LOCKHEED ACQUIRING NORTHROP; $11.6 BILLION DEAL WILL LEAVE ONLY 1 AEROSPACE FIRM BASED IN L.A.

Byline: Dave McNary Daily News Staff Writer

Los Angeles, which rose to world-class status on the backs of the aircraft and movie industries, lost another piece of its aerospace armament Thursday with the announced $11.6 billion buyout of Northrop Grumman Corp. by Lockheed Martin Corp.

Bethesda, Md.-based Lockheed Martin plans to close the deal for Century City-based Northrop Grumman by the end of the year. When that occurs, the Los Angeles area will have only one aerospace company headquarters: Woodland Hills-based Litton Industries, a specialist in building ships and defense electronics.

``This deal means a loss of prestige for Los Angeles since Northrop is one of the last old-line aerospace companies,'' said Jack Kyser, chief economist at the Los Angeles Economic Development Corp. ``In terms of creating aerospace jobs, we have rebounded slightly from the bottom so this deal doesn't mean that we've lost our production or research and development capabilities.''

Northrop Grumman, cobbled together in 1994 when Northrop bought Grumman Corp. for $2.2 billion, has a long history of aircraft building but in recent years its work as a prime contractor has been limited to the controversial B-2 stealth bomber. It builds large parts of the McDonnell Douglas F/A-18 fighter and fuselages for Boeing 747 jumbo jets.

The Lockheed-Northrop combination would continue a wave of mergers among the defense industry's titans, creating an aerospace giant with expected annual revenue of $37 billion and 230,000 employees. In the past three years, there have been more than 40 major mergers and acquisitions.

The mergers have come as defense spending has decreased following the collapse of the Soviet Union. It leaves Lockheed Martin, Boeing and Raytheon as the largest players with General Dynamics, United Technologies and General Electric in the second tier, along with Litton.

The proposed combination is certain to be studied closely for antitrust implications by the Justice Department. However, analysts expect the deal to ultimately be approved.

``The simple fact is that the aerospace industry has shrunk and there are fewer headquarters to go around,'' said Wolfgang Demisch, an industry analyst with Bear Stearns. ``Defense budgets have gone south.''

Southern California has been forced to adjust in recent years to massive changes in its traditional growth-industries quartet of aircraft, entertainment, real estate and financial services. Of that quartet, only the entertainment industry has been posting solid gains recently.

In the past decade, Los Angeles County has seen aerospace employment plunge from 274,200 jobs in 1988; to 199,000 in 1992; to 137,800 in 1995. The industry has staged a tiny rebound since then, and now employs 140,000 people in the county.

Nationwide, the losses haven't been quite as severe, falling from 1.05 million jobs five years ago to 746,000 currently, as defense spending on weapons declined 53 percent from fiscal 1990 levels.

``Southern California's swift loss of pre-eminence is quite striking,'' said David Hensley, an analyst with Salomon Bros. ``It didn't have a monopoly but it's quite striking to see the erosion. It's similar to Wall Street's loss of financial services firms in recent years.''

Hensley, who headed the University of California, Los Angeles, Business Forecasting Project for several years before joining Salomon, said, ``A lot of the region's losses in aerospace were due to the industry adjusting its cost structure to declining defense budgets and a lot was due to bad luck.''

The new Lockheed Martin will be based in Bethesda. Spokesman Jim Fetig said executives believe an ``overwhelming'' number of the 45,000 Northrop Grumman employees will keep their jobs since there is little overlap between the companies.

About 13,000 Northrop Grumman employees work in Southern California, including sites in Palmdale, Pico Rivera, Hawthorne, El Segundo and Point Mugu. Fetig said no decision has been made on whether to keep Northrop Grumman's headquarters in Century City open, but Kyser predicted many of the several hundred employees working there will be fired.

As recently as five years ago, the Los Angeles region had four headquarters of major defense companies:

Northrop, which suffered a major blow in the early 1990s when the Pentagon selected Lockheed Corp. as the prime contractor for the F-22 aircraft.

Lockheed Corp., which left Burbank in the early 1990s in favor of Calabasas, and then left for Maryland in 1995 after merging with Martin Marietta.

Rockwell International Corp., which built the B-1 bomber and the space shuttles, sold its defense-aerospace business to Seattle-based Boeing last year for $3.2 billion. The conglomerate, based in Seal Beach, is focused on electronics.

Hughes Electronics, a subsidiary of General Motors with a modern headquarters overlooking Marina del Rey, is in the process of selling its defense businesses to Raytheon Co. for $9.5 billion. GM will retain Hughes' satellite and DirecTV operations.

Additionally, two companies based in St. Louis - General Dynamics and McDonnell Douglas - have made massive cuts in Southern California employment in recent years. The latter, which builds the MD-11 and MD-90 at its huge Long Beach plant, is in the process of being bought by Boeing for $15 billion.

Top defense contractors

America's biggest defense contractors, based on annual sales to the Pentagon. The list assumes recently announced mergers will be completed.

1. Lockheed Martin (including Northrop Grumman)

2. Boeing (including McDonnell Douglas)

3. Raytheon (including Hughes Electronics and Texas Instruments' defense business)

4. General Dynamics

5. United Technologies

6. Litton Industries

7. General Electric

CAPTION(S):

2 boxes

Box: Top defense contractors (see text)

(2) Weapons