Kevin O'Toole/LONDON

LOCKHEED MARTIN is well on course to achieve merger benefits of more than $2 billion by the turn of the century, and has already begun to integrate the Loral acquisitions into the group, according to chief executive Norman Augustine, leading an upbeat set of half-year reports from the US aerospace industry

Augustine forecasts that the merger of Lockheed and Martin Marietta, together with the initiatives already under way within the two groups from previous acquisitions, should yield steady annual savings of around $2.3 billion by the year 1999.

"We are on schedule and, in many cases, ahead of our plan. Over the past year, we have already documented more than $500 million in savings from our initial consolidation steps," says Augustine.

He adds that the integration of the Loral businesses, which began in the second quarter with consolidation of the group's $250 million simulation and training business, should yield "additional" savings.

The acquisition of the bulk of Loral in April helped add nearly $1 billion to the group's sales over the first half of the year, taking the total to above $12 billion.

Augustine says that Loral helped to contribute to improved net profits of $571 million, which were up by nearly 10% over the half, discounting the impact of 1995's charge for merger costs.

The backlog also mushroomed to stand at close to $51 billion - a rise of nearly $10 billion compared with results for the end of 1995 - although acquisition costs also pushed up debt fourfold, to nearly $13 billion.

Meanwhile, other aerospace corporations continue to show a string of healthy first-half results. Northrop Grumman (now including the Electronic Sensors and Systems division purchased from Westinghouse in March) posted record sales and improved profits.

Revenues for the half year climbed by 10% to above $3.7 billion, while net profits rose in line to reach $147 million. The acquisition helped to offset the continuing decline in B-2 business.

The US defence industry could be on course to make some unscheduled gains from its merger and acquisition activities because of an obscure clause in Department of Defense (DoD) purchasing regulations which promises to foot part of the bill for post-merger job cuts.

According to a report in the Wall Street Journal, the clause was amended in 1993, to make clear that the DoD would make payments towards redundancies, retraining and other costs.

Four companies are reported to have been promised $300 million, to be paid for through contract price adjustments, including one from Martin Marietta for its acquisition of General Electric Aerospace, and also from Hughes Aircraft for its purchase of General Dynamics' missiles division.

Lockheed Martin could claim up to $850 million for its merger, although the prospect of huge payouts has already encountered stiff resistance from the US Congress and Senate.

Source: Flight International