Don't Let Mergers Crowd out Defense-Conversion Efforts If Lockheed and Martin Marietta Join Forces, They Will Contribute to Higher Weapons Costs in the Long Run

Article excerpt

THE recently proposed merger of Lockheed and Martin Marietta Corporations threatens to stall the remarkable and little-heralded process of post-cold-war defense conversion. If approved, it could force many companies engaged in the search for civilian uses for their highly skilled personnel, facilities, and know-how to turn instead to the risky game of courting rivals and building empires. In turn, the Pentagon will face fewer suppliers with even greater political clout.

Merger mania has belatedly bloomed in the defense industry, unleashing the same frenzy that hollowed out many American corporations in the 1980s. The rationale is that in an era of defense cutbacks, consolidation would permit contractors to save on overhead; with lower costs they could pass savings on to taxpayers and beat out competitors. This may be true in the short run, though tens of thousands of jobs will be lost and taxpayers will absorb shutdown costs.

But there is a darker side to the proposed merger. Fewer competitors and bigger size will mean greater leverage in dealing with the Pentagon and Congress. Political analysts worry about the considerable heft of a Lockheed Martin in the American "gunbelt," the coastal and Southern states favored by defense spending. The mammoth survivor would have enormous power to convince Pentagon officials and military users of the indispensability of its products and its plans for new generations of military equipment. It would also have greater bargaining power in setting weaponry prices, especially in missile and satellite programs.

Although some leading military contractors consistently naysay conversion, prominent among them Martin Marietta's CEO Norman Augustine, our research shows that conversion efforts are surprisingly widespread and increasingly successful, even among the largest firms. Conversion has a long history.

Dupont worked assiduously after World War I to retain its employees and facilities, mostly committed to munitions, and successfully moved into the paints, plastic, and synthetics businesses. After World War II, aluminum makers like ALCOA found marvelous markets in housewares and appliances, while Boeing transformed itself into a first-rate, dual-use aircraft company, weathering the post-Vietnam cuts remarkably well.

Today, contractors from the smallest to the largest have mounted conversion initiatives. Some are already profitable. Although small and medium-sized companies - more nimble and perhaps more desperate - are more successful at conversion, large companies like Hughes/GM and TRW Inc. are making dramatic strides in applying aerospace expertise to automobiles, transit systems, and intelligent highways. …