Lockheed to Revisit Boeing Partnership
Delay Has Cast Doubt on Rocket Venture

By Renae Merle
Washington Post Staff Writer
Wednesday, April 26, 2006

Bethesda-based Lockheed Martin Corp. plans to review whether a proposed plan to consolidate its rocket engineering and launch division with Boeing Co.'s still makes sense after being delayed months by a government review.

Lockheed said the delay has left some of its top scientists in limbo and has raised questions about the original business rationale for the plan.

"We continue to believe that the formation is in the best interest of all concerned," said Lockheed spokesman Tom Jurkowsky, but he added that on Thursday, Lockheed's board will review the impact of the delay. Under the proposal, production of satellite-bearing rockets would be consolidated at Boeing's Decatur, Ala., facility, while Lockheed's Denver office would serve as the headquarters and house the engineering and administrative units. Some jobs would be eliminated.

"You got some very highly qualified, very bright people who work in this field; half of our people are scientists and engineers," Jurkowsky said. "Their lives are in limbo."

The companies pitched the joint venture as a way to save money in their struggling government rocket-launch businesses. The proposal has been hampered by concerns about creating a monopoly in the market, which includes launching science satellites for NASA, spy satellites for the National Security Agency and communications satellites for the Air Force. The Pentagon has asked Boeing and Lockheed to make several changes to the joint venture that could make it more expensive to run, several industry officials said.

"They [Lockheed] are looking for a way to save money, and if this deal doesn't offer that to them, it will be hard for them to go forward," said Jim Lewis, a space expert at the Center for Strategic and International Studies.

The joint venture would also end a bitter two-year legal battle between the Pentagon's largest contractors in which Lockheed accused Boeing of cheating to win rocket-launch work. Lockheed has said it would drop a lawsuit against Boeing once the joint venture was approved.

Boeing spokesman Dan Beck said the Chicago aerospace company remains committed to the deal. "We are just waiting for the government to make their decision. We feel that we provided them the information they need," Beck said.

The companies are currently awaiting approval from the Federal Trade Commission, which declined to comment yesterday.

Meanwhile, Lockheed yesterday reported a 60 percent jump in profit during the first quarter, despite falling sales in its signature aeronautics unit. During the quarter, profit reached $591 million ($1.34 a share), compared with $369 million (83 cents) during the corresponding quarter a year earlier. The most recent quarter included one-time gains from the sale of interest in two satellite companies. Revenue increased 9 percent, to $9.21 billion.

Anticipating that defense spending will slow, Lockheed, the Pentagon's largest contractor, has increasingly turned its attention to non-military work. Lockheed said the focus helped the company's systems and information technology group reach $4.57 billion in revenue during the quarter, compared with $4.06 billion in the corresponding period a year earlier. The unit includes a multimillion-dollar contract to develop a security system for the New York subway system.

Revenue in Lockheed's aeronautics unit fell to $2.68 billion from $2.77 billion, a trend that is expected to continue. The company delivered fewer C-130J cargo jets during the quarter and expects production of its F-16, the most widely distributed fighter jet in the world, to begin to decline next year.

Lockheed stock fell $1.39, or nearly 2 percent, to close at $76.20 a share yesterday.

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