No hard feelings at Lockheed Martin Company hopes to put aside battle with government

July 18, 1998|By Greg Schneider | Greg Schneider,SUN STAFF

Looking to close a big sale of fighter planes to the United Arab Emirates, Bethesda's Lockheed Martin Corp. got some help last month from its best customer, the U.S. government.

At the time, the company was battling the Clinton administration over the proposed acquisition of Northrop Grumman Corp., but Vice President Al Gore still went to a Lockheed Martin plant in Texas to celebrate the Emirates' decision to buy F-16s.

The Defense Department "even helped us in the process of the international competition, so we feel good about that," Lockheed Martin Chairman and Chief Executive Officer Vance D. Coffman said after the defense giant abandoned the fight Thursday.

Coffman hopes the Emirates deal and other recent contract wins show that Lockheed Martin didn't ruin its relationship with the Pentagon during the contentious conflict.

Pentagon officials stunned the defense industry by opposing the $11 billion merger and joining with the Justice Department in an antitrust lawsuit filed March 23. As the lawsuit grew in rancor, Lockheed Martin thought the Pentagon would come back around to the support it has shown in recent years for consolidation among defense companies.

It didn't, and Lockheed Martin decided the benefits of combining with Northrop Grumman were not as great as the risk of continuing to clash with the Department of Defense.

In announcing that the merger was off, Coffman swallowed whatever indignation he might have felt initially and made a point of reaching out to his former courtroom adversary.

"I extend my personal thanks to Defense Secretary William Cohen and his team for their good-faith efforts to resolve this complex issue and look forward to continuing our excellent working relationship," Coffman said in a statement.

"I don't think any permanent damage has been done," he said in an interview, and industry experts seem to agree.

"It hasn't helped, but the fact that they have backed off, I think, is to their credit," said Paul Nisbet, a financial analyst for JSA Research Inc.

Lockheed Martin had a mixed record during the time it clashed with the government.

The company lost a major contract to the Boeing Co. for assembling a national missile defense system but beat Boeing in the $2 billion competition for a new generation of cruise missiles.

Another big government contract, a $6 billion job running National Aeronautics and Space Administration satellites, hangs in the balance.

The choice of Lockheed Martin or Boeing was supposed to have been announced July 1 but has been delayed until at least next week.

Boeing and Lockheed were the contenders for the three biggest new contracts of the year, and the government isn't likely to hold a grudge against such a major partner.

Even without buying Northrop Grumman, Lockheed Martin ranked first or second in 16 of 23 market areas in a defense industry survey by the Defense Mergers & Acquisitions newsletter.

Two-thirds of Lockheed Martin's 1997 annual sales of $28 billion were to the government, and the company accounts for at least a quarter of all Pentagon spending on new equipment.

That kind of dominance is partly why the government feared a marriage with Northrop Grumman would have dangerously eroded competition in the defense industry.

Lockheed Martin said it needed the deal to remain competitive, but analysts say the loss won't be crippling.

"It doesn't give them quite the advantages they were looking for, but they'll be fine," said Richard Aboulafia, a military expert with the Teal Group consulting firm.

Wall Street seemed to agree yesterday, as Lockheed Martin stock gained $1.50 to $105.4375.

Pub Date: 7/18/98

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