Lockheed Lands Israeli Deal Worth $2.5 Billion

From Bloomberg News

Lockheed Martin Corp. clinched a $2.5-billion warplane order from Israel by promising to pass along more than $1 billion in new contracts for Israeli defense firms, government officials said Sunday.

Israeli Prime Minister Ehud Barak, in the midst of his first visit to the United States since his election in May, formally announced the decision to buy 50 F-16 fighter jets from Lockheed, which said Friday that it received approval for the order. Seattle-based Boeing Co., which lost both the Israeli bid and a $2-billion order from Greece in March, said it will proceed with 7,000 layoffs scheduled for its F-15 production line in St. Louis, Mo.

Bethesda, Md.-based Lockheed offered more than $1 billion worth of industrial cooperation, or work orders, for Israeli defense contractors as part of its effort to win the contract, a Defense Ministry official said. Boeing said Israeli firms would receive $500 million in subcontracts if Israel bought its more expensive twin-engine F-15 fighter.

"Part of the negotiation with the companies was how much industrial cooperation they were offering, and Lockheed came up with about $1 billion, maybe a little more," said Defense Ministry spokesman Avi Carlstein. "But the crucial aspect was quality, price and number."

Barak, a former army chief of staff who also serves as defense minister, confirmed the Air Force had recommended the Lockheed offer to predecessor Moshe Arens several months ago. Before leaving office two weeks ago, Arens said Barak asked him to not make the decision and to allow him time to review the buy.

Lockheed Martin shares rose 50 cents to close at $38.88 on Friday, while Boeing's shares fell 75 cents to close at $46. Both trade on the New York Stock Exchange.

Boeing, which is the No.1 private employer in Southern California, said it would follow through with the layoffs it began after losing the Greek sale. About 2,000 employees will lose their jobs by the end of the year at Boeing's military aircraft and missile systems division in St. Louis, said Boeing spokesman Tom Downey. Another 5,000 job losses are expected by March 2001, though the layoffs could total as many as 20,000.

No further job cuts will be needed because of Israel's decision, Downey said, adding that it's too early to say whether Boeing will have to shut the F-15 line.

A U.S. House of Representatives committee has proposed spending $440 million to buy eight more F-15s, which could keep the line running longer as Boeing hunts for overseas customers. The last planes currently on order are scheduled for delivery to the U.S. Air Force early next year.

For Lockheed, the order is a victory at a difficult time. The company is expected to report a second-quarter loss of 13 cents a share Tuesday, the average estimate of analysts surveyed by First Call Corp., because of high costs and delays in deliveries. It has also warned profit this year and next will be less than expected.

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