Lockheed Martin

Lockheed Martin is the result of the 1995 merger of two of the largest U.S. military contractors—Lockheed Corp. and Martin Marietta Corp.—both with roots in the early 20th Century.

Martin Marietta dated back to a company formed in 1917 by aviation pioneer Glenn L. Martin to build combat planes for the U.S. military. During the 1930s he branched out into commercial passenger aircraft and got involved in producing the Clippers (also called “flying boats”) used by Pan American Airways on its trans-Pacific routes. During the Second World War, Martin’s company built thousands of planes, mainly bombers, for the Allies.

Lockheed had its origins in a company founded in 1916 by Allan and Malcolm Loughhead (who later changed the spelling of their name to Lockheed). The brothers later left the company, which under new management and ownership also built commercial planes in the 1930s and became a major producer of combat planes during the war.

Both companies tried to reenter commercial and military aircraft production after the war, and both had difficulty competing with the likes of Boeing and Douglas. Martin Co. decided to focus instead on missiles (Pershing, Titan, etc.) and by 1960 was operating exclusively in that field. In a diversification move, it merged in 1961 with chemicals and construction materials producer American Marietta Corp. to form Martin Marietta.

Lockheed, which produced the first U.S. jet fighter (the P-80 used in the Korean War) and later the U-2 spy plane, made a new foray into commercial jets in the 1960s with the introduction of its L-1011 TriStar, a rival to Douglas’s DC-10. Problems with that project and the C-5A transport it was building for the U.S. Air Force nearly put the company under in the early 1970s. Lockheed had to be rescued by a $250 million federal government loan guarantee, which passed the Senate by only a one-vote margin. Despite the rescue, Lockheed’s commercial aircraft operation continued to struggle, so management put an end to it in 1981. The company later averted a takeover by corporate raider Harold Simmons by forming an employee stock ownership plan.

Although Martin Marietta became a major producer of aluminum and construction materials, it was better known as a contractor for the U.S. space program (its products included the external fuel tanks used on the Shuttles). In the early 1980s it was the target of a hostile bid by Bendix Corp. After a complicated takeover battle, Martin Marietta remained an independent company though Allied Corp. had acquired a 39 percent stake. To reduce the heavy debt the company had taken on during the maneuvering, Martin Marietta’s management sold off its cement, chemical and aluminum operations.

Lockheed’s F-117 Stealth fighters played a major role during the 1991 Persian Gulf War (and later during the initial invasion of Iraq), and the company’s role as a producer of military aircraft was enhanced when it agreed in 1992 to purchased the fighter plane unit of General Dynamics.

Plans for the marriage of Lockheed and Martin Marietta—described as a merger of equals—were announced in 1994, and after passing regulatory hurdles, the deal gave rise to the world’s largest defense company. In 1996 the combined company grew larger by acquiring Loral Corp.’s Defense Electronics and Systems Integration Business, though some of those operations were soon spun off to form L-3 Communications.

During this period Lockheed Martin supplemented its military work with another form of government contracting: it got into the business of doing outsourced administrative work for state social-service agencies. One of its major customers was Florida, which aggressively privatized its public-assistance programs.

In 1997 Lockheed Martin announced its intention to acquire Northrop Grumman, but after federal regulators balked the plan was dropped. Lockheed did acquire the satellite company Comsat Corp. in 1998 but sold it in 2004. In 2000 Lockheed sold its Sanders military electronics business to BAE Systems.

Amid the U.S. military buildup of the past decade, Lockheed has fared well. In October 2001 it was awarded the Pentagon’s largest contract ever—a deal worth at least $200 billion over several decades to produce the Joint Strike Fighter for the Air Force. Shortly after that, Lockheed and TRW were given a $2.6 billion contract to create the next generation of military satellites, also for the Air Force.

In 2005 another major acquisition, this one involving Titan Corp., collapsed. In this case it was because of allegations that Titan executives paid bribes to international clients. Titan ended up as part of L-3 Communications instead.

In 2007 the U.S. Navy cancelled Lockheed Martin’s contract to build the second of two coastal combat vessels because of large cost overruns. The company has also been facing criticism over rising costs on the new Marine One Presidential helicopter it is building using a design from Italy’s Finmeccanica. A March 2008 Government Accountability Office estimated that the cost of the Joint Strike Fighter program led by Lockheed Martin was expected to rise to $337 billion, a 45 percent jump from what was estimated in 2001.

Problems such as these did not stop the company from getting more contracts, such as a May 2008 award worth $1.5 billion to building the next generation of navigation satellites.