The Lockheed Bailout Battle
THE nation's biggest defense contractor was fighting for its life, and Congress had seldom before seen such frenzied lobbying. As the argument mounted last week over the proposal for the Government to guarantee $250 million in loans to the Lockheed Aircraft Corp., Nixon Administration officials placed calls around the country to sympathetic bankers and industrialists. Those men, in turn, phoned their Congressmen and urged them to vote for the bailout. Machinists and scientists bought newspaper ads. Aerospace workers, some of whom lost their jobs after amateur lobbyists effectively organized an anti-SST drive last spring, rallied to Lockheed's side. They launched letter-writing campaigns, made speeches to P.T.A.s, even organized a boycott of Wisconsin cheese and beer to put the heat on Wisconsin Senator William Proxmire, chief opponent of the Lockheed rescue.
The debate produced such a strange alignment of forces that the outcome was never certain. The House approved the loan guarantee by a slim 192-189. In the Senate, Texas Republican John Tower, leader of the pro-Lockheed forces, could make no accurate nose count as his col- leagues prepared to vote this week--before beginning a one-month holiday. If the loan guarantee is not approved, Lockheed warned, the firm will run out of cash before Congress returns.
Lockheed's supporters made an impassioned case. The company, they con- tended, had been victimized by bad luck. It had poured $900 million into developing a big new superjet, the 250-passenger TriStar. But its engine supplier, Britain's Rolls-Royce, had encountered such rough weather with the contract that it had to be taken over by government-appointed receivers. Lockheed had been financially weakened by problems with military cost overruns and, after Rolls-Royce went under, Lockheed's bankers refused to grant it more credit without a federal loan guarantee.
If the TriStar died for lack of funds, not only would Lockheed lose the money that it had already spent on the plane, but subcontractors, airlines and banks would stand to lose up to $1 billion that they had invested in the project. If that happened, said Lockheed Chairman Daniel Haughton, his com-pany would fail. By Lockheed's estimate, that would cost 60,000 jobs--at Lockheed, at its subcontractors, and at countless supporting businesses. Other countries commonly subsidize their airframe industries, Lockheed supporters argued, and even the U.S. does so indirectly, through lucrative contracts for military planes that are forerunners of commercial jets. Said Senator Tower: "Hell, Lockheed is a company with $4 billion in backlog and has just turned a profit [$8.3 million in this year's first quarter] under tight management. That makes them a highly secure risk so far as I'm concerned." -
The company, however, was not a secure enough risk for the nation's banks. Indeed Lockheed's creditors have testified that the company may well need more than $250 million. Opponents of the loan guarantee--including politicians from both parties, many economists and Lockheed's competitors --questioned whether the TriStar would ever be profitable. Chairman Haughton said that his company must sell 255 to 265 of the planes to make money on them. Lockheed reports 103 firm orders and 75 options for the TriStar so far, but its two biggest customers--TWA and Eastern--have been making arrangements to buy an almost identical plane, the McDonnell Douglas DC-10. The first DC-10s were delivered last week, and they are scheduled to go into service with American and United in mid-August. At best, Lockheed's Tri-Star will not start carrying passengers until next April.
On the jobs question, opponents of the guarantee noted that if the TriStar went down and Lockheed workers were cut adrift, there would be more work for people making the DC-10 and its General Electric engines--and perhaps also for Boeing, which is considering building a similar plane. Would it be fair for Washington to support Lockheed workers at the expense of others?
Most important, opponents worried about setting a precedent. Would the Government always step in to save a huge, politically powerful company that had tumbled into trouble over a commercial project? Many Lockheed critics noted that businessmen usually decry Government intervention, but they then run to the Government when they want help. Economist Alan Greenspan, a frequent Nixon adviser, warned that if the Administration made private credit available to one privileged firm, the supply of credit that is available for all will be reduced.
One of the strongest arguments against the rescue was made by New York Senator James Buckley, a conservative Republican. Said he: "If the inefficient or mismanaged firm is insulated from the free-market pressures that other business firms must face, the result will be that scarce economic and human resources will be squandered on enterprises whose activities do not meet the standards imposed by the marketplace."
Whether or not Congress decides to save Lockheed, the wounds from so furious a battle will be long in healing.
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