THE LOCKHEED-MARTIN MERGER : Consolidation Was Already in the Equation : Rivals Not Altering Their Flight Plans

Southern California’s defense industry doesn’t need to adopt a new game plan in response to the proposed merger of Lockheed Corp. and Martin Marietta Corp., however daunting the combined behemoth might appear.

For many local defense giants, the situation already called for an aggressive search for takeover targets.

And that means the industry is expected to keep shrinking rapidly as the firms buy and sell assets to counter the long slide in Pentagon spending.

On Wednesday, some defense executives acknowledged that the sheer size of the $10-billion Lockheed-Martin deal--which would create the nation’s largest defense company by far--will pressure smaller rivals to act more quickly than they had planned.

“We’ve needed some kind of a dramatic change for a shakeout, and maybe this is it,” said John M. Leonis, chief executive of Litton Industries Inc., a Beverly Hills-based builder of Navy ships and defense electronics.

Here’s a look at some of California’s biggest defense players and their responses to the Lockheed-Martin merger:

McDonnell Douglas Corp.: The St. Louis-based aerospace giant, whose Douglas Aircraft unit is based in Long Beach, would be replaced as the Pentagon’s largest vendor if the Lockheed-Martin merger goes through.

But McDonnell--a big maker of fighter jets, rockets and other spacecraft that has been largely on the sidelines during the industry’s consolidation--says that prospect won’t compel the firm to rush into a deal.

“We don’t feel any particular pressure to get into the acquisition picture because of what happened,” spokesman Tom Williams said.

One reason McDonnell may be reluctant to do a big merger: The company is involved in billion-dollar legal disputes with the U.S. government over the C-17 transport and the canceled A-12 bomber, and it is wary of spending big money for a merger that might not sit well with Uncle Sam, said Paul Nisbet, an analyst with JSA Research Inc. in Newport, R.I.

Rockwell International Corp.: The Seal Beach-based producer of defense electronics, spacecraft and other military gear has also been largely absent from the industry’s merger trend so far, and it gives no sign of feeling threatened by the Lockheed deal.

“Rockwell is always reviewing opportunities,” spokesman William Blanning said, declining further comment.

Rockwell, with $10.8 billion in sales in its fiscal year ended last Sept. 30, has been busy moving away from defense and investing in such commercial lines as factory automation equipment and truck components.

Though itself the product of mergers, Rockwell is known to move slowly on deal making. With a strong financial performance lately, analysts say there’s no reason to change that habit.

Hughes Aircraft Co.: This Los Angeles-based unit of General Motors Corp. has been active in the defense industry’s merger binge, buying General Dynamics’ missile line in 1992 for $484 million.

Hughes’ strategy is to “invest or divest” to survive the decline in defense spending, both by acquiring defense properties and by expanding its commercial divisions, such as communications satellites.

To that end, Hughes is always considered a potential buyer--particularly in the satellite market, which is widely thought to have too many players. Likewise, TRW Inc.’s Redondo Beach-based satellite group is often spoken of as a potential takeover candidate, though the firm has stalwartly denied plans to sell it.

Hughes spokesman Ray Silvius said Hughes will not accelerate any plans in response to the Lockheed merger--”unless it caused an opportunity to present itself to us.”

Northrop Grumman Corp.: The Los Angeles-based maker of the B-2 Stealth bomber has been among the most aggressive defense predators of late.

In April, it acquired Grumman Corp. for $2.2 billion, and on Wednesday it bought the 51% of aircraft parts maker Vought Aircraft Co. it didn’t already own, for $130 million.

Northrop Grumman said the Lockheed deal “doesn’t have any impact on what we’ve charted as a course,” which includes “keeping our options open” on even more takeovers, spokesman Jim Taft said.

Litton Industries Inc.: The company--a mid-tier player with $3.5 billion in sales in its fiscal year ended July 31--is frequently mentioned as a potential takeover target.

Litton thinks otherwise, believing it must buy or die to remain in defense. It has been actively shopping, particularly for a defense unit of a diversified company, and that strategy has not changed, Leonis said.

Trouble is, those diversified firms have been reluctant to shed their defense lines, because they are generating handsome cash flows.

The Lockheed deal could change that, Leonis said, by showing such firms they “have no prayer of continuing to be a major player” in defense “and that maybe this is the time to get out.”