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Kent Kresa: The Best Defense Is A Good Offense

In Business This Week: HEADLINER


In the past year, Northrop Grumman Chairman Kent Kresa has been preoccupied by his company's planned merger with Lockheed Martin. The deal would have cost Northrop its independence but resurrected it as a prime defense contractor. Now that the Justice Dept. has torpedoed the deal, Kresa, 60, must focus anew on his company.

On Aug. 24, Kresa announced a restructuring that will keep Northrop independent--albeit as more of a subcontractor of electronics and information systems to the likes of Boeing, Lockheed, and Raytheon. Los Angeles-based Northrop will slash its workforce by nearly 15%, to 46,000, by 2001 and take a $60 million charge this year. Northrop expects the moves to boost operating margins to 12.5% by the end of 2000, from 10% in the first half of '98. "It's finally an acceptance internally that they can compete very successfully not as a prime, but as a principal subcontractor," says Renee J. Gentry, senior analyst with the Teal Group in Fairfax, Va. To "survive and thrive," Kresa says he has no other option.EDITED BY KELLEY HOLLANDReturn to top


BOEING SUFFERED A BLOW ON AUG. 25 when British Airways decided to order 59 short-haul aircraft for a list price of some $2.6 billion from Airbus Industrie, its first deal with the manufacturer. Chris Avery, an analyst at Paribas in London, thinks BA is getting the planes at as much as one-third off list price. But Boeing, which did get firm orders from BA for 16 777s for a price of about $2.4 billion, may still regret losing the bigger order. It boosts Airbus' prestige and the odds that BA will sign up for its proposed A3XX transport, which threatens Boeing's 747. The deal preserves some 39,000 British jobs, many of them at engine maker Rolls-Royce and British Aerospace, a member of the Airbus consortium.EDITED BY KELLEY HOLLANDReturn to top


MORE BACKWASH FROM OVERSEAS TURBULENCE: Mining and paper equipment maker Harnischfeger Industries is cutting 20% of its workforce in the wake of a third-quarter loss of $38 million. The miserable results stem partly from slowing demand for its capital equipment in Asia and other emerging markets. Management has been mulling moves to enhance shareholder value, but now pressure is intensifying: Trinity Fund, an investment partnership that includes the Bass family and holds 6.2% of Harnischfeger shares, is "very disappointed," a spokesman says, and is considering its options.EDITED BY KELLEY HOLLANDReturn to top


DOES BIGGER INSURE YOU'RE BETTER? Marsh & McLennan clearly thinks so. The world's largest insurance broker said on Aug. 25 that it would buy the third-biggest insurance broker, Britain's Sedgwick Group, for around $2 billion. Marsh would pay 225 pence a share for Sedgwick, a 58% premium over the British broker's share price the day before the deal was announced. Even by Marsh's reckoning, the deal won't add to its earnings until 2000. But senior managers believe Marsh will get more efficient the bigger it gets.EDITED BY KELLEY HOLLANDReturn to top

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