IF ANTI-TRUST OFFICIALS in Washington give their expected blessing, Bethesda-based Lockheed Martin will become the nation's No. 1 military contractor late this year with its announced purchase of Northrop Grumman for $11.6 billion. It is a deal that flows directly from the Pentagon's policy of pressing for massive consolidation within the defense industry as procurement budgets shrink in the post-Cold War era.
After the merger, Lockheed Martin will be a $37 billion behemoth with 230,000 employees. It still will be dwarfed by commercial aviation leader Boeing (now merging with McDonnell Douglas) but far larger than a beefed-up Raytheon (now buying Hughes Electronics' and Texas Instruments' defense units). Together, they constitute the Big Three of a revamped defense industry.
The Pentagon has encouraged consolidations in hopes of gaining efficiencies of scale in research and production of military equipment. With a 60 percent reduction in procurements, top military brass fostered a Pac-Man strategy, in which the biggest and strongest companies started gobbling up weaker competitors.
There's little doubt that the enlarged Lockheed Martin (14,000 employees in Maryland) will be a powerhouse, with strengths in space and defense markets, computer services and overseas sales. Acquisition of Northrop's premier electronics division at Linthicum is one of the prized pickups. Lockheed Martin's other major local unit, in the old Glenn L. Martin plant at Middle River, is the company's main manufacturing center for aircraft parts. Both are key cogs in the merged company and face a bright future, despite workers' natural concerns over job security.
Some officials in Washington, though, are beginning to worry that the merger trend has gone too far in the defense industry. Their concern is that with so few companies, innovation might be stifled and prices might rise, instead of fall, in a controlled market.
Yet the remaining three contractors are intense competitors for defense work. Innovation could be fostered as research labs are combined. The depth and breadth of services offered by the new Lockheed Martin should prove beneficial in keeping bids low.
In the world of shrinking defense contracts, only a handful of firms could survive. Northrop Grumman found itself as the biggest of the remaining subcontractors, but not large enough to challenge the industry leaders. Combining its expertise with Lockheed Martin's creates intriguing synergy.
Pub Date: 7/08/97
