Globalizing aerospace Sanders and other Lockheed Martin units to join BAE Systems

By John McHale

BETHESDA, Md. — Sanders, the Nashua, N.H.-based portion of Lockheed Martin Corp., is set to change hands, which experts say will bolster Sanders's prowess as a merchant supplier in high-technology areas such as electronic warfare.

BAE Systems North America of Rockville, Md., will acquire Lockheed Martin's Aerospace Electronics Systems (AES) business, which includes Sanders, Fairchild Systems, and Space Electronics &#amp;Communications with facilities in New Hampshire, New York, and Virginia.

"BAE systems North America may not be the most dominant player in electronic warfare, but with the purchase of AES," it has become one of the major forces, says Robert Hoffman, director of corporate communications for BAE Systems North America. Before the AES purchase BAE Systems North America had approximately 18,300 employees and $2.5 billion in business, Hoffman continues, and with the acquisition BAE's numbers improve to about 25,000 employees and $4 billion in business.

The main customer in North America, the U.S. Department of Defense is looking to industry to provide a system of systems made up of commercial-off-the-shelf (COTS) technology whenever and wherever possible, and with the acquisition of companies like Sanders BAE is a step ahead, he adds.

The sale includes the radiation-hardening integrated circuit fabrication facility in Manassas, Va. BAE purchased the units for $1.67 billion in cash.

Responding to rumors that BAE would shut down Lockheed's Manassas fabrication facility, Hoffman says discussion of any facility closures or layoffs at this time is premature and inappropriate considering final government approval of the transaction has not been completed. Such topics have not been discussed at BAE where it is company tradition to grow the units it purchases, he adds. For example, two years after BAE purchased Tracor in 1998, the company has gone from a 9 percent investiture in jobs to 20 percent, he claims.

The parent company, BAE Systems Plc. of Farnborough, England, is a combination of British Aerospace and Marconi Electronic Systems. The sale to BAE Systems is one of the first moves in what many experts consider to be the globalization of the aerospace industry.

However, Hoffman emphasizes there is a firewall with regards to security clearance between BAE Systems North America and the parent company, BAE Systems Plc. — the North American subsidiary, a separate U.S. company with a separate board of directors, has security clearance with the U.S. Government to work on classified military platforms while the English parent does not, Hoffman continues.

BAE Systems has a strong record on security with U.S. government going back 10 years due to its Marconi connection [BAE Systems merged with Marconi Electronic Systems during the late 1990s], Hoffman says., he adds. The agreement was resigned with the AES transaction, he adds.

The sale of the Lockheed Martin units to BAE also will move Lockheed Martin back to its core competencies as a platform provider, says Rob McDaniel, director of program operations at Sanders Advanced Systems &#amp;Technologies Division in Nashua, N.H.

Sanders made its name providing electronic warfare systems and will continue to support all its programs despite the ownership change, McDaniel says. Sanders will also retain the name it has earned for now, but as a BAE Systems company, he adds.

However, it is still too premature to discuss the long-term future of the Sanders name, Hoffman says. Once all the details of the transaction have been completely settled, the company's nomenclature will be decided by BAE together with Sanders management, he adds.

Sanders works with BAE on the Joint Strike Fighter and the United Kingdom AH-64 Apache helicopter program, says a Sanders representative.

Major Lockheed Martin AES products include aircraft self-protection systems, tactical surveillance and intelligence systems, reconnaissance and navigation systems, automated mission planning systems, microwave electronics, infrared sensors, and radiation-hardened digital components and systems for space applications. The AES businesses, with approximately 5,300 employees, had equivalent 1999 revenues of $1.2 billion, Lockheed officials say.

The transaction will also promote improved interoperability and cooperation between the armed forces of the U.S. and its allies, says Robert B. Coutts, executive vice president of the Lockheed Martin Systems Integration business area. "By advancing transatlantic industry consolidation, as U.S. defense leaders have recently urged, we are confident we will receive all necessary government approvals in a timely manner," Coutts adds.

The proposed transaction, which is subject to regulatory approvals, is expected to close around year-end 2000. The deal will yield approximately $1.3 billion in cash to Lockheed Martin after transaction costs and associated federal tax payments. Lockheed Martin expects to apply the bilk of this cash to debt reduction, Lockheed officials say AES was among several operations identified by Lockheed Martin as candidates for potential divestiture in September 1999, Lockheed officials say. Lockheed Martin divested its Hanford Corp. subsidiary in December 1999, announced the proposed sale of its Control Systems business to BAE Systems North America in April 2000, and currently is evaluating other divestiture candidates, including its state and local government services business.

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