Pentagon Adjusts Contract for Lockheed, Boeing

Lockheed Martin Corp. won’t be required to spend as much as $150 million next year to build a West Coast facility to launch satellites because there won’t be enough commercial launches to justify the expenditure, the Air Force said.

The Pentagon is modifying a 1998 contract that required Lockheed and rival Boeing Co. to build launch pads at Vandenberg Air Force Base as they compete to build the nation’s next generation of rockets to launch commercial and military satellites.

The decision means Lockheed Martin won’t have to spend money for a launch pad that won’t be profitable.

The Air Force has given the contractors $500 million each to develop the rocket family; the contractors are responsible for any cost beyond that to complete the work. Lockheed Martin told analysts it might spend as much as $250 million by 2001 without the contract modification.

“The new arrangement allows Lockheed Martin to focus its development funding on launches that have the greatest potential to grow in the government and commercial sector,” said Loren Thompson, a defense analyst with the Lexington Institute, a Washington-based think tank.

Also Wednesday, Lockheed raised its cash flow estimates for this year by two-thirds to $1.5 billion because of savings from cost-cutting and asset sales.

Cash flow had been projected at $900 million for the year, a company spokesman said.

Lockheed said it expects to generate at least $2.3 billion in cash flow this year and next, up from a previous estimate of $1.7 billion.

The Air Force and Pentagon agreed to modify the launch contract to keep alive a robust competition between Lockheed and Boeing that the government hopes will keep down launch costs.

The agreement provides some compensation to Boeing. The Air Force is seeking congressional approval to spend about $141 million through 2003 to pay Boeing for testing the launch of a simulated heavy payload.

The so-called Evolved Expendable Launch Vehicle program is to operate until 2020, replacing the current Titan II and IV, Delta II and Atlas II rockets.

The commercial market in low-altitude commercial satellites that require heavy-lift rockets is much lower than was envisioned when the EELV contracts were signed, according to the most recent market survey by the Commercial Space Transportation Advisory Group.

Shares in Bethesda, Md.-based Lockheed closed up 6 cents at $28.75 on the New York Stock Exchange.

Separately, Boeing boosted its 2000 free-cash-flow estimate above $4 billion from a previous range of $3 billion to $4 billion, as its drive to wring more profit out of its factories starts to pay off. In 1999, Boeing posted free cash flow of $4.7 billion.

Boeing said it would use the extra cash to buy back stock, completing a 1998 plan to repurchase 15% of its shares. That program is now about 83% completed.

Boeing’s announcement helped its shares rise $2.31 to close at $59.06, also on the New York Stock Exchange.