FORT WORTH – General Dynamics Corp. is holding discussions with Boeing Co. and Lockheed Corp. about the sale of its 20,000-employee Fort Worth Division, high-ranking sources at GD and in the aerospace industry said yesterday.
The three defense industry titans are said to be considering a variety of scenarios, including GD’s selling the 50-year-old division to either Lockheed or Boeing or structuring a joint venture in which both companies would take control of the plant.
Wall Street analysts say GD could gain more than $1 billion by selling the Fort Worth Division.
Experts doubt that such a move would change production plans at the Fort Worth facility. But sources at GD say that would depend on what form a final agreement would take.
The division has been one of the engines driving the Fort Worth economy for more than 50 years. While it has prospered, so has Fort Worth; and as it has sputtered, so has the surrounding economy.
It produces the F-16 Fighting Falcon and is under contract to build one-third of the F-22 Advanced Tactical Fighter, the future Air Force jet fighter.
The division has a chance at landing a contract to build a portion of the AX, a Navy attack aircraft to replace the aging A-6 Intruder. GD is also expected by many in the defense industry to build the Air Force’s next Multirole Fighter, or MRF, from an F-16 derivative.
GD’s Fort Worth operations, including international F-16 programs, accounted for 47 percent of corporate GD sales and 54 percent of its operating profits in the first nine months of 1992.
Of GD’s $4.8 billion in sales in that time, $2.3 billion came from tactical military aircraft. And of the $272 million in operating profits GD posted, $149 million came from the Fort Worth Division.
Analysts view the unit as having the most profit potential for GD, although it has been hit hard by declining orders for its prized F-16 and is planning to cut 5,800 employees by the end of 1994.
Union officials and GD sources say representatives from Boeing and Lockheed have been inspecting GD’s Fort Worth operations and studying the division’s financial potential in recent weeks.
Pat Lane, president of Machinists Local 776, GD’s largest labor union in Fort Worth, said yesterday that union committeemen from across the plant have reported having officials from Boeing and Lockheed review and inspect production operations.
“There is no question about that,” Lane said. “They have had people in there this week almost constantly. There have been an unusual amount of people from these two companies out there.”
GD spokesman Mike Hatfield said he did not know about the visits to the facility by Lockheed and Boeing, but he noted that the two firms are partners with GD on the F-22 program.
Lane, however, said the areas of the plant visited had little if anything to do with future F-22 production.
At the same time, GD sources say that officials from the company’s corporate headquarters have asked local managers to determine the market value of the facility based on what property the firm owns inside Air Force Plant 4, which GD leases from the Pentagon.
“We are putting together a cost summary showing what the cash value of the Fort Worth Division is,” said a GD source.
“We’re not doing that just because we’re curious.”
A source in Congress said the company has been talking for several months with Seattle-based Boeing and with Lockheed, based in Calabasas, Calif., about selling the division.
“There is definitely goings-on between the companies right now,” the source said.
“No decision has been reached, and there is no firm offer on the table as of today. Tomorrow, that could be different.
“The big question is, who will acquire what and in what form.”
GD officials declined yesterday to confirm or deny that talks with Boeing and Lockheed are taking place.
Spokesmen for Boeing and Lockheed also declined to comment.
Al Spivak, a GD spokesman at the company’s headquarters in Falls Church, Va., noted that GD has said in the past that it will do whatever is necessary to bolster each division.
“We have been on record consistently over the last year saying that in order to strengthen any of our businesses, we would do whatever is required, whether it be selling or buying or trading or swapping or merging or whatever,” Spivak said.
“I just want to emphasize that. I am not adding that in to try and confirm or deny anything. But I want to remind you that we have been saying this.”
Some Wall Street analysts have been anticipating that GD would sell its fighter aircraft operations as the value of the company’s stock has climbed more than 85 percent since Jan. 1, closing yesterday at $97 a share.
“It doesn’t surprise me in the least,” said Paul Nisbet, an analyst with Prudential Securities in New York.
“I know every single entity of GD has crossed the desks of all the CEOs of the top aerospace firms within the last year and a half, including GD-Fort Worth.
“Everything has been packaged for sale. I know that.”
Mark Bobbi, an analyst with Forecast International, said that if GD opts to sell the Fort Worth Division, it will probably sell it to a joint venture formed by Boeing and Lockheed.
“That makes sense,” Bobbi said. “Ultimately, they plan on selling everything. It would make sense that they would sell it to their F-22 partners.”
GD insiders say the move is being lead by Chairman William Anders, who has been the catalyst behind a GD plan to spin off or sell billions of dollars in assets as the defense industry shrinks along with the Pentagon budget.
Anders has said that he is attempting to pare the company to four core businesses: military aircraft, tanks, submarines and space launch systems. But Wall Street analysts say he is not committed to keeping any operation if a high-priced offer comes in.
In a Sept. 17 address to aerospace industry analysts in New York, Anders discussed his reasons for selling parts of his company.
“Many of the players in this industry seem to be willing to risk increasing inefficiencies and eventual termination of their franchises by the marketplace simply to keep their `nameplates’ over the door,” he said.
“At General Dynamics we do not intend to stand by and watch any business wither into an anemic dwarf.”
In that same speech, Anders gave a less-than-resounding review of the future prospects for the Fort Worth Division.
“It certainly is positioned to generate solid returns through the end of this decade,” he said. “But this backlog will not generate maximum efficiency from our facilities.
“If the franchise were effectively combined with additional programs, the customer, investor and the employee would realize even further benefits.”
Industry analysts say they believe Anders was talking about selling the division to another aerospace firm that could bring in work to greater utilize the facility’s production capacity.
In wide circulation at the plant is an internal memo written after an Oct. 6 meeting between Fort Worth Division Manager Gordon England and other division managers and employees.
Written by a GD employee, it attempts to detail comments that England made at the meeting when answering employee questions.
Asked about the possible sale of the division, the memo says England responded:
“Everybody is talking to everybody. Corporations will not continue as currently aligned. There will be a change in a matter of months. ( England) indicated he thought the change would be favorable to GDFW.”
GD spokesman Hatfield asked England about the memo and said England said that it was a misinterpretation of his answer.
“What he said he was talking about is a message I have heard him repeat many times,” Hatfield said. “The industry is going to change, and that change is going to happen in months, not in years.
“His comment was about the industry, not necessarily about GD in Fort Worth.”
Of the two firms mentioned as suitors, Boeing has been viewed by GD insiders as the most likely buyer of the Fort Worth Division if it is sold to an individual company.
But GD insiders also say Lockheed should not be ruled out, because it is the prime F-22 contractor.
If Boeing bought the division outright, it would have nearly two-thirds of the $60 billion F-22 contract, which Lockheed was expected to control.
“Lockheed will have to be involved here in some way, shape or form,” a GD source said. “They won’t stand by and allow themselves to be undercut by Boeing on an important program.”
Wall Street analysts say Boeing is in the best financial condition to make a purchase of this size.
The company has $4.3 billion in cash on hand and a backlog of $97.9 billion in production contracts.
The commercial aircraft maker, which employs 144,000 worldwide and 99,000 in Seattle, has been at peak production for the past 17 months, although it is scaling down production from 39.5 planes per month to 32.5 planes.
Lockheed, on the other hand, has established itself as a premier U.S. fighter aircraft maker, producing the F-117A stealth fighter-bomber, the star of the Persian Gulf War.
Experts say Lockheed’s ability to produce radar-evading aircraft won it the prime position on the F-22 contract.
Analysts say Lockheed would be interested in the Fort Worth Division to secure its position on the F-22 and to enhance its future in the marketplace.
Because GD is seen as a certain winner of the Multirole Fighter contract if awarded, analysts say Lockheed would be interested in gaining production work on that aircraft.
Because the Air Force has said it would like the Multirole Fighter to have some radar-evading “stealth” capability, analysts say, Lockheed may be better able to provide it and make a profit.
“I don’t think GD today has any kind of stealth capability,” Nisbet said. “The money they are spending on R&D is a pittance compared to what the other companies are spending.”
He estimates that GD will spend $13 million on research and development corporatewide in 1992. That, Nisbet says, is about 1 percent of what Boeing will spend and 6 percent of what Lockheed will spend.
Lockheed has about $287 million in cash on hand and has a funded backlog of $7.5 billion in production contracts.
Author: Michael D. Towle; Star-Telegram Writer
Fort Worth Star-Telegram – October 24, 1992