Lockheed: Still Aloft

Can Lockheed Aircraft Corp. survive? The question has been asked ever since the Government saved the aerospace giant from bankruptcy in 1971 by guaranteeing the repayment of $250 million in bank loans; it has become more urgent as a result of the furor touched off by revelations about Lockheed's extensive foreign bribery. The scandal brought in a new management, headed by Robert W. Haack, 59, former president of the New York Stock Exchange. Last week TIME Correspondent John Quirt interviewed Haack and other sources inside and outside the company and filed this report:

In Haack's view, there is "absolutely no reason" to doubt Lockheed can stay aloft, and there are some grounds for "becoming a little more encouraged" about its ability to begin soon acting again like a normally functioning corporation. Among the reasons: the recent addition of four new outside directors, giving outsiders ten of the 17 seats on the board, and the signing of a consent decree that settles a Securities and Exchange Commission lawsuit against the company and clears Lockheed to hold a long-overdue annual shareholders' meeting some time this summer. Now, says Haack, "it is important to ask: What exactly is the company's problem? It's not a lack of cash right now; working capital is up $100 million from a year ago. And it's not earnings; they are progressing reasonably well. The real problem is a balance sheet with a debt of $813 million and an equity of only $75 million." Although Haack says that Lockheed may begin repaying the Government-guaranteed portion of its debt this year, the General Accounting Office has expressed doubt that the company can complete repayment on schedule by 1978--and the Government is unlikely to renew the guarantee.

Last week in Atlanta, Lockheed officials met for the first time this year with representatives of all 24 of the company's lending banks. The bankers have agreed to cancel $50 million of the debt, in return for warrants to buy Lockheed preferred stock. Lockheed wants them to convert even more loans into stock or warrants--but is wary of issuing too many new shares that would dilute the equity of stockholders. A compromise is likely by summer: the banks would lose heavily if the inability to repay loans pushed Lockheed into bankruptcy, and Lockheed so badly needs to reduce its debt that it will probably settle for whatever terms it can get.

Nagging Concern. To survive, Lockheed needs to sell off marginal assets, like the Hollywood-Burbank Airport, and find more customers for its Tri-Star jumbo jet. Over the next ten years the company will write off as losses $500 million in TriStar development costs, and it needs more sales to cushion the blow. Defense business is encouraging: Lockheed should this year match the $2 billion in Government contracts that it booked in 1975. Modifications of the C-5 A and C-141 transports could lead over the next few years to an additional $1.5 billion in military orders.

Now that Lockheed has adopted a stringent no-payoffs policy, one nagging concern is overseas contracts. Says Haack: "That policy will probably cost us some business, but we can't really worry about it." Another problem is that Canada, partly because it is dubious about paying out any money until it is certain Lockheed can stay in business, has held off on signing a $650 million deal to buy 18 Orion antisubmarine patrol planes--even though Lockheed began building the planes in December. Lockheed officials, though, are confident the contract will come through.

In the long run, if Lockheed survives, it may not remain independent but merge itself into another company. One possible partner: Textron Inc., the giant conglomerate that considered a merger last year but then backed away. If Lockheed can get its debt refinanced, Textron may just reconsider.

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