Lockheed Martin to sell 80 F-16s in Middle East

U.A.E. contract took two years

150 new jobs set for Md.

Defense industry

March 07, 2000|By Robert Little | Robert Little,SUN STAFF

The Armed Forces of the United Arab Emirates negotiated for nearly two years before deciding over the weekend to buy $6.4 billion worth of F-16 fighter jets from Lockheed Martin Corp, but reaction came quickly back in the United States yesterday.

The contract was called a blessing for Maryland's work force, which will grow by at least 150 workers as the new aircraft are developed. And at the New York Stock Exchange, traders boosted the value of Lockheed's shares by 6 percent.

But some analysts said Sunday's contract could have more lasting reverberations for Lockheed Martin. It could be the medicine needed to reconstruct the image of Maryland's largest corporation -- and to begin saving it from the perils of an impatient Wall Street.

"People started to wonder whether that contract was ever going to be signed," said George D. Shapiro, an analyst for Salomon Smith Barney. "It's been a pretty depressed stock, so when you get that kind of good news things happen."

The United Arab Emirates' decision to buy 80 F-16 fighter jets will mean 150 new jobs in the Baltimore area. Northrop Grumman Corp.'s Electronic Sensors and Systems Sector in Linthicum will design and manufacture the radar and target-tracking electronics for the aircraft, a $1 billion share of the contract and a task that will keep 400 local workers employed.

Northrop Grumman's stock jumped more than 8 percent yesterday, rising $3.625 to close at $48.

But much of the market's focus was on Lockheed Martin, which will manufacture the airplanes at its assembly plant in Fort Worth, Texas.

The plant builds two F-16 fighters a month, down from the 1981 high of 33 a month. Investors have long worried the aircraft is reaching the end of its practical life span.

Sunday's announcement, coupled with smaller orders announced recently to sell planes to Greece, Israel and Egypt, injected new energy into an aging aircraft design, and it shored up a division of the defense giant that had helped drag down the company's stock and caused some analysts to question the company's future.

Said Merrill Lynch Co. analyst Byron Callan: "It nails down a major program of strategic importance."

Through much of last year, Lockheed Martin was troubled by equipment failures and manufacturing delays that cut into its earnings and sent investors scrambling for the door. The closing price of its stock yesterday was 60 percent lower than its value less than a year ago.

The company announced 2,800 layoffs recently and consolidations in its aircraft and space systems divisions.

Performance has improved in recent months, and the company has announced several large contracts, but analysts said they were waiting for more positive signs before recommending Lockheed's low-priced stock as a value.

For some, the United Arab Emirates contract was the sign.

Goldman Sachs raised its rating on Lockheed yesterday from "market perform" to "market outperform." But not everyone is convinced the company's problems are over.

Paul H. Nisbet, an analyst for JSA Research Inc. in Rhode Island, attributed the company's rise on Wall Street yesterday more to Goldman Sachs' announcement than to any sign of a change in Lockheed Martin's fortunes.

"Everybody knew it was coming, it was just a matter of when," Nisbet said. "I'd like to see more."

The F-16, developed by General Dynamics Corp., entered service in 1978.

It is one of the most successful fighter aircraft ever built, with about 4,000 in production, and has maintained a steady business of international sales for Lockheed Martin to 21 countries.

The U.S. Air Force plans to replace its F-16s with the Joint Strike Fighter under development, but it has continued to buy new F-16s and upgrade older ones.

The F-16s that Lockheed Martin will deliver to the United Arab Emirates between 2004 and 2007 will bear little resemblance to the "Fighting Falcons" developed 30 years ago.

The modern versions, to be called "Desert Falcons," will be faster, have sophisticated infrared tracking and radar jamming systems, and be capable of fighting at night and under humid Persian Gulf conditions.

Much of the plane's electronics capabilities will be designed and built at the Northrop Grumman plant near Baltimore-Washington International Airport.

The company's "agile beam radar" system is designed to continuously search for and track multiple targets in the air and on the ground.

So advanced are the modern versions of the F-16 that the State Department spent nearly two years negotiating with the United Arab Emirates before allowing it to buy them. The contract must be approved by Congress.

Nisbet suggested the United States might benefit from the new contract.

"It looks like they're getting a very nice little airplane -- better than any F-16s we have now," Nisbet said. "But it looks like the cost of all that [research and development] is built into the contract. We'll be able to buy them now for almost nothing."

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