'Beating swords into plowshares' no easy task

September 01, 1994|By John E. Woodruff | John E. Woodruff,Sun Staff Writer

Citing the Biblical injunction to "beat swords into plowshares," President Clinton came to Baltimore in March 1993 to offer the country's defense industries billions of dollars to help turn military technology to civilian purposes.

The president said he wanted to "take some of the most talented people in the world, who've produced some of the most sophisticated military technology, and put that to work in the civilian economy." To do it, he proposed spending $20 billion over five years.

The Biblical phrase, and the goals Mr. Clinton espoused, have come trippingly to the tongues of U.S. politicians and businessmen ever since George Washington's days, every time the country has felt secure enough to cut back its military.

This week, 15 months after the president's journey to Baltimore, the country's No. 2 and No. 3 defense contractors announced plans to join forces and form the world's biggest privately owned military supplier. Once again, even though they left out the phrase, they paid homage to the goals.

But in the cold-blooded view of Wall Street analysts, the biggest merger in the history of the U.S. defense industry shines a spotlight not on any successes but on the improbability of saving large numbers of jobs by converting defense industries to civilian uses.

"Defense contractors have a very specific set of skills -- producing high-technology, state-of-the-art products and selling them to a single big customer -- and it would be very difficult for one of them to make a profit running a Starbucks coffee shop. They would deliver the right amount of coffee to the micromillimeter and serve it at precisely the right temperature, but they'd never make a profit selling it in a commercial marketplace," said George J. Podrasky, senior analyst for Duff & Phelps Investment Research.

In news conferences Tuesday and yesterday, and in conference calls to industry analysts, the heads of Lockheed Corp. and Martin Marietta Corp. made all they could of the prospect that a merged Lockheed Martin Corp. will manage to use military technology in ways that will keep many of their 170,000 employees on the job.

Between them, the two companies have gone from 80 percent dependency on the Department of Defense in the late 1980s to 60 percent today, said Daniel M. Tellep, Lockheed's chairman.

The new firm will concentrate on "the use of our considerable synergies to diversify market opportunities outside the defense industry," Norman R. Augustine, Martin Marietta's chairman, said.

But Wall Street analysts say that finding customers who are not the Department of Defense is not the same as converting to civilian production.

"You could have gone away from those sessions with the impression that the new company is already well on its way to 50 percent nondefense production, and that would be nonsense," said Randolph E. Ross, a vice president and investment strategist at Kidder Peabody.

"The reality is that for both companies, a huge proportion of sales outside the Pentagon is sales of military goods to foreign governments, and sales to the Department of Energy for commissioning and decommissioning nuclear warheads, and sales of reconnaissance satellite equipment that we don't know anything about publicly because the information is classified," Mr. Ross said.

Lockheed and Martin Marietta are not alone among defense contractors in finding that beating swords into plowshares is much easier said than done.

"By 1995, half or more of your work will be nondefense," Mr. Clinton told workers at Westinghouse Electric Corp. in Linthicum, where he chose to announce his defense-conversion plans because he thought the plant was in the vanguard of the movement.

That goal -- 50 percent by 1995 -- has long since gone at Westinghouse, and with it Edward N. Silcott, the man the company picked in 1989 to head its drive into civilian markets. He left that job four months after the president's March 1993 appearance.

Instead, the local Westinghouse installations are going back to basics and trying to expand their core businesses -- airborne and ground radar, space electronics and air traffic control systems, Michael H. Jordan, the firm's chairman, announced less than a year after President Clinton's Westinghouse visit.

The story is little different at AAI Corp., the Cockeysville-based defense contractor that was one of Maryland's fastest-growing employers in the heyday of the Reagan-era defense buildup.

The company has organized itself into five operating units, only one of which is defense. But even after the Bush and Clinton administrations repeatedly slashed defense spending, the Pentagon is still the company's cash cow -- though much reduced.

Contracts have come slowly for the new civilian units, which specialize in transportation, weather, firefighter trainers and fluid tests.

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