Loral chairman brought firm back Lockheed is acquiring acknowledged leader in defense electronics


January 09, 1996|By Michael Dresser | Michael Dresser,SUN STAFF

The Loral Corp. of 1996 is one of the bluest of blue-chip companies, but 24 years ago the New York-based defense contractor was on the skids.

The company founded in 1948 by William Lorenz and Leon Alpert -- the 'Lor' and 'Al' in Loral) -- had turned itself into a classic conglomerate -- making everything from copper wire to industrial meters to toys.

And like most conglomerates of that era, Loral went too far. After a series of unwise acquisitions, Loral in the early 1970s fell into default on its loans and was on the brink of being kicked off the New York Stock Exchange.

Enter Bernard L. Schwartz. In 1972, the former president of a computer leasing company came on board as Loral's chairman and president.

After working out agreements with the company's creditors, he embarked on a crash program of selling off the company's weaker businesses in order to concentrate on its core business: defense electronics systems.

PTC Within a year, Mr. Schwartz had Loral back in the black and on its way to becoming one of the nation's largest and strongest defense companies. Last year, the company earned $288.4 million on $5.5 billion in sales. It employs about 38,000 people worldwide.

Yesterday, Mr. Schwartz, 69, brought his quarter-century run as chief executive of Loral to an end when he announced a $10 billion deal under which Bethesda-based Lockheed Martin Corp. will acquire the company's defense businesses.

Mr. Schwartz will serve as vice chairman of Lockheed Martin and will become chairman and chief executive of the new Loral Space and Communications Corp., a much smaller company that will inherit the old Loral's satellite communications businesses.

The business Lockheed Martin is acquiring is one of the acknowledged leaders in defense electronics -- with a role in everything from the programming of "smart" weapons to anti-submarine warfare to issuing Army paychecks.

Loral makes the radar warning systems that alert F-15 and F-16 fighter pilots to danger, and the flight simulators used to train them. It makes the guided missile systems that let them fight back.

Its ALQ-157, Matador and Challenger systems emit infrared energy pulses that divert heat-seeking missiles away from aircraft, naval vessels and armored equipment on the ground. Its "black boxes" record data and cockpit voices during flights so investigators can tell what went wrong in the event of an accident.

The company makes electronic jamming systems and weather detection systems. It makes systems to control rocket launches. Most of its sales are to the military, but it also makes air traffic control equipment, automated delivery systems for the U.S. Postal Service and medical and dental imaging systems.

More than 80 percent of its sales go to the U.S. government, but no program accounts for more than 6 percent of its revenue.

During the Schwartz years, Loral has continued to make large acquisitions, but more judiciously than before.

Among the 13 companies Loral acquired between 1980 and 1992 are Xerox's electrooptical defense and aerospace business in 1983, ROLM's military computer unit in 1985, Goodyear Aerospace in 1987 and Ford Aerospace in 1990.

That final deal, the largest of the Schwartz era at $715 million, more than doubled Loral's size.

In recent years, Loral has carved out a role for itself in the telecommunications arena through its Space Systems/Loral Inc., which will become part of Loral Space.

The subsidiary, known as SS/L, produces satellites for telecommunications, remote earth sensing and direct-to-home television. It also is the prime contractor for the space-based part of a new digital phone system known as Globalstar, which will connect continents through a chain of low-Earth-orbit satellites.

While that part of the business will not become a part of Lockheed Martin, the Maryland company will invest $344 million to take a 20 percent equity stake in Loral Space.

Loral's reputation was tarnished somewhat in the late 1980s, when it was caught up in the government's Ill Wind defense procurement investigation. In 1989 the company pleaded guilty to three charges and was forced to give up part of a contract to provide radar warning systems for the F-16 fighter plane.

In recent years, Loral has outperformed the entire defense industry, by several measures.

Its net profit margin for the most recent fiscal year, which ended in March, showed a net profit margin of 5.61 percent, compared with an industry average of 4.98 percent. Its return on equity was 18.97 percent, compared with 12.37 for the industry as a whole.

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