New Lockheed flies differently

Wingless? Some analysts envision the day when Lockheed Martin will no longer make aircraft.

April 09, 2000|By Robert Little | Robert Little,SUN STAFF

Stock in the nation's largest defense contractor is worth one-third what it once was. Profits are down and expected to stay there awhile. In the past two years, the company has watched its rockets explode, its missiles miss, its spacecraft disappear and 4,500 of its employees lose their jobs.

That is the old Lockheed Martin Corp.

Today, by most accounts, Maryland's largest corporation is emerging from a financial tar pit of embarrassing losses and expensive failures, having tightened and consolidated its operations and having hired a new executive to replace the one who took the blame for the company's failures and resigned last year.

But the future of the new Lockheed Martin could be even more unimaginable than the events that have led it there.

FOR THE RECORD - A chart accompanying an article in Sunday's Business section about Lockheed Martin Corp. misrepresented the company's earnings over the past seven years. The amounts should have been shown as profits. The Sun regrets the error.

Analysts and industry authorities envision a company less reliant on the large military manufacturing projects that made it famous, and more focused on the "new economy" fields like telecommunications, information technology and systems design.

They see the company no longer building satellites, and playing a lesser role in designing and building the rockets that launch them.

They can even imagine a day when Lockheed Martin, one of the most renowned designers of military aircraft and the creator of the storied SR-71 Blackbird and U-2 spy planes, and the F-117A Stealth Fighter, is no longer in the business of making airplanes.

As the Bethesda defense giant proceeds with its efforts to improve the company's earnings, no one is sure what kind of corporation it will choose to be.

But most agree that Lockheed Martin will -- and perhaps must -- be markedly different from what it was just two years ago.

"There will probably be substantial change -- there needs to be substantial change," said Paul H. Nisbet, an aerospace analyst for JSA Research Inc. in Newport, R.I.

"I would be extremely surprised if Lockheed Martin isn't a very different company a year from now," he added.

Officials at Lockheed Martin decline to discuss strategy, except to say they are focused on succeeding in all its divisions. Said spokesman James Fetig: "The company is committed to its core businesses, and that includes large manufacturing programs in aeronautics and satellites."

But Chief Executive Officer Vance D. Coffman hinted at more last month when he wrote in a letter to shareholders: "The rebuilding of Lockheed Martin is under way."

Lockheed Martin's high-profile businesses of military airplanes and satellites might not be a strong enough foundation on which to rebuild, according to many within the industry.

Combined, Lockheed Martin's aeronautics and space systems divisions accounted for $11.3 billion in revenue least year, roughly 44 percent of the company's total sales. A third division, systems integration, reported nearly the same amount in sales -- and about 40 percent more profit. It is the company's largest and most profitable component.

While still heavily steeped in defense-related responsibilities, systems integration does not manufacture the airplanes, rockets and satellites for which the company is best known.

The division builds missile systems and other weapons, and develops computer programs to make them work. It also designs and builds air traffic control centers.

As Lockheed Martin's space and aeronautics divisions have struggled under flat profits and operational setbacks, systems integration has enjoyed some of the company's most celebrated successes.

The division is integrating all of the warfare systems for the last Nimitz-class aircraft carrier, which is designed as a transitional ship to a more modern nuclear carrier class.

And it is working with General Dynamics Corp.'s Bath Iron Works in a competition to develop a new Navy destroyer that uses an electric propulsion system. The design is expected to employ the most complex integrated weaponry ever devised and could revolutionize vessel design.

Lockheed Martin also is the federal government's largest supplier of computer programmers and technology consultants, through its technology services division. Systems integration and technology services account for more than half the company's sales and nearly two-thirds of it pretax profits.

"People focus on Lockheed as a fighter plane manufacturer, or as a space systems company, but look at what it does in IT [information technology] and systems integration," said Cai von Rumohr, an analyst for SG Cowen Securities Corp. "Those businesses are huge, and profitable."

Lockheed Martin is also set to dash into a new business this year with a potential return far greater than the defense industry norm. With President Clinton's approval, the company plans in the third quarter to close its $2.5 billion purchase of Comsat Corp., the Bethesda company that operates two commercial satellite networks.

Lockheed Martin tested the global telecommunications business before with little success. But in Comsat, it will have entered the satellite operations business at the top.

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