Pentagon moves up purchases to save Lockheed Georgia plant

Military says it wants to be sure supplier can produce needed aircraft

Aerospace

January 08, 2000|By BLOOMBERG NEWS

WASHINGTON -- The U.S. Defense Department decided to accelerate purchases of C-130J transport aircraft by two years to prevent a costly shutdown of Lockheed Martin Corp.'s assembly line in Marietta, Ga., the U.S. Air Force's top acquisition official said yesterday.

The Pentagon's proposed fiscal 2001 budget includes $325 million to buy two Air Force C-130Js, two Marine Corps air refueling versions and a training simulator, according to a Pentagon budget memorandum obtained by Bloomberg News. The budget also adds $312 million in fiscal 2002 for two more aircraft for the Air Force and two for the Marine Corps. The prior plan was to begin buying aircraft in 2003.

The added money, which is likely to win approval from Congress, is a major budget victory for Bethesda-based Lockheed Martin, the No. 1 defense contractor. The company was faced with closing its Marietta plant because it was running out of U.S. and foreign orders. The Air Force earlier said it wanted to buy up to 168 of the transports but not start until 2003 because its fleet of older C-130 Hercules transports has many years of service life remaining.

"We've taken a very big step of increasing the confidence that we will have a supplier for airplanes that we need when we need them," said Air Force Assistant Secretary for Acquisition Lawrence Delaney in an interview, making it clear that was the primary reason for moving the purchases forward.

"Do I need C-130J's tomorrow?" he said. "For the Air Force, that has not been a pressing need."

The company was reluctant to release 2001 earnings forecasts until the Pentagon made a decision, analysts said.

Still, analysts are wary of making too much of the budget decision.

"Added C-130Js reduce the risk of a production line break and another charge to earnings " said Byron Callan, a defense analyst for Merrill Lynch & Co., who rates Lockheed a short-term "neutral."

"It's positive, to the extent it reduces a risk, but it does not change my earnings estimates," said Callan, who projects Lockheed earnings of 95 cents a share for 2000 and $1.25 per share in 2001.

"When you look at assuring the supply of C-130Js, you have to look at what the contractor production line looks like, how well foreign sales are going, where the other services might need C-130Js," Delaney said.

He said the cost was between $500 million and $700 million.

The Pentagon's endorsement could help Lockheed sell the transport plane abroad; it's now courting Kuwait, Denmark and Italy.

Lockheed has a backlog of 41 C-130Js. It needs to produce at least 16 aircraft a year at its Marietta plant to keep it operating efficiently. It produced 19 last year and plans 16 this year, said James Grant, Lockheed's director of C- 130J operational requirements. Right now the company projects it will only produce 10 in 2001.

Lockheed Martin shares gained 6.25 cents yesterday to close at $21.4375.

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