Star-Crossed Lockheed

Close brushes with financial catastrophe have become an unwitting specialty of Lockheed Aircraft Corp. In 1971 the aerospace giant faced bankruptcy because of cost overruns on the C-5A transports it was building for the Air Force; the Pentagon eventually let it escape with a $200 million loss. Almost immediately, Lockheed's effort to build the L-1011 TriStar nearly crashed before the jumbo jet ever got off the ground when Rolls-Royce, builder of the plane's engines, went bust, eventually saddling Lockheed with $190 million in unplanned expenses. That time it took an act of Congress (approval of an unprecedented Government guarantee for $250 million in loans) to save Lockheed.

With most of that money gone, Lockheed is in a financial tailspin again, facing what Chairman Daniel Haughton calls "a straightforward matter of the possible need for additional cash." That understates the case: Lockheed could well become the first corporate victim of the energy crisis, and this time there is no savior on the immediate horizon.

Interest Load. The problem, briefly, is debt. Lockheed owes $600 million to banks, $200 million of which is covered by the Government loan guarantee, and $100 million to the Defense Department as reimbursement for C-5A cost overruns, due in ten annual installments beginning in 1974. In addition, it must keep up interest payments on, and perhaps eventually redeem, $138 million in convertible debentures. Interest payments on all its varied debts are running around $80 million a year.

That seemed a bearable load, with the TriStar flying and getting high ratings from airline executives--until the fuel shortage hit. Faced with sharp curtailments in jet-fuel supplies, airlines have canceled hundreds of flights and delayed orders for aircraft. Lockheed had expected to collect around $ 150 million in cash in 1974, as final payment on deliveries of nine TriStars to Eastern Air Lines; now the deliveries, and payments, have been postponed until 1975 and 1976. Pacific Southwest Airlines is taking a four-month delay on two more TriStars (price: $20 million each). On top of that, Japan's All Nippon Airways, on orders from the Tokyo government, will order only two TriStars for 1975 delivery, rather than the four expected.

Thus Lockheed must wait for cash, while continuing to pay interest at 10% and 11% on millions of dollars borrowed to pay for parts and labor on the partially completed planes. Overall, Lockheed has delivered 54 TriStars, has firm orders for 75 more and options for an additional 70, but the total is still 76 planes below company officials' most optimistic estimate of the break-even point on the project. Without the TriStar, says Vice President and Controller Vincent N.

Marafino, Lockheed would have made more than $100 million before taxes in 1973; it is actually likely to report just $12 million to $15 million, including extraordinary income from the sale of real estate.

Lockheed has formed a crisis team, consisting of a special committee of directors headed by former New York Stock Exchange President Robert W.

Haack and specialists at the New York investment-banking house of Lazard Freres, to look for ways out. Essentially they have three options: 1) borrow still more--if anyone will lend; the company has $50 million left under its Government loan guarantee, but Marafino warns that it may need even more "for short periods"; 2) sell off some of the corporation's successful operations in missiles, aircraft, electronics and real estate --an odd procedure that would make the money-losing TriStar an even greater drain on what was left; 3) as a last and ever more attractive resort, sell the whole company to a merger partner that has plenty of money and the courage to take on a $2.5 billion-a-year corporation with an insatiable need for cash. So far, no potential buyer seems excessively interested.

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