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In the merger-happy 1990s, Northrop Grumman (NG) is the poster child for the arms exporters' most trenchant motto: Eat or be eaten. If 1998's proposed sale of NG to Lockheed Martin (LM) had been successful, a company that generated $26.8 billion in 1996 sales would have absorbed a $9 billion company. In other words, the nation's largest military contractor would have swallowed its fourth-largest like a python gulping down a mouse. LM's failed bid (nixed because of antitrust concerns) was the first time the Justice Department's drowsy antitrust division indicated possible limits to defense-industry mergers. At about the time of LM's bid, NG "restructured", causing another 2,100 layoffs -- part of its stated goal to cut its workforce from 54,000 to 46,000. From 1990 to 1995, the company cut more than 35,000 jobs; and yet, in 1994, CEO Krent Kresa managed to rake in a $1.6 million salary. The way the merger game is rigged was well illustrated when NG bought Westinghouse Electric's defense and electronics businesses for approximately $3.6 billion in 1996. Some $600 million of the price was in pensions and medical obligations that the government pays for when it purchases NG's products. Another bundle of cash was saved by purchasing assets from Westinghouse rather than actual stock of subsidiaries to be sold. Under a 1993 law that purchase is now considered "good will", and perfectly tax-deductible to the tune of some $600 million over 15 years (or about $400 million at present). This means the government, not NG, paid about $1 billion of the total cost of acquiring the Westinghouse division -- and that was before the reimbursable restructuring costs. Nonetheless, industry economics mean that vultures hover over NG (itself a product of a Clinton-era merger; Northrop bought Grumman in 1994); Britain's General Electric Co. PLC and British Aerospace PLC are rumored to have the cash to buy the company. NG's alternative is to keep buying smaller companies so as to compete more equally with the industry's other giants. To that end, Litton and General Dynamics are frequently mentioned as possible buy/merge targets for NG. NG has recycled $391,225 through its PACs to the major parties during the first 18 months of the 1997-8 congressional cycle. It is money well spent, since it helps ensure that, whatever happens to NG, legal and tax perks will continue to work in its favor. NG, in the meantime, does its deadly best to make the best weapons money can buy. (Click here for details on some major deals.) In avionics, the company is now LM's main international competitor, with its Litening system (co-produced with Israel's Rafael Armament Development Authority) battling LM's more established LANTIRN for global contracts. Most involve coproduction with the purchasing countries; the Litening system itself is a joint venture with the semipublic Rafael Armament Development Authority of Israel. -- Geov Parrish
In 1994 Taiwan got a free lease for 20 AT-38 and 40 T-38 trainer aircraft, with a free two-year lease the following year for 21 AT-38B trainer aircraft. The Excess Defense Article (EDA) program snagged 3 OV-10A Bronco reconnaissance aircraft for Colombia in 1997, and 10 Grumman OV-1D Mohawk aircraft for Argentina in 1994. F-5s have gone to South Korea, and support services have been provided to Saudi Arabia. NG has also sold to Turkey, cutting a spare-parts deal for that country's T-38s, among other planes, as part of a $110 million package in 1994. | | |||||||||||||
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