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Cost-cutting could end 35,000 jobs

THE BALTIMORE SUN

After 10 months of extensive review of its worldwide operations, Lockheed Martin Corp. this week will announce a sweeping reorganization designed to cut its operating costs by billions of dollars over the next five years.

One industry analyst said the plan, which is expected to be announced Wednesday or Friday, would likely result in a dozen or more plants being closed and up to 35,000 workers being displaced.

In addition to the closings, Lockheed Martin may also announce that it will sell some of its marginal businesses. This could include the aircraft thrust reverser business at its sprawling Middle River complex.

Norman R. Augustine, president of Lockheed Martin, declined to provide specifics, but said the work force reduction will be "quite significant" and "painful."

The changes are the result of the merger in mid-March between industry giants Lockheed Corp. and Martin Marietta Corp., forming the world's largest defense and aerospace company with 170,000 workers and projected sales of $23 billion this year.

The restructuring of Lockheed Martin comes as no surprise. Since the merger, executives have warned that the company would have to shrink its work force to become more efficient and competitive.

"Our industry continues to be one of great turbulence in the marketplace, particularly in defense," Mr. Augustine said. "And, like other companies, we are constantly looking at our portfolio of businesses to be sure they are businesses we want to stay in."

The changes expected to be announced this week are not likely DTC to be the last for Lockheed Martin. Plants that survive the cuts will still be subject to review to determine their future, Mr. Augustine said.

"My guess is that they will eliminate 20 percent or more of their work force," said Paul H. Nisbit, president of JSA Research in Newport, R.I., which follows the defense and aerospace industries. "That could be 30,000 to 35,000 workers."

Mr. Nisbit said factory workers may fare better than managers. "As they combine operations, only one set of management and administrative personnel will be need," he said. "That's where they will achieve their biggest savings, and that's where I think most of the work force reductions will be made."

Mr. Nisbit said Lockheed Martin will likely combine defense electronics operations scattered around the country at its under-used facility in Orlando, Fla.

Another way of reducing costs, Mr. Nisbit said, will be to sell less-profitable operations. "Neither of these companies have been real good in the past of getting rid of marginal businesses," he said.

"They are now reviewing every operation and they are likely to make some divestitures," he said. "It won't be done in one fell swoop. They may announce one or two this week and more sometime in the future."

The company's aircraft thrust reverser business in Middle River is a likely target for divestiture, he said.

"I'm sure they will take a hard look at that and decide if they want to stay in that business. They only have a small percentage of that total business, and the company's approach has always been to get into something in a big way to take advantage of the efficiencies of larger volume or get out of the business."

Three years ago, when the Middle River plant was seeking to expand its production of thrust reversers, company officials said they would have to be No. 1 or No. 2 in the market or get out of the business.

In December 1992, the plant thought it had achieved its goal by landing a contract to build more than $1 billion worth of reversers for Pratt & Whitney. But the agreement fell through two months later.

Thrust reversers account for about a third of the business at Middle River, but design and production problems with a new line of reversers were blamed for Middle River's unprofitable operations last year.

Mr. Augustine declined to say whether Middle River will remain open. He said it was being looked at the same as other plants around the country and the "decisions will be based on purely business considerations and financial considerations, mainly competitiveness."

He said the decisions will be based on what amounts to a "mathematical calculation" that does not include a facility's history. To its advantage, Mr. Augustine said, the Middle River plant has a "moderate" cost of doing business.

The Middle River plant opened in 1929 and served as the corporate headquarters and primary production operations of the Glenn L. Martin Co. for nearly three decades.

During its heyday, it was the biggest and most innovative aircraft plant in the country. Employment peaked at 53,000 during World War II when it built military planes, including the B-26 Marauder bomber.

It also made the China Clipper, the flying boat that paved the way for commercial passenger flights across the oceans, and the Titan rockets that powered the Gemini astronauts into orbit in the 1960s.

Middle River has about 1,000 workers, and the bulk of the plant's production is the construction of a rocket launching system that is used on military ships.

Anxiety at Middle River was very high last summer after the announcement of the proposed merger of Lockheed Corp. and Martin Marietta Corp. Employees feared that their work would be shifted to a Lockheed aircraft plant in Marietta, Ga.

But in recent months tensions have eased a bit. The current speculation is that Middle River will remain open.

James T. Brady, secretary of the Maryland Department of Economic and Employment Development, said he and Gov. Parris N. Glendening met with Daniel M. Tellep, chairman and chief executive of Lockheed Martin, two weeks ago at the company's headquarters in Bethesda to discuss its involvement the state.

Although Mr. Tellep did not give the state officials a definitive answer on the fate of Middle River, Mr. Brady said he walked away feeling "that we certainly had a very good shot at saving it."

L "We feel cautiously optimistic about Middle River," he said.

Even if Middle River and other plants are not on the list of closings to be announced this week, Mr. Augustine said this does not mean their long-term futures are secure.

"I would not want anyone to get the impression that once these decisions are made that everything is stable for the next 25 years, because we have this continuing ongoing review" in which each business will have to justify its existence.

Mr. Augustine said the defense procurement budget has declined 71 percent in purchasing power since 1987. Spending on the space program, another big part of the company's business, is also declining.

He said while the job cuts will be painful, the company has no choice but to reduce its cost of doing business.

"If we can't become more competitive, everybody loses their job eventually. The situation is we have to restructure to be efficient. We really have no choice. It's terribly painful, but on the other hand it is absolutely essential."

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