Despite some gains, challenges remain


August 23, 1993|By Ted Shelsby | Ted Shelsby,Staff Writer

Westinghouse Electronic Systems Group, the industrial complex characterized by state officials as a locomotive that pulls Maryland's economy, seems to be getting back on track.

After years of shrinking revenues and profits -- and cutbacks that eliminated about 7,000 jobs in Maryland -- the Linthicum-based defense contractor expects business to level off through 1994.

"The toughest years are behind us," said Richard A. Linder, the division president. "I don't see any more significant layoffs."

But serious challenges remain.

The division, which has been scrambling to develop commercial products, still gets about 70 percent of its sales from the Pentagon, leaving it vulnerable to cutbacks in defense spending. As one indication of the changing fortunes of defense contractors, the company learned last week that the Clinton administration might revive a Westinghouse-built airborne radar jamming system that had been killed by former Defense Secretary Dick Cheney.

And though diversification efforts have shown promise -- especially in home security systems -- profits from some products may be years away.

The stakes are high for Westinghouse -- and for Maryland.

Parent Westinghouse Electric Corp. has made the electronics business, which had $2.8 billion in revenues last year, a cornerstone of its restructuring.

And despite job cuts, the local division still ranks as Maryland's largest manufacturer, employing 10,500 people with wages 70 percent above the state average. About 1,800 Maryland subcontractors also look to the division for a substantial part of their business.

Stock analysts who follow the company tend to agree with Mr. Linder's prediction of better times ahead, but they offer some caution, too.

Martin A. Sankey of First Boston Corp. forecasts that the division's revenues will continue their slide, falling to $2.7 billion this year, and $2.5 billion in 1994. Revenues peaked at $3.2 billion in 1991 and slipped to $2.9 billion last year.

As the division begins to cash in on investments in new products, annual operating profits should rise, reversing the trend of recent years, Mr. Sankey says.

Operating income, which fell to $221 million last year, should rise to $230 million this year and $235 million in 1994, he says.

Still, looking further into the future, he expects the corporate parent to grow at 6 to 8 percent annually, while the electronics division lags at a maximum annual growth rate of 5 percent.

Two other analysts, Judy A. Meehan of Parker Hunter Inc. in Pittsburgh, and Albert E. Turner of Duff & Phelps Inc. in Chicago, say the local division has suffered as a result of the problems at other Westinghouse Electric divisions.

The main culprit: commercial real estate operations that triggered the corporation's $2.4 billion in losses over the past two years. Problems at Westinghouse Electric's Financial Services unit probably deprived the electronics division of money for acquisitions that could have boosted diversification efforts, they said.

The electronics division was "swimming against the tide" in its effort to develop new markets while the corporation was strapped for cash, Mr. Turner says. He thinks any meaningful future growth will stem from nondefense department sales.

Westinghouse Electric recently took an important step to ease its heavy debt burden. Two weeks ago, it sold its distribution and controls division to Eaton Corp. for $1.1 billion. That's part of a plan, announced last November, to cut debt by $5 billion over two years.

Defense still key

As Mr. Linder predicts better times, he is scrutinizing that portion of the Defense Department budget that most directly affects suppliers of such military hardware as tanks, submarines and fighter planes.

He is encouraged that the Pentagon procurement budget is showing signs of rising again, after being cut from $80 billion to $44 billion in recent years.

"Defense is still a key part of our business, and it always will be," he said.

One early victim of the budget cut was the Navy's A-12 attack plane. Westinghouse supplied the main radar and an infrared system for the planes, which were being developed jointly by McDonnell Douglas Corp. and General Dynamics Corp.

The cancellation forced the electronics group to lay off about 1,200 workers.

Even during these lean times, Westinghouse has picked up two major military contracts that have the potential to be multibillion-dollar programs.

It has teamed with Bethesda-based Martin Marietta Corp. to develop the Longbow electronic warfare system that will be installed on the Army's attack helicopters. It has also been selected to supply the radar for the F-22, the military's next-generation fighter plane.

These are huge programs, Mr. Linder says, comparing them to a contract to supply radar for the F-16 fighter plane. Over the past 15 years the F-16 radar program was the division's biggest individual contract. More than 3,000 units were produced, generating $5 billion in sales.

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