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LOCKHEED MERGER OPPOSED BY ITS BIGGEST CUSTOMER.


Byline: Susanne M. Schafer Associated Press

The Clinton administration expressed concern that the proposed Lockheed-Northrop merger could reduce competition in production of aircraft and electronic-warfare systems.

``No final decisions have been made,'' said one of two senior government officials who briefed reporters last week on condition they not be identified by name or agency.

The briefing amounted to the first time the government has spelled out exactly what it finds troublesome about the proposed $8.3 billion merger of Lockheed Martin Corp. and Northrop Grumman Corp., the Antelope Valley's two largest private employers.

The new company would take 25 percent of the Pentagon budget.

The briefing officials contended the companies should not be surprised about the concerns, noting both the Pentagon and Justice Department have been meeting with the companies repeatedly and followed a traditional pattern for studying such mergers.

The Justice Department informed the companies earlier this month that it was fundamentally opposed to the merger, which was announced in July.

Overall, the officials said Thursday there are a number of areas of concern, such as in the potential consolidation of electronic-warfare systems. For example, the merger would produce only one supplier of the airborne early warning radars instead of the two that now exist.

It would also create a single source for the electro-optical missile warning systems and merge the two prime contractors for anti-submarine warfare systems, according to charts shown to reporters.

Aircraft also would be a problem, given that Lockheed and Northrop are the companies with the most experience in stealth technology stealth technology, designs and materials engineered for the military purpose of avoiding detection by radar or any other electronic system. Stealth, or antidetection, technology is applied to vehicles (e.g., tanks), missiles, ships, and aircraft with the goal of making the object more difficult to detect at closer and closer ranges..

The officials said they had laid out three options in a meeting March 6. The options reflected the government's analysis of the matter as the customer, but they did not amount to demands that the companies must comply with before the government would approve the merger, both officials said.

The three options are divestiture of selected electronics technologies, divestiture of all such technologies and opposition to the merger.

``We did not make a decision,'' nor did the government indicate a preference for any of the options to the companies, the first official said.

``Size per se is not the dominant issue here,'' said one of the officials. ``It's what we can maintain in innovation.''

The officials argued that the government has not changed its policy and that Defense Secretary William Cohen expressed concern more than a year ago about the increased consolidation of the defense industry.

Lockheed Martin is already the nation's biggest defense contractor, with products such as the B-2 stealth bomber and the MX missile system.

Lockheed and Northrop plan to combine strengths in areas such as defense electronics, including the production of sophisticated radar and electronic countermeasures such as those used in the 1991 air war against Iraq.

Lockheed and Northrop vowed to fight any attempt to block the merger, raising the possibility of a court battle if the Pentagon's concerns are not resolved.

Northrop Grumman, based in Los Angeles, employs more than 45,000 people and had 1996 sales of about $8 billion.
COPYRIGHT 1998 Daily News
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1998, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Publication:Daily News (Los Angeles, CA)
Geographic Code:1USA
Date:Mar 16, 1998
Words:503
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