Lockheed will pay dollars 1.5bn for General Dynamics air arm

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The Independent Online
LOCKHEED Corporation, the US defence contractor, is to acquire the tactical military aircraft business of General Dynamics for dollars 1.525bn ( pounds 980m) in cash.

The acquisition will add about dollars 3bn in annual revenues to Lockheed, boosting its annual revenues to dollars 13bn, second to only McDonnell Douglas among US military contractors.

General Dynamics expects to make a net gain of dollars 650m from the sale, which is subject to government review but is expected to be completed during the first quarter of 1993.

Lockheed intends to finance the acquisition through a combination of short and long-term debt. The deal is the latest move in the consolidation of the US defence industry, as companies adjust to lower military spending in the wake of the end of the Cold War.

General Dynamics' chairman, William Anders, said that it was not enough for companies simply to shrink along with defence demand, but that it was necessary to achieve critical mass by consolidating with similar operations to achieve programme efficiencies.

General Dynamics had unsuccessfully pursued possible alternatives through acquisition or merger before deciding to sell its military aircraft business to Lockheed, he said.

The General Dynamics tactical aircraft unit employs about 20,000 people, most of them at its design and production facilities in Fort Worth, Texas.

The division is the prime contractor for the highly successful

F-16 fighter-bomber, which has been sold to 18 countries, and is a participant in the co-development of the new FS-X fighter aircraft for Japan.

It is also responsible for about one third of the engineering and manufacturing development contract for the US Air Force's F-22 air superiority fighter, a programme that is being led by Lockheed. With this acquisition Lockheed will now be responsible for about two thirds of this scheme.

Analysts said that the price tag for the acquisition was at the top end of the range, but pointed out that Lockheed will be able to make savings on overhead costs on some programmes as a result of the deal.

Lockheed already employs 70,000 people, building everything from commercial satellites and military transport aircraft to the missiles on Trident nuclear submarines.

General Dynamics shares rose by dollars 6.50 to dollars 107.50 in early trading in New York while Lockheed shares also rose by dollars 4.25 to dollars 56.50.

Lockheed's chairman, Daniel Tellep, and Mr Anders said: 'This combination will further the much-needed consolidation of the nation's defence industry, while preserving key capabilities within the defence industrial base which are critical to national security.'