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Ford Aerospace Treated for Years Like a Stepchild : Defense: The auto maker has announced plans to sell its Newport Beach-based unit. But critics say the firm was abandoned long ago.

January 14, 1990|JONATHAN WEBER | TIMES STAFF WRITER

Shortly after the U.S. 1986 military strike against Libya, C. E. Grubbs, a manager at Ford Aerospace in Newport Beach, read a newspaper article about the key role that his company's sophisticated bomb-targeting system had played in the raid. He called a friend at Ford Aerospace headquarters in Detroit to talk about the exciting news.

But Grubbs discovered that not only had the company failed to seize a rare public relations opportunity, but no one in Detroit was even aware that Ford equipment had been used in the attack. To Grubbs, who left the company in 1988, the incident was just another example of Ford's not-so-benign neglect of its $2-billion aerospace unit.

While General Motors likes to tout the supposed synergy between its Hughes Aircraft unit and the car-making operations, critics charge that Ford has traditionally paid scant attention to Ford Aerospace, which makes missiles, satellites and other defense systems. Indeed, the huge car company doesn't even mention the defense business in its latest financial report.

"At Ford Motor, aerospace was never worth anyone's attention," Grubbs said. "They've taken an extremely myopic approach to the business."

And now, with the defense industry bracing for huge Pentagon budget cuts while the auto business heads into a period of intensifying worldwide competition, Ford has decided that it cannot afford to keep the aerospace operation under its wing at all. The company said Friday that Ford Aerospace, now based in Newport Beach, is for sale.

The timing, analysts say, is peculiar.

Just 18 months ago, Ford appeared to be signaling a deeper commitment to the defense business with its purchase of BDM Inc., a well-known Washington-area consulting firm that provides technical and professional services for weapons system development, for what was viewed as a premium price of $425 million. With the defense industry retrenching in the face of budget cuts, moreover, even the best-performing aerospace firms might have trouble finding buyers.

And Ford Aerospace is not considered a jewel of the industry. Critics say management problems have undermined the company's profitability, and the Aeronutronic tactical weapons unit in Newport Beach is considered to be in particularly poor shape. The satellite and space units are considered to be more attractive, and analysts say it is likely that the company will be sold off in pieces, either by Ford or an intermediary.

The appeal of such a strategy might be heightened by the fact that Ford Aerospace's lease on 99 acres of ocean-view property in Newport Beach runs through the year 2052, and real estate experts say it could be worth $100 million, if the property could be rezoned for residential development.

"Ford Aerospace is one of the companies that never woke up to the realities of the 1980s and developed a cost-competitive strategy," said Michael Beltramo, a Los Angeles defense consultant. "If you had a list of defense properties for sale, Ford Aerospace would be way, way down on the list."

While Ford does not break out sales or profit figures for Ford Aerospace, the company confirmed that it has revenue of about $2 billion and says it is profitable. A spokeswoman maintains that the defense unit has one of its highest order backlogs ever, and that any problems are simply a function of defense spending cycles. In a statement issued late last year, Vice President John Slosar said the firm as a whole is "well positioned to grow in the 1990s, thanks to its particular areas of military expertise and its non-military diversification."

But the company also acknowledges that nearly 70% of its business is with the military, and analysts are skeptical of the claim that its defense contracts will be relatively immune from budget cutting. "Everyone claims that," scoffs Steven Binder of Bear, Stearns & Co. And Beltramo, Grubbs, and several other former managers and analysts maintain that the company's competitiveness--especially in the tactical weapons business--has slipped dramatically in recent years.

Last year, Aeronutronic lost out on a huge contract to build a new anti-tank weapon for the Army with a bid that one source close to the situation said was absurdly high. Ford, said the source, offered a relatively low-tech proposal in the hope that the Army would opt for a cheaper system, but ended up with a higher bid than winner Martin Marietta, which proposed a far more sophisticated weapon.

Last year, Aeronutronic also ordered an unusual halt in all work at Newport Beach while quality control processes were reviewed, and more than 200 people were laid off during the year due to soft sales.

"If I could pick a firm to compete against, I'd pick Ford," said Beltramo.

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