Lockheed shake-up to shed 12,000 jobs and cost pounds 1bn

Lockheed Martin, the huge American defence group, is cutting 12,000 jobs over two years in a worldwide reorganisation expected to cost the company about $1.7bn (pounds 1bn).

The move is part of a global restructuring of defence and aerospace industries, and was announced as speculation grew that Rolls-Royce was close to announcing an important aero-engine joint venture.

Lockheed, whose merger earlier this year with Martin Marietta was made in the face of declining government defence spending, is closing 26 offices as part of the changes, which should save $1.8bn a year. About 5,000 jobs will go this year in addition to the 7,000 redundancies announced under a previous plan.

Defence companies throughout Europe, including British Aerospace and GEC, have been cutting costs and forming mergers to counter the threat from revitalised US companies. Lockheed said the plan will consolidate facilities, eliminate duplication and optimise economies of scale.

"It creates new economies of scale," Daniel Tellep, Lockheed Martin chairman and chief executive insisted at a news conference at the company's base in Bethesda, Maryland. "This consolidation plan dramatically improves our competitiveness." He noted that over recent years, the defence procurement budget of the Pentagon had declined 70 per cent.

According to the plan, most of the 12,000 jobs will be lost by the end of next year, leaving the company with a workforce of about 118,000. As well as the 26 field offices, 12 other facilities and laboratories will be closed. Lockheed Martin will consolidate four large space facilities into two - one in Colorado and the other in California.

The company will also consolidate its current ocean, radar and sensor systems programmes into a single facility.

The plan will result in a pre-tax charge of $525m in the second quarter, on top of a $165m charge taken in the first quarter. In trading after the announcement, shares slipped slightly in New York to $63.25, down 37.5 cents.

News of further restructuring in the European aerospace industry emerged yesterday when reports in Germany said BMW Rolls-Royce had agreed an engine joint venture with MTU, the engine operation of Daimler-Benz Aerospace. The two sides have been talking for some time, but refuse to say whether they are close to a deal.

Yesterday, the Independent was told it was a question of "when, not if'' the agreement was signed. Sir Ralph Robbins, Rolls-Royce's chairman, was in Germany last week, and said his company could become the nucleus of a pan-European engine group to rival America's General Electric and Pratt & Whitney. "We want to see one engine maker in each country of Europe workwith us,'' he said.

Talks about creating a European engine consortium have been hampered by industrial rivalry between BMW and Daimler-Benz. Snecma, the French state-owned engine group, could be invited to join a merged group at a later date.