Bethesda -- A global war has erupted within the defense industry.
The conflict, which centers on a corporate acquisition, involves five of the world's top defense contractors, including the makers of the MX missiles, and components of the B-2 stealth bombers and the "star wars" missile defense system. And it pits former Secretary of Defense Frank C. Carlucci against a close friend and formidable opponent, Norman R. Augustine, the chairman and chief executive of Martin Marietta Corp.
Despite such military might, this is a battle of words, being fought in a New York bankruptcy court and in the halls of Congress.
On the surface, the issue is the acquisition of Dallas-based LTV Corp.'s missile and aircraft businesses by Thomson-CSF, a company owned in part by the French government. But the stakes are much higher. At issue in the precedent-setting case: whether a foreign country should be allowed to hold an interest in an American defense contractor.
"We have the opportunity here to make a terrible mistake as a country," Mr. Augustine says.
LTV, a diversified company, has been fighting a six-year battle with bankruptcy. As part of a reorganization, LTV decided to sell off a unit that makes tactical missiles for the Army and an aircraft division that produces components for the B-2 bomber and Boeing jetliners.
Bethesda-based Martin Marietta saw the announcement as an opportunity to pick up a big chunk of new business at a bargain basement price. It teamed with Lockheed Corp. in a joint venture, and signed a $355 million agreement with LTV for the missile and aircraft divisions.
But then along came Thomson, a Paris-based defense electronics company that is 58 percent-owned by the French government, and The Carlyle Group, a investment group headquartered in Washington. In early April the Thomson/Carlyle team bid $400 million for the LTV operations.
After a brief bidding war, in which Martin-Lockheed raised its bid to $385 million and the Thomson-Carlyle bid went to $450 million, U.S. Bankruptcy Court Judge Burton Lifland approved the higher offer.
That decision is being reviewed by Committee for Foreign Investment in the United States, a group that includes representatives from the Treasury Department, Commerce Department and the Department of Defense. The committee has until mid-July to make its recommendation to President Bush, who is not bound by the committee's decision.
Judge Lifland's decision has also caught the eye of Congress. Democratic Rep. Les Aspin of Wisconsin, chairman of the House Armed Services Committee has written a letter to Mr. Bush opposing the sale, and has scheduled a hearing Thursday on the matter. Another cautionary letter to the president, from Democratic Sen. Dale Bumpers of Arkansas, has been signed by 40 other senators.
Meanwhile, the Martin-Lockheed proposal is being scrutinized by the Federal Trade Commission to determine its impact on competition within the missile industry.
Mr. Augustine's criticism is sharp. Noting that the United States has never nationalized its defense industry, he asks rhetorically: "Why should we allow it to be nationalized under the French government."
He adds, "The defense industry in this country is just as important to our military capability as is our Army, our Navy or our Air Force. I don't think we would sell our army to the French or to anybody."
Mr. Augustine says he has no objection to a foreign company's buying a U.S. company but that he is adamantly opposed to foreign government involvement.
"Having foreign governments participating in a free-enterprise market place is just like having a monopoly in the market place," he said. "They have so much more power. They have their own printing press to print money. They make the rules, interpret the rules, and enforce the rules."
Susan J. Tolchin, a professor George Washington University's School of Business and Public Management, agrees.
"No company, even one as rich as Martin Marietta, can compete with the government from an industrialized country," she told a Senate committee after advocating a statutory change that would bar the sale of a U.S. prime contractor of critical technology to a foreign company.
Mr. Augustine says Martin learned how tough it can be to compete with a government-subsidized operation when it entered the commercial satellite launching business in 1986 and went head-to-head with the French Ariane rocket.
"We found that we couldn't compete against them. They just had too much power, financial power," he said.
And in their presentation to the Senate Subcommittee on Defense Industry and Technology, Mr. Augustine and Daniel M. Tellep, chairman and chief executive of Lockheed, expressed concern about leakage of classified information.
"Technology is not transferred by members of any board of directors -- it is transferred from engineer to engineer, detail by detail, over months and years," he said.