Lockheed Martin Corp. executives plan to make deep staff cuts at corporate headquarters in Bethesda, transferring top officials into the field in an attempt to streamline and strengthen the troubled defense contractor, sources say.
Chairman and chief executive Vance D. Coffman will present the plan to the company's board of directors on Thursday, the second major reorganization he has produced in the past four months.
"In the effort to eliminate as many management layers as possible, you need to streamline Bethesda," said one source familiar with the plan.
The plan is said to be Coffman's most far-reaching attempt yet to reverse a sharp deterioration of profits, mishaps on major programs and the increasing irritation of investors over the steep slide in the company's stock. A company spokesman declined to comment "on matters pending before the board of directors."
Coffman will remain in Bethesda as CEO, along with headquarters executives of the company's systems integration unit and the new Global Telecommunications subsidiary, sources say.
But leadership of the company's aircraft business will shift to Fort Worth, and space operations will be headquartered in Denver.
Lockheed Martin's technology services line of business was already headquartered in Cherry Hill, N.J.
The moves will trigger a series of companywide job cuts, but sources said overall layoff targets will not be set until Thursday.
At headquarters in Bethesda, the impact of layoffs and transfers on a work force of roughly 500 to 700 people won't be clear for longer still, another source said. While the space and aeronautics business units in Bethesda may be reduced by as much as 80 percent, other areas will lose fewer positions, the source said.
Another source said the overall cuts at the Bethesda headquarters could amount to 30 percent or more.
Details of the plan have been closely guarded, and executives were ordered last week by Chief Financial Officer Robert Stevens not to speak with outsiders under penalty of dismissal, several sources said.
The actions Coffman will present to the board on Thursday are aimed at giving four executive vice presidents heading major divisions better access to direct financial information by stationing them at key operational sites, the sources said.
"If you get down into the operations, on the scenes, it gives you better operating control," one source said.
One of the main criticisms made during an in-house review of the company's management last year was that layers of bureaucracy kept headquarters from getting straight answers on financial conditions.
The company has looked at the possibility of selling off facilities at its Aeronautical Systems unit in Marietta, Ga., and at the Missiles & Space unit in Sunnyvale, Calif., both of which suffer from dwindling product lines and profit margins. Employees in both places have been reassured that they are not currently on the block.
One source pointed out, though, that the reorganization plan Coffman will present Thursday makes it easier to break off the pieces and sell them. But another source familiar with the company's leadership insisted that there is no such intention.
Many on Wall Street have been clamoring for Lockheed Martin to take more drastic steps to revive its flaccid stock price. The company's shares lost 45 percent of their value in the past year following three successive confessions of weakening earnings.
Lockheed Martin stock hit a 52-week low of $16.37 1/2 on Oct. 29--the last time management warned of financial trouble--down from a peak of $46 on May 4.
Results for the last three months of 1999 will come out Friday, and analysts expect earnings to meet expectations of about 59 cents a share. Lockheed Martin warned last October that profits in 2000 are unlikely to be more than $1 a share--less than half what had been expected--and some investors worry that the results could deteriorate further.
Even at that pessimistic level, the company included a handful of assumptions that could still go sour, such as a contract to sell about $7 billion worth of F-16 fighter planes to the United Arab Emirates. That deal has been in the works for more than a year, with no resolution.
"I'm looking for the company to signal that they've hit the bottom . . . and I'm not convinced we're there today," said Byron Callan, a financial analyst with Merrill Lynch & Co. in New York.
Better numbers, rather than a new corporate structure, are what most investors want to see from Lockheed Martin, said Tom Burnett, president and founder of Merger Insight in New York, which advises institutional investors. A resolution of Lockheed Martin's stalled bid for Comsat Corp. is also essential, he said.
Until then, Burnett said, "there is going to be continued mistrust" of the company's senior leadership.
That mistrust tends to land squarely on the desk of Coffman, who replaced the company's top management over the past year and ordered a reorganization plan last September that did not satisfy investors.
The company is searching for a new president and chief operating officer after the resignation of Peter B. Teets from those posts in October.
Several names of candidates have occupied the industry rumor mill since last fall. Among the most prominent are Kent Kresa, chairman and chief executive of Northrop Grumman Corp., and NASA Administrator Daniel Goldin. Neither is interested in the job, according to close associates.
Some Wall Street analysts have called for Coffman's replacement as well, but others say that's not necessary to rehabilitate Lockheed Martin's standing with investors. "I'm not sure that would make a difference," Burnett said. "The problems with the company go further than one or two different people."
BREAKING UP, SPREADING OUT
Lockheed Martin executives are to present a plan Thursday to downsize the corporate headquarters in Bethesda. Leadership of the company's aircraft business will shift to Fort Worth and its space business will be headquartered in Denver. Some operations will continue to be headquartered locally and the technology services line of business will continue in Cherry Hill, N.J.
Becomes space business headquarters
Lockheed Martin Astronautics
Systems Integration, Global Telecom unit
Cherry Hill, N.J.
Already in place
Reports to Denver
Lockheed Martin Missiles and Space
Becomes aeronautics headquarters
Lockheed Martin Tactical Aircraft Systems
Reports to Fort Worth
Lockheed Martin Aeronautical Systems
Business area: Systems integration
Revenue*: $2.7 billion
Earnings*: $296 million
Business area: Space systems
Revenue*: 1.4 billion
Earnings*: 101 million
Business area: Aeronautical systems
Revenue*: 1.2 billion
Earnings*: 105 million
Business area: Technology services
Revenue*: 584 million
Earnings*: 29 million
*for third quarter ended Sept. 30
CAPTION: Lockheed chief Vance Coffman will present plan to board Thursday.