Northrop upgrades in Linthicum Anne Arundel facility to be one of two major headquarters

'It's a plus for Baltimore'

New electronics sector to lose 500 jobs, unlike 7,500 from other areas

August 25, 1998|By Greg Schneider | Greg Schneider,SUN STAFF

Northrop Grumman Corp. restructured itself yesterday, elevating the status of its business in Linthicum and announcing far-ranging job cuts aimed at reducing costs.

The former division in Linthicum will take responsibility for other electronics-related businesses around the country as one of two corporate sectors. The other sector will consolidate Northrop Grumman's military and commercial aircraft work.

Northrop Grumman's Logicon Inc. subsidiary will handle information technology businesses.

The organizational changes, which some analysts said were overdue, will combine with other streamlining for a net loss of 8,000 jobs by the end of 2000. Most of the job losses will be in California as defense programs such as the B-2 bomber wind down and as Asian economic problems reduce demand for commercial airplane parts.

Northrop Grumman, which has headquarters in Los Angeles, hopes the changes will lead to $300 million in annual cost savings by 2001.

"These actions are necessary to ensure that we meet the affordability requirements of our customers while continuing to add value for our shareholders," said Kent Kresa, the company's chairman, president and chief executive officer.

Company stock has withered since Lockheed Martin Corp. abandoned plans last month to buy Northrop Grumman in the face of federal antitrust opposition. Shares lost 12.5 cents yesterday to close at $68.6875 -- down from a high in February of $139.

Cost $60 million

Yesterday's moves will cost $60 million to implement, the company said.

"That will certainly lower their earnings for this year," said analyst Paul Nisbet of JSA Research Inc. But he added that higher profit margins from the reorganization should offset the loss.

Company officials have not yet determined how the changes will affect Northrop Grumman's 7,400 employees in the Baltimore area.

"It's a plus for Baltimore, that seems pretty apparent," said Stuart McCutchan, editor of the newsletter Defense Mergers & Acquisitions.

The new Electronic Sensors & Systems Sector -- to be known as ES3 or "ES-cubed" -- employs 14,000 nationwide, an increase of 3,000 jobs from its previous status as a division. But the sector is expected to lose 500 jobs after the streamlining ends in 2000, officials said.

The former Westinghouse military electronics factory, which builds some of the world's most advanced radars as well as undersea robot mine hunters and radar jamming systems, could wind up gaining jobs as other businesses are consolidated here.

The plant could also lose work if it is more efficient to move product lines to one of the new subsidiaries, said James G. Roche, the former division leader who will continue as general manager of the sector.

"Much will depend upon how we compare the efficiency of doing business here to doing business elsewhere," Roche said. "We will now take a look at that over the next period of time."

'Merge with ourselves'

Roche said the overall streamlining process evolved from the failed merger with Lockheed Martin, which executives had promised would save the federal government hundreds of millions of dollars a year through more efficient operations.

Once the transaction fell apart, "We said, 'Let's assume we merge with ourselves. Are there consolidation things we could be doing to see if we can be more competitive?' " Roche said.

The resulting plan organizes Northrop Grumman into three distinct business areas, down from the five separate divisions that made up the company only two years ago.

The ES-cubed sector in Linthicum will include a former Northrop electronics plant in Rolling Meadows, Ill., and a former Grumman operation that builds parts for a missile-detecting satellite system in Bethpage, N.Y.

Two other divisions and part of a third will roll into the new Integrated Systems & Aerostructures Sector in Dallas, uniting military and commercial aircraft operations.

Finally, the company's Logicon Inc. subsidiary in Herndon, Va., will handle all information technology businesses.

Most cuts in aircraft jobs

Most of the job losses projected through the year 2000 will take place in the aircraft sector.

Electronics and information technology should gain 2,500 jobs over that period, the company said.

The Linthicum division was the biggest single sticking point in the government's decision to fight the Lockheed Martin merger, so industry experts said it was no surprise that Northrop Grumman would make the facility one of its three major headquarters.

In fact, some analysts said Northrop Grumman had never reconciled its 1996 purchase of Westinghouse and was overdue in making the adjustments.

"Northrop Grumman has lagged companies like Lockheed Martin in terms of integrating its mega-mergers, and now they're playing catch-up," said McCutchan, the acquisitions expert. "That's pretty much driven by the need to do something in view of what's happened to the company's stock and its prospects in the wake of the Lockheed Martin deal falling through."

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