U.S. SUES LOCKHEED, NORTHROP; MERGER PLAN ATTACKED.

Byline: Daily News Staff and Wire Services

Saying Lockheed Martin Corp.'s proposed $12 billion purchase of Northrop Grumman Corp. would create unprecedented concentration in the defense industry, the U.S. Justice Department has filed a lawsuit to block it.

After a high-level government debate, antitrust officials concluded the post-Cold War consolidation of U.S. defense contractors has gone too far.

Aimed at Antelope Valley's two largest private employers, the lawsuit is the single biggest merger that antitrust officials ever have challenged, as well as the first attack on a major defense merger since the Iron Curtain came down nearly a decade ago.

Lockheed Martin officials said they will fight in court to complete the acquisition. Attorney General Janet Reno promised an all-out battle.

``In a fast-moving global economy, our nation can't afford anything less than full-blooded competition,'' Reno told a Washington news conference. Defense Secretary William Cohen said, ``No previous merger has raised so many interrelated problems.''

The lawsuit, filed in U.S. District Court for the District of Columbia, says a combined Lockheed-Northrop could monopolize at least nine different defense areas, stifling competition and pushing up costs.

In the Antelope Valley, Lockheed Martin employs nearly 6,000 people at its Skunk Works in Palmdale, where it is building the X-33 spacecraft prototype and two prototypes for the Pentagon's joint-strike fighter-plane competition. The corporation's other work in the valley includes modifying C-130 cargo planes for special missions and maintaining and modifying U-2 reconnaissance planes and F-117 stealth fighters.

Northrop Grumman has about 2,800 employees at work upgrading B-2 stealth bombers at an assembly complex at Air Force Plant 42, where the bombers were produced.

Lockheed Martin spokesman Chip Manor said the company remains convinced ``this merger is in the best interest of all parties, and we will defend ourselves in the matter.''

The case will pit Lockheed Martin against its biggest customer, the U.S. government. As the lawsuit was being filed, the Pentagon released last year's ranking of top vendors, and Lockheed Martin took the top spot with $11.6 billion in contracts. Boeing Co. ranked second with $9.6 billion, and Northrop came in third with $3.5 billion.

``The proposed acquisition of Northrop by Lockheed would result in unprecedented vertical and horizontal concentration in the defense industry, which would substantially lessen, and in several cases eliminate, competition in major product markets critical to the national defense,'' the lawsuit alleges.

Horizontal integration involves the combination of two direct rivals, while vertical integration brings together a major buyer and supplier of certain parts. In this case, antitrust authorities are focused on the high level of integration that would result if Lockheed's aircraft experience were combined with Northrop's radar expertise.

According to the complaint, the acquisition would give Lockheed Martin a monopoly in the areas of airborne early-warning radar, electro-optical missile warning systems, directed infrared countermeasures and anti-submarine warfare. In addition, competition would be greatly reduced in radio frequency countermeasures, military aircraft, stealth technology and remote mine hunting, government officials claim.

The complaint also is aimed at Northrop's Logicon unit, which evaluates and monitors many important U.S. military programs, including those where Lockheed is a prime contractor.

The case, which antitrust attorneys said could take between three and six months to complete, will be heard by U.S. District Judge Emmet G. Sullivan, a Clinton appointee. The Justice Department will seek a preliminary injunction banning the companies from completing the transaction. Officials of the companies have said they won't close the transaction before April 24.

Justice Department officials filed the lawsuit after rejecting Lockheed Martin's final offer to ease the government's antitrust concerns, capping off two weeks of rare public jousting by both sides.

After a briefing to the companies March 6 by Justice Department and Defense Department officials about the competitive problems with the transaction, the companies said they'd take until April 8 to respond. Three days later, the Justice Department demanded a response within days.

That led to Lockheed Martin's offer to sell Northrop electronic units totaling about $1 billion in sales - double the amount it previously offered to divest. Later that day, the Justice Department sent another letter reiterating a demand that Lockheed Martin divest all of Northrop's electronics businesses, totaling about $4 billion in annual sales.

Looking at Lockheed, Northrop

LOCKHEED MARTIN

Employees: 190,000 (6,000 Antelope Valley).

Net 1996 sales: $26.9 billion.

Net 1996 earnings: $1.3 billion.

Projects:

Aeronautics: X-33 spacecraft prototype, DarkStar unmanned aerial vehicle, U-2 and F-117 maintenance and modifications, Joint Strike Fighter prototypes (Antelope Valley); F-16 fighters (Texas); F-22 fighters, C-130 transports (Georgia).

Electronics: Sidewinder missiles, Hellfire missiles, LANTIRN low-altitude navigation and targeting systems, Patriot missile components, Aegis naval radar.

Space: Atlas, Titan 4, Centaur rockets; space shuttle processing; military and civilian communications satellites, Trident nuclear submarine missiles.

Information and Services: radar jammers; computer systems.

Headquarters: Bethesda, Md.

NORTHROP GRUMMAN

Employees: 51,000 (2,800 Antelope Valley).

Net 1996 revenue: $8.6 billion.

Net 1996 earnings: $264 million.

Projects:

Military aircraft: B-2 stealth bomber modification (Palmdale); F/A-18 fighter components (El Segundo); E-2C Hawkeye early warning aircraft (Florida); Joint STARS surveillance aircraft (Louisiana).

Commercial aircraft: Boeing 747 components (Georgia and Florida); C-17 transport components (Texas, Florida, Georgia); Gulfstream business jet components (Texas).

Electronic Sensors and systems: F-16, B-1B and AH-64D radars; electronic countermeasures; air traffic control radar; submarine sonar; torpedoes.

Electronics and systems integration: tactical radar jammers, GPS-guided bombs; countermeasure systems.

Headquarters: Los Angeles.

CAPTION(S):

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BOX: Looking at Lockheed, Northrop (See text)