Thanksgiving all month for Lockheed Biggest defense firm had success in Nov. on 3 major contracts

Potential of $328 billion

It is like Orioles going undefeated, says chief executive

December 01, 1996|By Greg Schneider | Greg Schneider,SUN STAFF

Lockheed Martin Corp. had the kind of November that would make a good decade for most companies.

Three major government contracts -- three big wins, with a total value of $3.6 billion.

Total potential value: a preposterous $328 billion.

"That's like knocking the ball out of the park and taking the park home with you," Chief Executive Officer Norman R. Augustine said in a recent interview.

In a conference room at company headquarters in Bethesda, Augustine reflected on the past month with a mixture of pride, humility and bemusement. He knew Lockheed Martin was going to be a monster when he helped create it last year by merging Lockheed and Martin Marietta.

"But we've certainly exceeded, I think, what we had any reasonable right to expect," Augustine said.

The recent wins came on the heels of an already remarkable year that included winning the race to build the replacement for the Space Shuttle, piling adjective on top of superlative on top of sports metaphor.

"That's like expecting the Orioles to go through the season undefeated," Augustine said. "Any good manager would say you expected that, but you've got to realize it probably isn't going to happen." Except that for Lockheed Martin, it did happen. The Joint Strike Fighter, the airborne laser and the Space Based Infrared System were all landmark contracts awarded in November. All involved a major stake in the military of the future. All involved a vast potential payoff to the winning company -- in the case of Joint Strike Fighter, something like $300 billion, making it the richest defense award ever.

Lockheed Martin won or advanced in all three competitions. In the case of the Joint Strike Fighter, it and Boeing got the nod and funding to build competing prototypes that the Pentagon will evaluate, with the final decision scheduled for 2001.

It's easy to understand why Augustine would resort to sports to describe his situation, because little else in real life compares to the kind of dominance that Lockheed Martin has achieved.

"But like a baseball player who has just gotten half-a-dozen hits in a row, I think any reasonable person knows you can't expect to do that day in and day out," Augustine conceded. "I'm sure we can do much better than the industry averages. But we can't maintain this degree of perfection with any reasonable expectation."

The average defense company, he said, wins about 27 percent of the contracts it bids on. Lockheed Martin had been averaging a win rate of 60 percent even before the November returns came in.

Where do they go from here? Common sense would say the only direction left is down. Augustine does expect things to level out, and he expects the field of competitors to change. But neither he nor industry analysts expect Lockheed Martin to do anything but flourish for the next several decades.

Morgan Stanley, in a recent defense industry analysis, pointed out that Lockheed Martin's $30 billion in annual sales almost equals the entire annual defense budget of the United Kingdom.

"We believe that Lockheed Martin's leading position is such that it should be able to maintain its competitive advantage for about 20 years," the study concluded.

With revenues equaling those of its next two U.S. competitors combined -- McDonnell Douglas Corp. and Northrop Grumman Corp. -- Lockheed Martin is the thick-necked epitome of the recent merger craze in the defense industry. Its results validate both the hopes of those who thought bigger would be better and the fears of those who thought bigger would just be scary.

"It's true. They are the anti-Christ," joked Teal Group defense analyst Richard Aboulafia.

Hyperbole aside, Aboulafia sees no one on the horizon that competes with Lockheed Martin's diversity and economy of scale. That could only change, he said, if there is another mega-merger -- say, Boeing and McDonnell Douglas, which has been rumored.

Augustine expects some such beast to arise.

"From the nation's standpoint, I would encourage that," he said.

Merging Lockheed, Martin Marietta and later Loral Corp. has let the resulting company save $2.6 billion a year, Augustine said. Those savings, he said, drive prices down and help the Defense Department spend fewer tax dollars.

The emergence of another super company would not only mean more public savings, it would improve the marketplace, he said.

"From a competitive standpoint, I would much rather compete with strong, healthy companies that are not worrying about survival. Companies that are worrying about survival tend to be very unpredictable, to do irrational things, to take very large risks. And they distort the marketplace," Augustine said.

One company wringing its hands lately is McDonnell Douglas, shut out by Lockheed Martin and Boeing in the race to build a prototype Joint Strike Fighter. Already having renounced the large commercial airplane business, McDonnell Douglas now faces the prospect of losing its prestigious heritage in military aircraft as well.

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