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Rockwell to Sell Off Space, Defense Divisions to Boeing

Business: Firms agree to $3.2-billion deal. Rockwell will focus on commercial markets, while Boeing enlarges its presence in aerospace. No layoffs are planned.


Rockwell International Corp., shedding the businesses that made it synonymous with the U.S. manned space program, agreed Thursday to sell most of its space and defense operations to Boeing Co. for $3.2 billion.

The deal is the biggest step yet in the effort by Seal Beach-based Rockwell--builder of the space shuttles, the Apollo spacecraft that went to the moon and the B-1 bomber--to shift from aerospace and focus on its commercial markets that offer stronger growth opportunities.

"This is a historic step in the continuing transformation of Rockwell," said Chairman Donald R. Beall.

Although the public may best know Rockwell from the images of its technicians--in white smocks sporting the blue Rockwell logo--on the launch pad, the company today makes most of its money automating factories and making fax machine modems, semiconductors and automotive components.

The proposed sale shows that the rapid consolidation of the U.S. space and defense industry has not run its course. There has been a rash of defense mergers in recent years as contractors adapted to post-Cold War cutbacks in defense budgets and reduced spending by the National Aeronautics and Space Administration.

With fewer contracts available, companies decided that they had to either increase their size via mergers or get out of the business. Rockwell has elected to join the list of companies leaving the industry, joining firms such as Chrysler Corp. and Westinghouse Electric.

The proposed sale would also change the face of Southern California's aerospace industry, where Rockwell has long been a mainstay. The company's roots in the area go back to the 1930s.

At Rockwell's plants across Southern California, many workers greeted the proposed sale with a sense of resignation because of all the defense industry mergers in recent years. "It's like baseball. You just change your uniform," said Darold Cummings, a B-1 bomber specialist in Seal Beach and a 23-year Rockwell veteran.

No layoffs or plant closings are planned for the Rockwell properties after they are purchased, said Jerry King, president of Boeing's defense and space group.

"We don't have in our plans any wholesale changes," King said in an interview, noting that there is "minimum overlap" among their operations.

There could be some job cuts as Boeing moves to streamline the two operations, he said. But because Boeing's jetliner business is booming, "there's very likely other career opportunities" elsewhere in the company, King said.

For Boeing, the Rockwell assets would enable the Seattle-based giant to bolster its space and defense group, and enlarge its presence in aerospace well beyond its role as the world's largest maker of commercial jetliners. Some experts even suggested that Boeing is laying the groundwork for a 21st century marriage between space technology and consumer air travel.

Most of Rockwell's space and defense assets--which employ 21,000 people and generate $3 billion of Rockwell's $13 billion in annual sales--are in Los Angeles and Orange counties. Besides Seal Beach, there are facilities in Canoga Park, Downey, Anaheim and Palmdale.

Rockwell said its Seal Beach headquarters would become a Boeing facility and that the "new" Rockwell would find another headquarters site in a Southern California city yet to be determined.

The Rockwell deal calls for Rockwell stockholders to receive Boeing stock valued at about $860 million and for Boeing to assume $2.2 billion of Rockwell's debt. Certain employee retirement liabilities bring the deal's total value to $3.2 billion.

If completed, the sale would leave Rockwell virtually debt-free, a prospect that cheered Wall Street. Rockwell's stock surged $2.75 a share, to $55.25, Thursday on the New York Stock Exchange, while Boeing rose 62.5 cents a share to $89.125.

One Wall Street analyst, Byron Callan of Merrill Lynch & Co., said Boeing's willingness to beef up its space operations is intriguing because it indicates that Boeing sees a possible merging of commercial air travel and space transportation in the future.

"And if they're laying the foundation for a space company, we're going to hear more from them" in terms of buying space-related assets, Callan said.

The Rockwell sale was not unexpected. In March, industry sources revealed that Rockwell had put its space and defense lines up for sale, and that Boeing and McDonnell Douglas Corp. were among the primary candidates to buy the assets.

Rockwell no longer builds space shuttles or B-1 bombers. However, it performs extensive modifications on both. Its Rocketdyne division in Canoga Park also makes engines for the Delta and Atlas expendable rockets, and is working on propulsion systems for the space station. Rockwell also produces defense electronics, navigation satellites and missiles.

In striking the deal with Boeing, Rockwell did retain one aerospace line: its thriving Collins Avionics group, which makes instruments and electronics for aircraft.

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