Stretched Debt

Executives of the crisis-prone Lockheed Aircraft Corp. are well aware of the risk in seeing a light at the end of the tunnel: they can never tell when it might be another freight train heading Lockheed's way. Last week, however, the light that Chairman Robert W. Haack saw turned out to be for real. Lockheed's 24 creditor banks approved a plan to restructure the company's debt in a way that clearly eases the aerospace giant's financial woes, though it does not solve them.

Lockheed's pressing financial worry was not a lack of cash or poor earnings, but a balance sheet weakness that Haack, who took over as chairman four months ago, defined succinctly: "We've got to get the debt down and the equity up." In order to stave off a Lockheed bankruptcy in 1971, the Government guaranteed $250 million of an infusion of $645 million in bank borrowings by the company. This has left Lockheed burdened by a ratio of debt to shareholders' equity that would be uncomfortably high for any company. Under the new refinancing plan, the bankers agreed to exchange $50 million of the unguaranteed portion of the debt for warrants to buy Lockheed preferred stock. The remaining $350 million in unguaranteed debt was also converted --from 90-day term notes to an extended term loan calling for installment payments stretching into 1981.

Haack would have preferred the bankers to cancel still more of the debt in return for warrants. Nonetheless, he had good reason to be pleased. The refinancing has bought the company the time it needs to try to fill its order books and refurbish Lockheed's image following its payola scandals. Shareholders will be asked to approve the deal at a long-postponed annual meeting early in the fall. Haack is confident that they will find the company's prospects brighter than they have in some years. Said he, in an interview with TIME Correspondent Jerry Hannifin: "If our earnings continue, it is likely that the equity of Lockheed at the end of 1976 will be in the neighborhood of $150-$160 million. Consider that our equity at the end of 1974 was $27 million. You can see what's in the process of happening."

The agreement with the 24 banks was delayed by Haack's darkest day at Lockheed, when Canada abruptly pulled out of a $1.06 billion order for 18 Orion antisubmarine patrol aircraft. "I tell you," says Haack, "you haven't known heartbreak until a billion-dollar deal is canceled on you on two minutes' notice." The order collapsed over a billion-dollar misunderstanding: Ottawa and Lockheed each thought the other was to be responsible for financing early stages of the contract. But Lockheed may still not have lost the Canadian business: Haack has submitted a new proposal stretching the production schedule and thus reducing the outside financing required to a presumably manageable $120 million.

Lockheed has partially made up for the potential loss of revenue from Canada by signing a $625 million contract for an air traffic control system for Saudi Arabia. It has also landed a Saudi order for three TriStar jumbo jets--the first of many orders that the company will need but that are not in sight, if it is to recoup the L-1011's huge development costs. Says Haack carefully: "I don't classify myself as being exuberant, but I'm beginning to get cautiously optimistic." On the confidence scale, this is surely a new note at Lockheed.

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