The frenetic pace of merger and acquisition activity has again reshaped the league of US manufacturers for 1996 and more is expected this year, as the spate of big deals causes reverberations among the second tier of aerospace and defence companies.
As expected, Lockheed Martin emerges as the 1996 leader in aerospace and defence sales, following its absorption of the Loral businesses. That process is now largely complete with the re-organisation of the company into six core divisions and the decision to float off smaller systems operations into a standalone communications unit.
Chairman Norm Augustine confirms that the group is on track to reach the promised $2.6 billion in annual "steady state" savings by 1999. Despite the spend on reorganisation, he says that the company came close to generating $1 billion in free cash during 1996, while the backlog climbed to $50 billion. Augustine adds that the
"Our 1996 performance validated our strategy of acting early in order have our choice of partners at reasonable valuations," he says, referring to the rising cost of defence acquisitions as consolidation comes to an end.
Boeing, one of the more recent buyers, will soon overtake Lockheed, with projected sales of $33 billion this year, thanks to the ramping up of civil-aircraft production and around another $3.2 billion from the Rockwell aerospace and defence units acquired late in 1996. With the $14 billion acquisition of McDonnell Douglas (MDC) due for completion this year, Boeing estimates that it will end 1997 as a $48 billion group.
Raytheon, too, is on course to jump to third position, with its pending $9.5 billion deal to absorb the Hughes defence business, following only weeks after the $2.95 billion offer for TI Defense. The group had already shown its appetite for acquisitions in the lucrative defence-electronics sector, with the purchase of E-Systems and then the Chrysler Technologies operations.
The latest acquisitions, which are still pending approval, should leave Raytheon as a $21 billion group, with sales of around $13 billion in defence electronics, and perhaps another $2.5 billion-worth from its Beech and Hawker aircraft business.
Northrop Grumman remains philosophical about losing out in the bidding for Hughes. Chairman Kent Kresa says that it would have been "a good fit", but was "not essential" and ultimately looked too expensive.
His group has managed to push sales up to the $8 billion mark, thanks to the completion of the Westinghouse defence acquisition early in 1996. Kresa says that the group should achieve $8.4 billion in 1997, helped by a full year of Westinghouse contributions, with a target of reaching $10 billion by the turn of the century.
The increase in sales will have to come, despite a continuing wind-down in B-2 stealth-bomber work, which still accounts for a little over 20%of the group's business, although that is down from closer to half of its sales a few years ago. Close to one-fifth of Northrop's business is now linked to the Boeing/MDC grouping through its work on the F-18, C-17 and 747.
As this year's league table demonstrates, these major platform manufacturers have cut adrift from the second tier of suppliers. AlliedSignal, now on aerospace sales of close to $6 billion, is still increasing its presence as a first-tier supplier, while TRW and Textron turned in $3.5 billion each. Beneath this, however, the market quickly falls away to aerospace businesses in the $1-2 billion band, such as those as held by ITT, Litton, Motorola, Teledyne and others. Analysts expect that we may yet see some further merger and acquisition opportunities as these groups face the question of whether they should grow or get out of the business.
Source: Flight International
