One hundred years ago, in the age of Rockefeller and J.P. Morgan, two giant corporations joining forces often meant monopoly and despotism. "If we will not endure a king as a political power, we should not endure a king over production, transportation and sale of any of the necessities of life," said Sen. John Sherman, sponsor of the 1890 antitrust act that bears his name.
Today, bigger may not be better just for the barons; it may be smarter and cheaper for consumers and taxpayers as well. Last week's merger of Lockheed Corp. and Martin Marietta Corp., a union of the nation's second- and third-largest defense contractors that would create a $ 23 billion behemoth, was the crescendo in the defense industry's drive to shed its cold war past and produce and sell more efficiently. The merger means less duplication and should mean lower costs: The new Lockheed Martin will need one headquarters, not two; it will need one information systems division, not two. "Three full factories are better thansix that are half full," says Norman Augustine, Martin Marietta's chairman and chief executive officer.
Good fit. These efficiencies, if passed on to the Pentagon and the taxpayer, should offset fears that the new defense giant will overwhelm smaller rivals and snuff out competition. The two companies' strengths tend to complement one another: Lockheed leads in aerospace, producing the F-16 and the new stealthy F-22 fighter. Martin leads in defense electronics, such as Aegis combat systems and fire-control radars for Army Apache helicopters. Still, Deputy Defense Secretary John Deutch acknowledged the "very serious antitrust questions" a merger of this size raises. An assessment by the Pentagon and either the Justice Department or the Federal Trade Commission will likely scrutinize Lockheed Martin's space division most closely, since both companies make top-secret military satellites.
Defense experts don't anticipate the merger will be blocked. In fact, the Pentagon's leadership has been encouraging the industry, which still has too many companies chasing too few dollars, to restructure, arguing that more-efficient players will preserve the defense industrial base and could actually save the taxpayer money. Lockheed Chief Executive Officer Daniel Tellep sees possible savings on top of those earned by closing facilities and cutting the work force. For instance, the two companies now spend a total of $ 750 million on research and development, in some cases on the same projects. Reduced costs could be passed on to the government in two ways: lower bids on future contracts or lower costs in "cost-based" contracts, in which the amount the government pays falls as prices do. Martin Marietta's earlier acquisition of two contractors is held up as a model: By acquiring General Electric Aerospace and General Dynamics' Space Systems and eliminating 5 million square feet of underused facilities, Augustine estimates savings to the government of $ 1 billion over five years.
Bigger may be better overseas, too. "As a combined company, [Lockheed Martin] will be able to expand its reach and offer interesting packages to prospective overseas buyers," says Richard Bitzinger, an analyst at the Washington-based Defense Budget Project. Lockheed Martin, with $ 4 billion in international sales now, could pair Lockheed's F-16 with Martin's LANTIRN low-altitude navigation system designed for fighters --an attractive package for international shoppers. Likewise, Martin makes ground-based interceptors for theatre-missile defenses while Lockheed specializes in high-altitude defenses.
International sales may save some American jobs. But ultimately, layoffs could result from greater efficiency. Together, Lockheed and Martin Marietta employ some 170,000 people, including 27,600 in battered California, a state that has already seen 300,000 defense jobs disappear. While reluctant to telegraph their intentions, Augustine and Tellep concede that closing facilities will cost jobs. "These are Darwinian times in our industry," says Augustine. "The failure to change is the failure to survive."
MARTIN MARIETTA A leader in defense electronics; makes the Titan space-launch vehicle. Generated revenues of $ 9.4 billion last year. Purchased GE Aerospace for $ 3 billion in 1993. LOCKHEED A leader in aerospace; produces the new, stealthy F-22 fighter. Generated revenues of $ 13.2 billion last year. Purchased General Dynamics' F-16 fighter business for $ 1.5 billion.
