Lockheed in pounds 6bn defence deal

RUSSELL HOTTEN

Lockheed Martin, one the world's biggest defence companies, is buying the bulk of the defence electronics business Loral for $9.1bn (pounds 6bn) in a further rationalisation of the US weapons industry.

Lockheed Martin will keep Loral's defence electronics and systems integration businesses, and spin off the satellite communications operation into a separate company.

The deal is another major consolidation of the shrinking defence business, and will add to pressure among European companies to cut costs through further mergers and cross-border alliances.

Lockheed Martin, itself a merger in 1994 between Lockheed and Martin Marietta, is paying $7bn in cash and taking on $2.1bn in debt for the defence operations.

The satellite business will be renamed Loral Space and Communications, with Lockheed buying 20 per cent of the business for a further $344m. Loral shareholders would get one share of Loral space for every share they now own.

Maryland-based Lockheed Martin makes military aircraft, space systems, missiles and electronics systems. New York-based Loral's products include radar jamming equipment, aircraft voice recorders and air traffic control systems. The combined company will have annual revenues of about $30bn.

Keith Patriquin, an analyst atLoomis Sayles, said the deal confirmed Lockheed Martin's global position in both defence and civilian aerospace.

He believed Lockheed Martin did not try to buy the satellite businesses because of anti-trust worries - Lockheed and Loral are two of the US's three biggest players in this field.

"With some $30bn in annual sales and a broad portfolio of businesses spanning aerospace, defence, commercial and civil programs, we are well positioned for the 21st century," said Lockheed Martin's chairman, Daniel Tellep, who added that the industry's consolidation had not run its course.

Combined with last week's Northrop Grumman purchase of the defence-electronics holdings of Westinghouse Electric for about $3bn, the deal puts further pressure on Boeing, McDonnell Douglas and General Motors' Hughes Electronics.

But it will also cause worry among European defence businesses, which are trying to consolidate in the face of declining government spending budgets.

Meanwhile, the battle between Boeing and Airbus for aerospace business should be highlighted today with the expected announcement of a huge Malaysian airline order.

Malaysian Airline System was due to announce the purchase of about 25 long and medium-range aircraft worth $4bn, with Boeing taking the lion's share of the order.