Graham Warwick/WASHINGTON DC
NEARLY A CENTURY ago, a handful of men created what became the US aviation industry; names such as Glenn Martin, William Boeing, the Loughead brothers, Donald Douglas and Jack Northrop. As the first century of powered flight draws to a close, another handful is deciding the future shape of the US aerospace industry; chief among them Norm Augustine, who has forged Lockheed Martin into a $37 billion defence and aerospace powerhouse.
Augustine has not acted alone, but he has played a leading role in the $80 billion consolidation spectacle that has gripped US industry over the past four years. He has been supported by Lockheed's Dan Tellep, who proposed the merger with Augustine's Martin Marietta; by Bernard Schwartz, who agreed to sell them Loral, a company he built up from $30 million to $9 billion in annual sales; and now by Northrop Grumman's Kent Kresa, who has abandoned a determined drive for independence.
Augustine's actions, if not his vision, undoubtedly factored in Boeing's decision to buy Rockwell's defence businesses and to merge with McDonnell Douglas (MDC). Similarly, Lockheed Martin's size must have influenced Raytheon's $15 billion buying spree, which swept up first E-Systems, then Texas Instruments' defence business and Hughes Aircraft.
While those early aviation industrialists saw unlimited opportunity in the USA's untravelled skies, Augustine looks ahead and sees intense global competition. The $11.6 billion merger with Northrop Grumman is not just to make Lockheed Martin bigger, he says, but to reduce costs and strengthen technology "-to be more competitive globally". Competition will come from the enlarged Boeing and Raytheon, but also, eventually, from consolidated European and revitalised Russian industries.
Whether Augustine's vision will survive the scrutiny of the US Government is another issue, although he is confident that the merger will not encounter anti-trust problems. His confidence is based on the "well defined" and "remarkably consistent" criteria previously applied by regulators. "Size alone is not a factor in anti-trust," he says.
Augustine hopes instead that regulators, and the US Department of Defense, will look at the merger "market by market". He acknowledges that the "new" Lockheed Martin will be strong in aeronautics, electronics, information and systems integration, "-but there will be strong competition in each".
In fighters, Lockheed Martin has the F-16 and Boeing will have the F-18; they co-operate on the F-22 and compete on the Joint Strike Fighter (JSF) - they also offer competing bomber-design capabilities. In transports, Lockheed Martin has the C-130J and Boeing will have the C-17. While Boeing has the E-767 Airborne Warning and Control System (AWACS), and Lockheed Martin will have the E-8 Joint Surveillance Target Attack Radar System (JSTARS), they compete in the airborne early-warning and control (AEW&C) market. Lockheed Martin also competes with Raytheon in battlefield-surveillance.
In electronics, the merger will make Lockheed Martin a leading radar manufacturer: fighter radars for the F-16, F-22 and JSF; surveillance radars for the AWACS, JSTARS and AEW&C aircraft; and ground radars for air-defence and air-traffic-control markets. Here Raytheon, with its acquisition of Hughes, will remain a strong competitor. There is some risk of a loss of competition in the electronic-warfare arena, where Lockheed Martin Sanders and Northrop Grumman are major players among a field of smaller companies such as ITT and Litton, but Raytheon could again emerge as the strongest competitor.
Northrop Grumman will strengthen Lockheed Martin in the air-traffic-management market, adding the capability to supply radars, with Raytheon providing the strongest competition. Lockheed Martin's space and missiles businesses will be boosted incrementally by Northrop Grumman's space-based sensor and smart-weapon projects. Boeing will provide competition on satellite-launch vehicles and air-to-ground missiles; while Loral and TRW will vie with both to supply satellites, and Raytheon will offer a competing source of surface-to-air missiles.
How keenly the Pentagon will scrutinise the merger will depend on the extent to which it believes Augustine's claim that Lockheed Martin is a "merchant buyer and merchant supplier" - meaning that it will buy from competitors and sell to competitors.
The increased vertical integration resulting from consolidation has raised fears that the industry giants could hold their competitors, as well as their customers, to ransom. Augustine cites Lockheed Martin's selection of a competitor's computer for its JSF as one demonstration of its willingness to deal outside the company.
The merger is expected to be approved, and its completion by early 1998 will raise the inevitable question of where next will Augustine's vision alight? He has been vocal on European industry's need to consolidate, and Lockheed Martin is actively courting European manufacturers. Whether the company will wait to align itself with one of the anticipated European giants, or move earlier to forge links with one of the major national players remains to be seen.
Source: Flight International
