Business: Should Lockheed Be Saved?

THE U.S. Government is being confronted with a major and difficult question of principle—and practice—involving the nation's way of doing business. Lockheed Aircraft Corp., the biggest defense contractor, is in a deep cash crisis, and it is looking to Uncle Sam for a bailout. The company wants Congress to authorize an unprecedented federal guarantee of a $250 million loan to save its wholly commercial L-1011 plane, a medium-range "airbus" designed to carry 250 passengers. If Congress refuses, the company's management warns that Lockheed will skid into bankruptcy, upsetting a business empire that employs 75,000 people in 26 states. This would add to the unemployment rolls, particularly in California, and dim President Nixon's chances of carrying the state in 1972.

The Nixon Administration has made a command decision to save Lockheed. Having sent to Congress a bill to authorize the loan guarantee, President Nixon has assigned Treasury Secretary John Connally, a relentless persuader, to lead a hard-sell campaign on Capitol Hill. Hearings on the issue are scheduled to begin June 7, and there will be many dramatic confrontations before the final vote is taken, probably at the end of July. At the moment, a slim majority in Congress appears to favor the guarantee, though with much reluctance. As a price for it, California Senator Alan Cranston, a Democrat, demands the firing of Lockheed's chairman, president and board of directors. Indeed, Lockheed Chairman Daniel Haughton told TIME Correspondent Jerry Hannifin last week that he is willing to step down. Said

Haughton: "The management is more interested in Lockheed's survival than in any jobs, and that starts with me."

Expensive Burial. Haughton and other Lockheed chiefs argue that failure to back the loan for the three-engine L-1011 TriStar would be an economic disaster. Without this support, they say, most of the $1.49 billion already invested in the plane will be lost. Subcontractors have already spent $350 million on it, and the airlines have advanced $240 million in progress payments. Lockheed has poured in $900 million, including $400 million in loans from a consortium of 24 banks led by California's Bank of America and Manhattan's Bankers Trust.

Connally contends that it would cost more to bury Lockheed than to sustain it. Without giving specifics, Administration officials maintain that if Lockheed fails they will have to renegotiate some of its defense contracts with other producers, and probably be forced to pay more. In trying to find precedents for helping Lockheed, Connally mentions the Reconstruction Finance Corp., which made loans to troubled but solvent companies from Depression days through 1953. Yet these loans were limited to $500,000, and theoretically they were available to all firms, not only those with special clout. In asking for help now, Lockheed has noted that in 1967 the Government guaranteed a $75 million credit for Douglas Aircraft before it merged with McDonnell, but this money was specifically earmarked for defense work and not a commercial venture. As Lockheed, in its widely distributed position paper, says of its own request:

"There is no full precedent for this."