Lockheed Corporation

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Lockheed Corporation

2555 Hollywood Way
Burbank, California 91505
U.S.A.
(818) 847-6121

Public Company
Incorporated: 1916 as the Loughead Aircraft Manufacturing Company
Employees: 81,300
Sales: $10.27 billion
Market value: $3.411 billion
Stock Index: New York London Amsterdam Zurich Basle Lausanne Geneva

”None of Lockheed’s troubles ever seems to be a little one,” noted The Economist magazine in 1981. However, after emerging from a financial crisis and a scandal that nearly ruined the company, Lockheed is more successful than ever before. Today Lockheed is one of the most important manfacturers of weapons and related systems in the United States.

The Lockheed Corporation has its origins with two brothers named Allan and Malcolm Loughead. Allan, an auto mechanic, first learned to fly in Chicago in 1912. When he returned home to San Francisco later that year he decided to build his own airplane. He and Malcolm spent their evenings in a garage, engineering and constructing a small ultralight seaplane they called the Model G. This airplane was one of the first “tractor” designs with a forward-mounted engine enclosed in the fuselage.

During this time Allan flew as a barnstormer, but later gave it up after some powerlines had ensnared his Model G. The brothers established the Alco Hydro-Aeroplane Company with financial backing from Max Mamlock’s Alco Cab Company and concentrated on building airplanes. Unfortunately, they couldn’t sell the airplanes, and the company was dissolved the following year.

In 1916 the brothers started another new venture, the Loughead Aircraft Manufacturing Company, based in Santa Barbara. Apparently tired of having their last name mispronounced as “lug head,” Allan and Malcolm changed the spelling to match the pronunciation, “Lockheed.” Likewise, the company’s name was changed to Lockheed. Malcolm left the company three years later to sell hydraulic brakes. Still employed, however, was a young engineer named Jack Northrop (later the founder of the Northrop Corporation) who helped the brothers to develop their twin-engine F-1 flying boat.

Northrop started a tradition of naming Lockheed airplanes after celestial bodies. In 1927 he helped develop the Lockheed Vega which became widely known as an explorer’s airplane. When Amelia Earhart crossed the Atlantic, she flew a Vega. In June of 1928 Northrop left Lockheed to work for Avion, a subsidiary of William Boeing’s United combine.

Lockheed was acquired by the Detroit Aircraft Corporation in July of 1929. An infuriated Allan Lockheed, who had little control over the turn of events, resigned his post and sold all his holdings in the company. Under new management, Lockheed’s engineers produced a number of new airplanes. Most notable among them was a popular passenger transport called the Orion.

While Lockheed was still operating profitably two years into the Depression, its parent company, Detroit Aircraft, was in poor financial condition. When it went into receivership in 1932 Lockheed was put up for sale. A group of investors, Robert Gross and Lloyd Stearman among them, purchased the company for $40,000. The new owners wasted no time in developing a new airplane. In 1933 they introduced the Model 10 Electra. The Electra flew in the shadow of Douglas’ DC-3, but was still popular with Northwest and Pan Am as a complement to their fleets of larger airplanes.

The following year airmail legislation and other subsequent congressional acts forced the breakup of a number of powerful aviation combines. Lockheed, however, was small enough that it remained largely unaffected.

One month after Germany annexed Austria in March of 1938, a British delegation toured the United States with the intention of purchasing airplanes for the Royal Air Force. Lockheed engineers were given only five days notice to design the reconnaissance bomber in which the British were interested. They presented the “Hudson,” a modified Model 14 Super Electra fitted with more powerful engines, a bomb bay and guns. For unknown reasons, the Hudson retained the Model 14’s cabin windows.

The British agreed to buy at least 200 Hudsons for $25 million. It was the largest military contract awarded before the war and marked a turning point in Lockheed’s business. The Hudsons were to be built by Lockheed’s Vega subsidiary, predominantly a manufacturer of military airplanes. By May of 1943 Vega had manufactured over 3000 Hudsons.

As the United States became more involved in World War II, Vega produced a number of new airplanes for the allied armies, including the Ventura, the Harpoon, and variations of Boeing’s B-17 bomber. Lockheed also introduced the P-38 Lightning, an effective and versatile triple hull interceptor. The company produced about 10,000 of these airplanes and its variations.

Because the War Department required so many different types of airplanes, Lockheed converted a number of commercial designs to perform military duties. Perhaps the most impressive among these conversions was the four engine C-69 Constellation. Originally, this airplane was secretly developed by Howard Hughes and Lockheed engineers for civilian service. However, after Pearl Harbor the government prohibited further production of commercial airplanes. Nevertheless, only 15 of these planes were delivered before the war ended.

When the war finally came to a close late in the summer of 1945, Lockheed had produced 19,297 aircraft for the military—nine percent of the total U.S. production. After the war, the company concentrated on meeting the demand for commercial airplanes caused by the various airlines’ expansion plans. Thus, Lockheed resumed the civilian 049 Constellation project. Variously described as “beautiful” or “romantic,” several versions of this distinctive triple-rudder airplane were manufactured. It was a commercial success for Lockheed; virtually every major airline in the world ordered at least one. Lockheed also remodeled its Electra, designated L-188, and fitted it with prop-jet engines.

After the war Lockheed maintained numerous military contracts, many of them secret. One such project which the company and the armed forces had an interest in keeping quiet was the development of a jet fighter. Conventional piston-driven airplanes had propellers which simply pushed the air behind the airplane. Jets, on the other hand, sucked air into a chamber where at high pressures a spray of jet fuel was detonated. The rocket-like explosion of the fuel generated a powerful thrust. That thrust enabled an airplane to fly twice as fast as conventional airplanes. The newly created Air Force, now involved in the beginnings of the Cold War, expressed great enthusiasm for the project.

Lockheed had become interested in developing a jet during 1939, the year the Germans first tested one. Two years later the British designed and successfully built a jet. In 1943 Bell Aircraft built a jet called an Airacomet. All were test models and only Messerschmitt’s Me.262 and Britain’s Gloster F. 9/40 engaged in combat during World War II.

Kelly Johnson, the company’s chief designer, led Lockheed’s jet project at the secret Advanced Development Products (ADP) division. On January 8, 1944 the XP-80 Shooting Star was successfully flown over Muroc Dry Lake, Nevada. It later served as a prototype for more than 1700 improved variations.

The XP-80 model jet arrived too late for World War II, but was used when the Korean War broke out in 1950. Other Lockheed aircraft in action over Korea were the Neptune reconnaissance airplane, the F-94 Starfire interceptor, and the Constellation transport. “Korea,” it was said, “was a Lockheed war.”

The 1950’s were a period of growth and innovation at Lockheed. With a steady flow of lucrative military contracts, the company expanded existing plants and built several new ones. It tested a vertical take-off and landing (VTOL) airplane, as well as a ramjet, widely regarded as the propulsion mechanism of the next century. Lockheed even made plans for a nuclear-powered aircraft. In 1953 the company established its missiles and space division which produced satellites and submarine-launched missiles.

Lockheed built a number of variously designed fighter jets for testing and use by the Air Force. Their one failure was the F-104 Starfighter which was sold to the West German Luftwaffe in 1959. The Germans called them “widowmakers” and “flying coffins.” 175 of these jets crashed, killing a total of 85 pilots. Lockheed, which initially refused to acknowledge the design problems with Starfighter, paid the pilot’s widows $1.2 million in compensation during 1975.

In the commercial market Lockheed responded to Douglas’ new DC-7 with an altered version of its Constellation, including new wings and a new name—the “Star-liner”. Two years later, in 1957, the company produced a small jet called Jetstar. These were to be Lockheed’s last commercial ventures for fifteen years.

In the early 1960’s Lockheed was closely associated with the Department of Defense. Robert and Courtland Gross, the company’s chief executive officer and president respectively, maintained low profiles and delegated much of their responsibility to subordinates. Even after Robert died in 1961 and Daniel Haughton was named president, the direction of the company remained the same.

In military ventures the company developed transports such as the C-130 Hercules, the C-141 Starlifter and the C-5 Galaxy, the largest airplane in the world. During this period Lockheed’s military products were consistently chosen over those of Boeing and Douglas for the award of Pentagon contracts.

In the decade of the 1960’s Lockheed developed two very important jets, the U-2 spy plane and the SR-71. The U-2 flies at altitudes over 70,000 feet loaded with remote sensing electronic equipment. After the Cuban missile crisis of 1962, Senator Barry Goldwater credited the U-2 alone, with its reconnaissance abilities, for providing President Kennedy with precise and accurate information regarding the location of missile sites in Cuba.

The SR-71 was designed in the early 1960’s and has not required any further improvement; its aerodynamics are regarded by most engineers as nearly perfect. Called the “blackbird” because it is painted black, the SR-71 has a cruising speed of over 2100 miles per hour and is able to fly at an altitude of over 85,000 feet. The SR-71’s large engines create pockets of extremely low air pressure in front of the air intakes, drawing the aircraft forward. Acting like vacuums, the engines contribute to the forward motion of the airplane in this way.

In 1967 Courtland Gross stepped down as chairman, ending a 30-year era in the history of Lockheed. Daniel Haughton was promoted and Carl Kotchian was named president. These two men continued the conservative management tradition of the Grosses, but made one uncharacteristically risky venture in the commercial airline market. When Boeing announced the development of its 747, and Douglas its DC-10, Lockheed responded with a commercial wide body jetliner of its own, the 1011 TriStar. Lockheed’s new jetliner first flew in November of 1970. However, the TriStar program was plagued with several major problems. Rolls-Royce, the manufacturer of the 1011’s engines, went into receivership during February of 1971. Several airline companies, principally Eastern, experienced numerous equipment failures with their TriStars. Sales of the airplane began to drop, and the company faced a liquidity crisis. Even after important modifications in the design of the aircraft and increased sales, production of the L-1011 continued to lose money for Lockheed.

Lockheed’s decision to compete with the new generation of commercial jetliners nearly ruined the company. By 1971 Lockheed’s financial position became so grave that it required a guaranteed government loan to remain financially afloat. After producing a total of about 250 TriStars, Lockheed discontinued the program in 1981.

Lockheed, like many of its competitors, has always had a difficult time selling its jetliners in foreign markets. Their competitors have been known to use bribery to procure lucrative contracts. Lockheed made no secret that it intended to challenge its competitors on similar terms when it informed the Securities and Exchange Commission in 1975 that it would resist that agency’s efforts to halt Lockheed’s “sales incentives.” The SEC withheld any action against Lockheed because the guaranteed loan gave the government an active interest in the company’s quick financial recovery.

Lockheed was accused of bribing officials in Iran, Indonesia, Italy, the Netherlands and Japan. In 1976 a series of arrests in Japan culminated in the detention of the former prime minister, Kakuei Tanaka, whose government was brought down in the controversy. A month later, Prince Bernhard of the Netherlands was implicated in accepting Lockheed bribes. Questionable payments were made to officials in several other nations. Lockheed was successful in selling its planes, but now it was at the center of an international scandal.

The two men most closely associated with Lockheed’s questionable practices were the company’s president, Carl Kotchian, and chief executive officer, Daniel Haughton. Both men were compelled to resign in 1976 after details of the $30 million improprieties were publicized. Haughton, who consistently answered “no comment” to inquiries from the press, resigned peacefully. Kotchian had to be removed from his position during a four hour board meeting.

The board named an interim chief executive officer, Robert Haack, to preside over a restructuring of the company. A former president of the New York Stock Exchange, Haack deserves much of the credit for rectifying Lockheed’s management and marketing problems. At the same time Lawrence Kitchen, a former vice president, was promoted to president following the departure of Kotchian. His task in this position was less to administer than to improve the damaged reputation of the company. Eighteen months later, Lockheed’s chief financial officer, Roy A. Anderson, replaced Haack as Lockheed’s new chief executive officer.

Today Lockheed conducts its business through 18 subsidiaries in four principal divisions: the missiles, space and electronics systems group; the aeronautical systems group; the marine systems group and the information systems group. Its major projects for the 1980’s are primarily military hardware. They include building the F-19 stealth bomber and the Trident II submarine-launched missile, and maintaining the National Aeronautics and Space Administration’s space shuttles. Because of its involvement in manufacturing so much military equipment, the company is regarded by the United States government as indispensable for the country’s defense.

Principal Subsidiaries

Advanced Marine Systems; Lockheed Air Terminal, Inc.; Lockheed Advanced Aeronautics, Inc.; Lockheed Aircraft International A.G.; Lockheed Electronics Co., Inc.; Lockheed Missiles & Space, Inc.; Lockheed Finance Corp.; Lockheed Western Export Co.; TriStar Parts, Ltd.; Lockheed Engineering and Manufacturing Services, Inc.; Lockheed Georgia International Services, Inc.; Lockheed Shipbuilding Co.; Murdock Engineering Co., CADAM, Inc.; DIALOG Information Services, Inc.; Lockheed Data Plan, Inc.; Lockheed Space Operations Co.; Lockheed Support Systems Corp.; Lockheed Marine Company; Datacom Systems Corp.; Lockheed Jeromod Center, Inc.; Metier Management Systems (U.K.).