Boeing raises aerial profile Merger strengthens production, tightens race for military pacts


The marriage of Boeing Co. and McDonnell Douglas Corp. will create a company that produces almost half of the aircraft on the planet, including major portions of virtually every American fighter jet.

Bethesda's Lockheed Martin Corp. still claims the F-16 fighter plane. But Boeing may have bought itself the lead in the pivotal race to build a 21st-century warplane for three branches of the military.

And the Seattle company has staked a prominent role in military space, acquiring a double shot at a major Air Force rocket contract. The Pentagon will name two finalists in the $2 billion rocket program Friday, and Boeing and McDonnell Douglas are both candidates in a field of four.

In commercial aviation, only the European consortium Airbus Industrie can claim to compete with the new aerospace titan.

Wall Street gave the merger a hearty vote of encouragement yesterday, sending McDonnell Douglas share prices roaring up $10.50 to $62.50 and Boeing up $4 to $100.75.

Lockheed Martin stock slipped 37.5 cents to $85.875.

Lockheed Martin does maintain a healthy advantage in the fastest-growing area of defense business: military electronics.

And the overall outlook for the Bethesda giant remains positive, analysts agreed.

"Sure, a competitor's stronger. But Lockheed Martin is still very strong. I don't think that there is reason for undue concern," said Mark Biagetti of First Equity investment bank in Stamford, Conn.

In fact, Lockheed Martin might see some short-term advantage as Boeing rushes to absorb not only McDonnell Douglas but also Rockwell, which it finished buying just last month.

"I would anticipate Lockheed Martin to try to take full advantage of those discontinuities that are sure to occur over the next 18 months. I mean, that's an awful lot [for Boeing] to swallow in a fairly short period of time," said Brett Lambert of DFI International.

Another factor in Lockheed Martin's favor is that it has a broader field of expertise than Boeing and more vertical integration.

Boeing will have undisputed dominance in the making of aircraft. It will manufacture as much as 47 percent of all the world's civilian and military airplanes, said analyst Richard Aboulafia of the Teal Group.

But when it comes to putting electronics systems on those aircraft, or building the computers that link defenders together, "Lockheed Martin still has absolute advantage," he said.

It's doubtful, though, that such expertise preserves Lockheed Martin's previous advantage in the biggest warplane prize of them all, the Joint Strike Fighter.

Planned as the universal fighter for the Air Force, Navy and Marine Corps through the first half of the 21st century, the program could be worth $300 billion or more as the richest Pentagon award ever.

The military picked Boeing and Lockheed Martin last month for a five-year contest to see who gets to build the plane, snubbing McDonnell Douglas. Lockheed Martin was widely considered the favorite in the contest, because Boeing's entry is more radical and because the Seattle company hasn't built a fighter since World War II.

But with McDonnell Douglas on board, Boeing has instant heritage and access to some of the most accomplished fighter-building skills anywhere.

That could prompt Lockheed into looking for yet another corporate acquisition, some observers said. "I'd expect now that they're No. 2, they'd be very hungry. After all, it's all about manhood," Aboulafia said.

Hughes Aircraft and Northrop Grumman, which along with the defense operations of Texas Instruments have been the subject of widespread acquisition speculation, could both be attractive targets for a giant looking for one more advantage.

A Lockheed Martin spokesman declined to comment on the possibility of future purchases. And while the company has said it could make adjustments to stay competitive, Chief Executive Officer Norman Augustine has emphasized that he is happy with the current portfolio.

Space is another frontier where Lockheed Martin is likely to face an immediate challenge to its leadership.

On Friday, the Air Force is set to pick two finalists for a generation of rockets to replace the Atlas and Titan boosters built by Lockheed Martin and the Delta booster built by McDonnell Douglas.

Lockheed Martin had been widely considered the front-runner, with its low-risk entry. The odds now favor Boeing as being at least another finalist, since it and McDonnell Douglas both have candidates.

"Lockheed Martin was clearly dominant in the military space sector. But Boeing has made some tactical inroads over the last year, and with the combination of McDonnell Douglas, that now makes them a major competitor," said analyst Lambert.

The Pentagon originally had planned to announce the contract yesterday, but it delayed amid speculation that officials were reviewing the implications of the merger.

Boeing said yesterday that it would share no information with McDonnell Douglas during the competition.

Lockheed vs. the new Boeing

The following compares Lockheed Martin Corp. with a combined Boeing-McDonnell Douglas:

............................. Lockheed Martin ............. Boeing

Employees: .................. 190,000 ..................... 200,000

Est. 1997 revenues: ......... $30 billion ................. $48 billion

Locations of operations: .... 25 states ................... 27 states

Ratio of government to

commercial business, 1995: .. 82/18 ....................... 49/51 *

* Based on combined revenues of Boeing Co., McDonnell Douglas Corp. and Rockwell International Corp., which merged into Boeing in November.

Pub Date: 12/17/96

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