“Lockheed's Growth Opportunities Are Not Going To Be In Space”

For the year 2000, Lockheed Martin had a net loss of US$519 million, and was carrying about US$10 billion in long-term debt. Robert Stevens, Lockheed Martin’s President and Chief Operating Officer, said, “Lockheed's growth opportunities are not going to be in space.” CEO Vance Coffman said Lockheed Martin is considering options for its commercial space business, "We've thought about all kinds of options", but declined to say whether Lockheed Martin would consider abandoning the commercial space market completely. "These businesses have extremely long cycles. To have markets that are flagging at a given point in time is something we have to deal with." The company does want to reduce its exposure to the softening commercial satellite market.

As part of the next phase of its financial restructuring Lockheed Martin plans to cut an additional US$2.8 billion in costs by the end of 2003 from its aerospace and defense operations. The company is looking for ways to further reduce the company's financial exposure to the commercial space business, which has not produced the kind of returns initially expected. The company noted its goal is to trim costs in its manufacturing and administrative processes, not through job cuts.

Last year, Lockheed Martin reduced costs by US$1.2 billion by putting lean-management practices in place throughout the company, and reducing debt and related interest payments. The company flattened its management structure and divested itself of about US$2 billion of assets as they reduced debt. The company plans to divest its IMS division, a unit with US$700 million in revenues.

Analysts report Loral and Lockheed Martin Corp. have talked about possible ways to combine facilities and order backlogs. No agreement has been reached and none appears imminent. One rumored option, envisions gradually closing Loral's satellitefactory in northern California and transferring Loral's backlog to prop up Lockheed Martin's order book. Lockheed Martin's space unit Executive Vice President Albert Smith has said there is a major "disconnect" in this segment of the industry because "capacity exceeds demand by a factor of two" world-wide. Combining the capacity of Loral and Lockheed Martin in some fashion would "create a good business".

Lockheed Martin's debt carries the lowest investment grade rating from the major credit-rating agencies. Moody's Investors Services in November revised its outlook for the company's "Baa3" senior unsecured debt to positive from stable, saying the company is "significantly" reducing debt levels. Standard & Poor's, rates the debt "BBB-minus" with a stable outlook. Heavy debt loads could hurt any effort by Lockheed Martin to participate in further consolidation among the defense and aerospace industry.

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