In yet another blow to its troubled space business, Lockheed Martin Corp. has been displaced as the country's dominant supplier of top-secret government spy satellites with the loss of a $4.5 billion contract to competitor Boeing Co.
The victory by Boeing, which has made increasing its military and space business a key objective since its 1997 merger with McDonnell Douglas Corp., means Lockheed will no longer control the manufacture and launch of spy satellites for the super-secret National Reconnaissance Office. Bethesda-based Lockheed and its predecessor companies have been the primary maker of the "Keyhole" group of satellites that orbit the Earth and take pictures, as well as the rockets on which the satellites are launched, since the 1950s.
The NRO contract, which was awarded late Friday and first disclosed yesterday in Defense Daily, is the largest and final portion of the agency's Future Imagery Architecture system. The NRO does not provide details about the dollar value of the program, but people familiar with it say it is worth at least $4.5 billion. "Black" programs, as classified contracts are called within the defense industry, also tend to be highly profitable.
"We have said all along that the single biggest growth area for the Boeing Co. is in space and communications," said Boeing spokesman Doug Kennett.
Lockheed spokesman James Fetig acknowledged the loss, saying, "We're disappointed."
The loss is the latest in a string of bad news for Lockheed's space business. Last week, the top executive in the company's space sector retired to take a job as chief executive of Allegheny Teledyne Inc. The manager, A. Thomas Corcoran, was viewed within the industry as a turnaround artist who took over the space job last fall after a series of mishaps. These included the failure last August of a Lockheed Titan IV carrying a spy satellite for the NRO, as well as the loss of an Air Force contract--to Boeing--to build a new generation of expendable rockets.
"The name Lockheed and Lockheed Martin has been virtually synonymous with these satellites for four decades," said John Pike, director of space policy at the Federation of American Scientists. "Lockheed not only loses the spy satellite business, but they also lose the heavy, unmanned launch vehicle business."
Later this week, the company is expected to release a report critical of its space businesses, faulting the firm for placing too heavy an emphasis on trimming costs and not monitoring employee quality adequately.
Loss of the NRO contract has "broad ramifications" for Lockheed, said Merrill Lynch & Co. analyst Byron Callan: "The classified programs have typically provided technology, overhead absorption and products over time."
Pike said the loss also shows the degree to which the balance of power has shifted in the military part of the aerospace industry, where Lockheed was also seen as the leader and Boeing the No. 2 among the top three contractors, with Raytheon Co. specializing in the defense electronics niche.
But ever since Boeing bested Lockheed in the contract for a national missile defense shield and the expendable launchers, the two companies have been competing more as equals. And they are locked in a furious battle to build the Joint Strike Fighter, the Pentagon's largest weapons program and a contract that could be worth as much as $300 billion during the next century.
"Talk about a reversal of fortune," Pike said of Lockheed. "It's really astonishing. This company has got a serious problem now."
Lockheed shares closed yesterday at $35, down $1.62 1/2, on the New York Stock Exchange.