CALABASAS, Calif. – Air Force orders for the Fort Worth-made F-16 are shrinking, the vaunted F-22 program is over budget and some lawmakers want the next Multirole Fighter – the much-anticipated replacement for the Fighting Falcon – to be the rival McDonnell Douglas F/A-18 Hornet.

As the Pentagon scales back its budgets for military aircraft in the post-Cold War era, the issues looming over General Dynamics’ Fort Worth Division are some of the most troubling in a troubled industry.

Yet without hesitation, Daniel Tellep, chairman of Calabasas-based Lockheed Corp., is willing to pay $1.5 billion for the operation because he envisions a bright future where others still see clouds.

“General Dynamics has already announced that it will have to cut back by about 5,800 people between now and the end of 1994,” Tellep said in an interview last week. “That plan has to go forward. “But after we get to that low point, we think business will start building again, when F-16 orders come back on line and the production rate builds back up.

“I think the most important thing for us to look at is how we can extract the most value from our combined capabilities.”

The Fort Worth operations – to be renamed Lockheed Fort Worth Co. – will become part of Lockheed’s Aeronautical Systems Group, based in Marietta, Ga.

Executives in Fort Worth will report to Lockheed managers in Marietta. Tellep sees Lockheed’s technical prowess boosting the F-16’s capabilities and its opportunities in the international marketplace, which may someday account for one of every two planes that roll off the Fort Worth production line.

“Putting Fort Worth together with Lockheed Aeronautical Co., I believe, creates the No. 1 military aircraft company in terms of capabilities in the world,” he said.

Soon after the Lockheed-GD deal was announced in December, Tellep traveled to Taiwan, South Korea and Japan with Fort Worth Division Manager Gordon England. He said reaction from F-16 customers there led him to believe in the Falcon’s future.

“I think it is fundamentally so good, intrinsically so good that it will sustain production well past the turn of the century,” Tellep said. “It may take some different forms, but it will keep going.”

Analysts say Tellep’s toughest decision in Fort Worth may be on the vaunted F-22, the Air Force’s next stealth fighter. Lockheed will own two-thirds of the program, which had been split between GD, Lockheed and Boeing Co. The program is already over budget, and overhead costs are soaring at the plants of all three contractors because of declining orders on other defense aircraft programs.

The Pentagon has already announced a plan that slides back the fighter’s development schedule by nearly two years. High costs, said Jack Modzelewski, an analyst with PaineWebber in New York, will almost surely force Lockheed to consolidate work at one plant.

Tellep won’t say what will happen, but he acknowledges that a decision may have to be made.

“We’re studying what we can do there,” he said. “We think there are probably some efficiencies we can effect on the F-22 and the F-16 program. We just need time to figure this out. We’re looking at every possible option to figure out how to effect some economies.

“There are degrees of consolidation. In the extreme case – and I rule this out – you would close down the entire Georgia factory or the entire Fort Worth factory. That simply isn’t in the cards. It’s not practical.

“Fort Worth will stay as an entity and Georgia will stay as an entity. Our challenge is to find the most optimal work balance between the two to get economies.”

However, Tellep said the odds are against shifting F-22 work from either plant in the near future, just as development work on the aircraft gets under way.

“You have to understand that the engineering teams are in place right now,” he said. “They’re at a critical point in the design, coming up on preliminary design review and heading into the critical design review ( two Pentagon development milestones) .

“This is an inopportune time to disrupt the engineering teams. We’re right in the sort of peak of engineering design activity. Any radical change now would be disruptive, and I don’t think we can afford it.”

Tellep has high expectations for the Fort Worth operation’s chances to build the aircraft now known as the Multirole Fighter, or MRF. Budgetary pressures are likely to force the Air Force to choose a derivative of the F-16 for use as the MRF, because the Falcon would be the most affordable aircraft available when a replacement is needed around 2010.

Tellep, 61, joined Lockheed in 1955 working on the company’s missile programs. Just out of the University of California at Berkeley, he had a master’s degree in mechanical engineering. But since taking the reins in 1989, Tellep has become a graduate of the defense industry’s school of hard knocks.

• He survived a lengthy attack from Dallas corporate raider Harold Simmons.
• Lockheed took a $300 million writedown for cost overruns on the P7-A antisubmarine plane and wrote off another $165 million because of problems on other aircraft programs.
• Tellep had to cut 12.5 percent of Lockheed’s payroll, close a 60-year-old plant in Burbank and approve layoffs at Lockheed’s operation in Marietta.
• And at the same time, Tellep has managed a Lockheed comeback during a period when the industry’s giants have been humbled. To buy the Fort Worth operations,

Tellep had to wheel and deal with GD Chairman William Anders, who has a reputation as a hard-driving executive who extracts what he wants at the bargaining table. Anders had decided that his Fort Worth Division needed to take control of the F-22 Advanced Tactical Fighter program to survive, and industry insiders expected him to find a way to loosen the grip of Lockheed, the ATF’s prime contractor, and buy the program.

They didn’t know Tellep. The soft-spoken but tough-minded Lockheed chairman had already decided that his company would be a survivor in the shrinking defense industry and wasn’t about to let go of the $9.5 billion contract to produce the F-22.

While Anders says openly that all of GD’s divisions will either lead or get out of the way, Tellep has a long-term plan that has his company moving to the top in the tactical aircraft business. So the gray-haired son of a Pennsylvania coal miner turned the tables on Anders and convinced him that he might as well sell GD’s prized and profitable unit to a company that intends to fight for every slice it can get of the Pentagon’s shrinking budget pie.

The result: Lockheed is launched into a neck-and-neck race with McDonnell Douglas Corp. to become the world’s leading producer of fighter aircraft with what will be $6.5 billion in sales once the $1.5 billion acquisition is completed. Lockheed’s share of the military aircraft business will grow from 10 percent to 27 percent.

“Bill Anders made the easy decision,” said Modzelewski, the PaineWebber analyst. “It was easy to truncate the process. Don’t invest your capital, keep your profits, sell when the time is right. That’s Wall Street Economics 101.

“Tellep took more of a long-term view. He sits there like a real chairman and sees various constituencies. He has communities, customers, employees and stockholders. He seems to try and balance all those, and that’s a hard job.

“Tellep takes very seriously the way a decision will impact the community and his employees. He is the classic nice guy.”

Author: Michael D. Towle; Star-Telegram Writer

Fort Worth Star-Telegram – February 7, 1993