Lockheed to build satellite system $1.8 billion contract called 'big win' for Bethesda company

November 09, 1996|By Greg Schneider | Greg Schneider,SUN STAFF

Lockheed Martin Corp. won a $1.8 billion defense contract yesterday to build the next generation of the satellite system that would warn the nation of enemy missile attacks.

If the Pentagon decides to launch 12 to 15 more satellites in addition to the five purchased yesterday, the contract could be worth between $10 billion and $22 billion for the Bethesda-based company, analysts said.

"This is a big win for them. It really solidifies their role as the dominant provider of military space products," said defense analyst Brett Lambert of DFI International in Washington.

"I think it's an important validation that a company of Lockheed's size can still be nimble and win contracts," said Byron Callan of Merrill Lynch in New York.

Most of the work will be performed at Lockheed Martin's Space and Strategic Missiles Sector in Sunnyvale, Calif. But the news is also good for the local unit of Northrop Grumman Corp., which is a partner on the contract.

Northrop Grumman's Electronic Sensors and Systems Division in Linthicum, a former Westinghouse factory, will work on the infrared surveillance cameras on the satellites.

"It's a great thing for [Northrop Grumman]. It moves them into a very important sector here. Space is a real growth sector," Lambert said.

The Space Based Infrared System, known as SBIRS, is a network of satellites that will replace the early-warning system put into orbit in 1967. Like the old system, SBIRS will detect missile launches around the globe, but it will have several advantages over the current system:

Not only will SBIRS detect intercontinental ballistic missiles -- which, with their nuclear warheads, were the principal threat of the Cold War -- but it also will detect theater ballistic missiles. Those shorter-range missiles include the Scuds that Iraq launched during the Persian Gulf war, and are a greater threat in today's climate of volatile regional conflicts.

It will not only identify the missiles, but it will be able to relay that information to other defense systems and prepare a response.

The new system will also be able to perform other functions, such as battle damage assessment.

"It's a big day indeed," said Mel Brashears, president of Lockheed Martin's Space and Strategic Missiles Sector. "This is a core business for us, and that's one of the reasons why we had a continuous effort for 12 years to bring this into view."

Lockheed Martin's other partners on the contract include Aerojet, which was involved in launching the previous early-warning system, and Honeywell Inc.

The companies beat a rival team made up of Hughes Aircraft Co., a unit of General Motors, and TRW Inc.

As the world's biggest defense contractor, Lockheed Martin could hardly be called an underdog in the competition. But analysts found it remarkable that the company beat the Hughes/TRW team.

"It's a key strategic win," Callan said. "They essentially unseated the incumbent."

TRW was the prime contractor for the satellite system launched in 1967. Hughes jumped to TRW's team in 1995 after working with Lockheed on the project, "because they thought TRW had a better shot," analyst Lambert said.

"Last year, everyone in the defense community, including myself, would have told you TRW looked like the winner," he said. The tables have turned because "Lockheed Martin is so strong right now in military space, both in terms of a proven track record and a proven commitment to the Strategic Defense Initiative."

Another remarkable part of the contract is that it marks the military's resolve to use technology proved in the commercial marketplace, a concept known as dual-use.

Lockheed Martin will mount the system on its new A2100 satellite, which was first launched in September and is a prime vehicle for the communications industry.

"Winning is the endorsement of the dual-use approach, which gives economies of scale for both military and commercial customers," Brashears said.

The win begins a hectic period for Lockheed Martin. The company will find out Tuesday whether its team gets to build the $1 billion prototype for the Air Force's airborne laser weapons program, and it will learn Nov. 18 whether it advances in the competition for the multibillion-dollar joint strike fighter warplane.

Yesterday's contract award came after the close of trading on Wall Street, during which Lockheed Martin stock dropped $1.125, to $88.625.

Pub Date: 11/09/96

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