably quiet while the rest of the defense industry has rushed to merge in recent years. Amid the post-Cold War slide in defense spending, contractors have been merging to wring out the industry’s excess production capacity.

The Boston Herald reported Tuesday that McDonnell is pursuing negotiations not only with Raytheon, a diversified concern based in Lexington, Mass., but with several other defense companies. The Wall Street Journal also reported the McDonnell-Raytheon talks Tuesday.

McDonnell said it does not comment on merger-related speculation as a matter of policy. A Raytheon spokeswoman also declined to comment.

Whereas McDonnell has stuck largely to defense, Raytheon has aggressively moved into commercial areas as well. The company provides defense electronics, missiles, radars, Beech general aviation airplanes, construction equipment and services, and major appliances such as Amana refrigerators. The company earned $792.5 million last year on sales of $11.7 billion.

Raytheon has also been an active buyer in recent years. It acquired E-Systems Inc., a big producer of defense-electronics systems, last year for $2.3 billion. Last month Raytheon bought the bulk of Chrysler Corp.’s defense-electronics and aircraft-modification lines for $475 million.

Among the areas of overlap between McDonnell and Raytheon are their missile operations. McDonnell’s missiles include the Harpoon and Standoff Land Attack Missile for the Navy, and Raytheon’s include the Patriot and the Advanced Medium Range Air-to-Air Missile.