Lockheed-Northrop

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No. 7

Lockheed Buys Northrop

Another L.A.-based aerospace company bites the dust.

In what analysts call the last in a long series of aerospace mega-mergers, Lockheed Martin Corp. bought Century City-based Northrop Grumman Corp. in July for $11.6 billion.

Upon completion of the deal, expected in the first quarter of 1998, the combined company will be the nation’s largest defense contractor manufacturing cargo planes, jet fighters, bombers, missiles, satellites and radar systems.

Northrop and Lockheed officials lauded the merger as a boon for both companies. But the deal does not bode well for Los Angeles. Shortly after it was announced, Lockheed Martin Chairman Norman Augustine told reporters that the merger would result in excess capacity corporate code for cutbacks.

Not only is L.A. losing one of its few remaining Fortune 500 companies, analysts expect Bethesda, Md.-based Lockheed to divert L.A.-area work to its facilities in other lower-cost areas of the country in 1998.

Overall, Northrop has about 14,400 employees in the L.A. area, most of whom work at its aircraft assembly plants in El Segundo/Hawthorne and Palmdale.

Northrop makes defense products such as the B-2 Stealth bomber and the MX missile system and is the nation’s sixth-largest defense contractor, based on revenues (which are estimated to be $8.3 billion for 1997).

The company had been viewed as a takeover target because of its relatively small size and because it had lost its 1997 bid to buy the defense units of Hughes Electronics Corp.

The expanded Lockheed will be one of three national aerospace giants emerging from a dramatic consolidation that has taken place in the past few years. The other two are Boeing Co., which completed its acquisition of McDonnell-Douglas Corp. in August, and Raytheon Corp., which in December completed its purchase of the defense units of Hughes Electronics Corp.

The Northrop deal is not expected to close without some complications. In December, Business Week reported that the Justice Department may force Lockheed to divest up to $600 million of Northrop assets to preserve competitiveness in certain sectors such as radar systems.

Northrop and Lockheed officials were unavailable for comment last week.

Wade Daniels

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