Lockheed Martin May See Layoffs, Closures

On the heels of announcing an $11.6-billion deal to acquire Northrop Grumman, Lockheed Martin Chairman Norman Augustine said in an interview Sunday that plant closures and firings are a possibility, but he anticipates that by next year the firm’s overall employment will remain unchanged.

“It would be fair to conclude that there would be some jobs lost as there would be in any industry,” Augustine said.

Lockheed Martin and Northrop Grumman have a combined 230,000 employees, which are spread throughout the nation but with the greatest single concentration in California.

The most obvious potential area for downsizing would involve the two firm’s seven major aircraft complexes, spread throughout four states. Lockheed operates major aircraft assembly sites in Palmdale, Fort Worth and Marietta, Ga. Northrop has facilities in El Segundo/Hawthorne, Palmdale, Dallas and St. Augustine, Fla.

Augustine declined to say whether those seven plants are too many, although many outside experts say the two companies are weighted down with substantial excess capacity.

“We are looking at our entire structure,” Augustine said. “You have to give us time to go through this.”

The two firm’s each operate some plants that date back to World War II, including the plants in Fort Worth, Marietta and El Segundo. The newest plant is Northorp’s B-2 bomber production site in Palmdale, near the relatively new Lockheed Martin Skunk Works.

Although several of the old aircraft plants are no doubt extremely costly to operate, moving aircraft structural assembly work can be prohibitively expensive. Assembly tools for aircraft are steel structures that weigh tons and must be aligned precisely.

Augustine declined to give any indication whether California would bear a disproportionate share of the layoffs or firings.

When Lockheed was an independent company in the late 1980s, it shut down its sprawling operations in Burbank and transferred the work to Georgia, eliminating thousands of jobs. However, when Lockheed and Martin merged, California ended up as a net winner of thousands of jobs.

However the merger affects California, the new Lockheed Martin is increasingly the dominant arms maker in the world, Augustine said.

Despite the continuing erosion in the defense budget, Lockheed Martin is hiring 2,000 engineers this year, Augustine said, reflecting the strength of international sales and the firm’s success in diversifying into other non-defense government markets.

Within five years, Lockheed’s international sales will account for 30% of revenue, up from about 5% in 1990.

Along the way, Lockheed has doubled its share of the international arms market, reflecting the company’s increasingly competitive position in the world.

In connection with some highly unusual accounting techniques in the merger, Augustine said Lockheed Martin is not involved in a dispute with General Electric, one of its largest investors.

When it announced its deal to buy Northrop on Thursday, Lockheed said it would account for the merger under a principle known as a “pooling of interest,” but also said undisclosed factors may lead it to be otherwise.

The highly unusual indecision on an $11.6-billion deal apparently reflects, at least in part, the fate of $3 billion of preferred stock that it issued to GE when it bought that firm’s defense business in 1993. Under a pooling of interest, Lockheed would have its hands tied in dealing with that preferred stock.

“We work extremely well with GE,” Augustine said. “We would hope to keep that up.”

The indecision about the accounting treatment also reflects a likely divestiture of some of the assets it is getting from Northrop that may not fit into Lockheed Martin, which the company refers to as “portfolio shaping.”

The company earlier this year spun off a number of other assets it had acquired in prior deals.