Lockheed to Keep Costly Satellite Unit (good article)
By Renae Merle
Washington Post Staff Writer
Saturday, January 18, 2003; Page E02
Concluding an 18-month review, defense giant Lockheed Martin Corp. announced yesterday that it will keep and revamp its commercial satellite business instead of selling or dismantling it.
After Bethesda-based Lockheed invested heavily in commercial satellites over the past 10 years, demand from telecommunications companies dropped as the economy slumped. Company executives considered closing the unit or selling it to Loral Space & Communications Ltd., but they decided to weather the downturn, according to industry sources.
Lockheed also considered partnering with another satellite company but believed it would encounter antitrust objections in the United States and regulatory hurdles in Europe, an industry source said. "I would have to guess that one of the reasons that they decided to keep it is because they couldn't sell it," said Paul H. Nisbet, an analyst with JSA Research Inc. "The only one that seemed likely was Loral and that didn't work out."
It is easier and cheaper for Lockheed to wait out the current slump than to dismantle the unit, industry analysts said. "It costs money to close operations," said Marco A. Caceres, senior analyst and director of space studies at Teal Group Corp., an industry research firm.
Lockheed will maintain its "cost reduction initiatives" to remain competitive, Robert J. Stevens, president and chief operating officer, said in a statement. A Lockheed spokesman said the company anticipates layoffs among the unit's 800-plus employees.
The company has already moved the unit's headquarters from California to Newtown, Pa., a change that Lockheed expects to save it $35 million a year, spokesman Jeff Adams said. The firm laid off about 50 employees from that office last year. "We're continuing to strengthen our competitive posture by improving efficiencies," he said.
Revenue in Lockheed's satellite-business unit, including government and commercial orbiters, dropped from $7.4 billion in 2000 to $6.8 billion last year, and the unit continued to report some of the company's smallest profit margins.
Plagued by overcapacity and declining demand, the commercial satellite sector recorded only 16 launches in 2001, according to a recent report by the Commission on the Future of the U.S. Aerospace Industry. That is down from 35 in 2000 and 39 in 1999, the report said.
"The sector is long overdue for a major consolidation, and when that is over there will be only two or three producers left worldwide for the major commercial satellites," said Loren B. Thompson, defense industry analyst and chief operating officer of the Lexington Institute, an Arlington think tank.
While predicting that industry demand will remain flat for another five years, Lockheed executives are hopeful that demand will increase for their most powerful telecommunications satellite, the A2100, Adams said. The A2100 recently received an industry "product of the year" award, which noted its reliability, and the company expects to launch several next year, he said. "We expect to maintain our market share, which is about 20 percent," Adams said.
Despite losing several large contracts, Lockheed's military satellite business can still offset the losses from the commercial sector, industry analysts said. "Lockheed Martin has options in the satellite business that many of its competitors do not," Thompson said. "It has a large and profitable government satellite business." |
