Aerospace: No End in Sight

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A Push from Monopsony. By then, Lockheed had decided to retreat, at least temporarily, from the commercial-plane market and stake its future on defense and space work. The move was well timed. The company was already deeply involved with the Navy's Polaris missile, which has accounted for more than $2 billion—a fifth—of the company's revenue over the past decade. Polaris' successor, the Poseidon, will probably bring Lockheed and its subcontractors another $2 billion.

The missile splurge, plus the nation's effort to overtake the Soviet Sputnik in the peaceful exploration of space, demanded airborne equipment bulging with electronic innards. As a result, the traditional airframe industry broadened into today's aerospace industry, in which such non-planemakers as IBM, Bendix and General Electric play critical roles. Soon a new business climate emerged. At the top, the Pentagon made shrewd use of its monopsony—one customer but many suppliers—to foster competition. To meet the unsparing military demand for excellence, companies undertook research and development on a hitherto undreamed of scale; today engineers and scientists constitute a third of Lockheed's work force against only 5% during World War II. Bidding for big contracts became so costly that companies began to specialize instead of lunging after every bit of new business. Often aerospace firms must risk millions of their own dollars on up to eight years of research just to stay in the race to build fewer, but costlier weapons. "We've become more sophisticated, more efficient and more competitive," says Courtlandt Gross. "We've had to —to survive. Our competitors are very alert, very wise, very hard-working." Among Lockheed's top competitors: — Boeing last year surged to the top of the 1,250 U.S. aerospace companies in sales (an estimated $2.1 billion) and profits (an estimated $77 million), thanks to record orders for its efficient commercial jets. It is an anomaly of the trade that though jets are immensely profitable to the airlines, Boeing alone among the planemakers has so far profited from building jets for commercial use. Boeing has not won a major military contract since 1958, suffered major setbacks by not capturing either the TFX or C-5A award. The company, however, is battling Lockheed for the Government contract to build a supersonic transport; a win would make up for a lot of lost business.

>North American dropped to second in sales ($2.01 billion) and third in profits ($45.8 million, behind both Boeing and Lockheed) in 1965. North American's bread and butter is space—NASA's Apollo moon vehicles, Saturn space boosters, Air Force rocket engines and missile-guidance systems. But its fortunes started skidding in 1964 when the Government canceled development of the XB-70 supersonic bomber, into which the company had plunged $1.4 billion. Now the escalation of the Viet Nam war is bringing cutbacks in NASA spending, and North American is not even in the running for any of the major awards due in 1966.