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                                                                                NATIONAL SECURITY, Page 37

Giving Away the Weapons Store


The proposed sale of a troubled defense contractor to the French
triggers an argument over America's security needs

By BRUCE VAN VOORST/WASHINGTON


    Americans wince when something distinctly "American,"
like California beachfront or Rockefeller Center, is bought by
foreigners. But an April 10 decision by a federal bankruptcy
court in New York to allow the sale of the Texas-based LTV
Aerospace and Defense Co. to Thomson-CSF, whose principal
stockholder is the French government, raised questions far more
vexing than matters of mere national pride. About 75% of LTV's
products are defense-related, including such advanced systems
as the Multiple Launch Rocket System and the B-2 Stealth bomber.
French ownership would effectively guarantee French acquisition
of LTV's classified American defense technology.

    On the other hand, for six years LTV has been in Chapter
11 bankruptcy, which allows for rehabilitation rather than
liquidation of a company's assets. Without a bail-out from
somewhere, LTV is almost certain to go belly up, leaving a $3.1
billion pension shortfall for more than 100,000 current and
retired -- American -- employees. Beyond secrets and beyond
jobs, what's at stake is how the U.S. should cope with an
industry that is bound to shrink as the country comes home from
the cold war.

    Complicating matters further, Thomson-CSF, with $6.8
billion in sales last year, recruited the Carlyle Group, an
investment concern specializing in defense firms, to join in the
offering for LTV. Their combined bid of $450 million bested by
$65 million an offer by a consortium of two U.S. weapons-makers,
Martin-Marietta and Lockheed Corp. After a protracted review
process, Manhattan bankruptcy judge Burton Lifland awarded LTV's
missile division to Thomson-CSF and its aircraft operations to
Carlyle.

    Critics challenged the sale, charging both unfair
competition and a giveaway of American technological secrets.
Not only is Thomson-CSF 60% owned by the French government, but
so is Credit Lyonnais, the French bank that is the leading
creditor for the Carlyle Group in the deal. As Martin Marietta
chairman and ceo Norman Augustine puts it, "I can't compete with
the deep pockets of the French government."

    The Pentagon's Defense Intelligence Agency has determined
that the sale of LTV's missile technology to the French firm
poses major security problems. Thomson-CSF, aware that access
to LTV's Stealth technology would never be approved, brought the
Carlyle Group into the deal specifically to buy the aircraft
operations. Still, critics object that Thomson-CSF is
essentially buying U.S. secrets. Asks a Pentagon insider
rhetorically: "Why else would Thomson buy a bankrupt LTV in a
declining defense market except to get the technology?"

    Under U.S. law, either the U.S. Defense Department or the
President can restrict or veto the sale. Last week, reflecting
growing concern over the deal, the review process was extended
to late July. One particularly sensitive point being raised is
Thomson-CSF's record of supplying arms to rogue governments,
including Libya and Iraq. Already, 45 Senators and many
Congressmen have petitioned President Bush to stop the sale.
Argues Senator Jeff Bingaman, chairman of the U.S. Senate Armed
Services technology subcommittee: "There isn't a country in the
world that would permit the U.S. through a government-owned
company to purchase its defense industry."

    The battle involves some powerful protagonists in the
international defense industry. Championing the proposed deal
is former U.S. Defense Secretary Frank Carlucci, now Carlyle's
vice chairman, who argues that the LTV missile operation is a
natural complement to Thomson-CSF's heavy involvement in
communications, radar and guidance systems. Carlucci claims that
LTV will benefit from the strength of Thomson-CSF, and to prove
his point he cites opposition to the sale by French
missilemakers Aerospatiale and Matra. "The U.S. cannot escape
the trend toward greater internationalization of the Western
defense industry," he says.

    Carlucci charges that Martin Marietta's Augustine wrongly
claims that the French government's ownership of Thomson gives
it control of the firm. Carlucci argues instead that such French
firms enjoy considerable autonomy. Dozens of international firms
have classified contracts with the Pentagon, he points out.
Thomson-CSF itself shares with GTE a $4.3 billion contract for
the state-of-the-art battlefield-communications system that
played a critical role in the gulf war. For that matter, Martin
Marietta shares classified contracts with Thomson-CSF for
sophisticated terminally guided munitions. James Bell, chairman
and president of Thomson-CSF Inc., the American subsidiary, told
the U.S. Congress, "Thomson-CSF has an impeccable record on
compliance with American security regulations and export
controls."

    The proposed sale exposes the vagueness of U.S. policy on
selling sensitive defense firms to international competitors and
the absence of guidelines to determine which U.S. firms are
vital to national security. Augustine hopes to make the LTV sale
a test case in clarifying the issues. "If we can't have a level
playing field with foreign firms," he says, "the least we can
hope is that somebody turns on the lights."