Coffman Avows Focus on Debt Reduction

Although the sale of Lockheed Martin's control systems and aerospace electronics systems business has allowed the U.S. defense behemoth to substantially improve its cash flow, company chairman and CEO Vance D. Coffman is keeping up the pressure to maintain strong financial performance.

"We are in the process of getting our debt down," Coffman said late Sunday. The cash generated from the sale of the two business units to BAE Systems has enabled Lockheed Martin to meet year 2000 cash flow goals, and further divestitures are expected, he said.

Among those are residual assets from its environmental remediation business and the sale of the Information Management Services unit. The timing of those sales will be mainly driven by Lockheed Martin's ability to get a good price for them, Coffman said. The generated cash will be used almost exclusively to eliminate debt incurred through past acquisitions. Coffman does not intend to use the money for more buys.

Nevertheless, Lockheed Martin isn't entirely out of the acquisition mode. The long-awaited purchase of Comsat has received legislative approval. The U.S. Federal Trade Commission is expected to approve the deal, too, with an August close seen possible.

Lockheed Martin's top priority, not surprisingly, is winning the Joint Strike Fighter competition against Boeing, Coffman said. But there are other growth areas too. "You will see us pursuing more civil government and select commercial opportunities through the technology services portion of our core portfolio," he said. International cooperative efforts are also seen growing in number, although a transatlantic merger is not expected. "I don't see a merger of that scale in the real near future," he said.

"Overall, I think, we've made significant progress," Coffman said of the company's performance since last September, when he set several new goals to effect a turnaround after many months of poor financial and technical performance. The Lockheed Martin order backlog has grown from $46 billion to $57 billion during this year alone, Coffman said.

The second quarter, on which Lockheed Martin reported earnings last week, alone saw the backlog grow $16.7 billion. Contributing to that growth were the contract for 80 F-16s for the United Arab Emirates, the award of the U.S. Army Theater High Altitude Area Defense (THAAD) program, and the sale of five frigates to Norway.

Several key programs blamed for driving down Lockheed Martin's financial performance last year have also been turned around. Among those Coffman cited was the C-130J transport, which suffered slow international and U.S. sales. The Pentagon has now stepped up purchases. The action "signals to the international community that the C-130J is on a long-term path now," he stressed, predicting future sales opportunities of between 300-500 aircraft.

Other improvements include a more secure funding situation for the F-22 this year compared to last, THAAD development progress, and several successful launches with its Titan IVs and Lockheed Martin's International Launch Services venture with Russia.

Coffman brushed off some Lockheed Martin negatives, notably the state of limbo plaguing the X-33 and Venturestar re-useable launch vehicles-and their continued funding by NASA. The company has encountered serious technical problems with the X-33, but Coffman said the single-stage to orbit launch concept is near to technically feasible. He attributed the delay in follow-on funding to questions about the need for such a system given the virtual collapse of the low earth-orbit payload market at the moment.

By Robert Wall