Airbus Industrie and Lockheed Martin executives have been talking about an alliance that could reshape the global aircraft industry, say senior industry officials.
The main scenario being discussed, they say, is a Lockheed partnership in Airbus' proposed 550-seat superjumbo jet, the A3XX, which would challenge Boeing's dominance in the largest passenger jets. Another possibility: Lockheed would join forces on a large military transport plane Airbus has been planning for the European market.
The companies have been negotiating on and off for about two years, with the most recent meetings in the past month. Representatives of Airbus and Lockheed acknowledge they are exploring business opportunities but say there are no plans for an announcement at next month's Paris Air Show.
Such an alliance, if consummated, could pose a serious threat to Boeing, the world's No. 1 aerospace company. It would marry Airbus, the chief rival to Boeing in the commercial aircraft business, with Lockheed Martin, the leading Boeing competitor in the military aircraft business.
Lockheed's involvement would mark its return to commercial aviation, which it abandoned in the 1980s, and would bolster Airbus' chances of building its superjumbo. It would come at a time when Boeing is struggling to boost its profit margins in its commercial airplane division.
Having an American partner, moreover, could improve Airbus' overall sales prospects with U.S. airlines, to which Boeing is the dominant supplier. And the partnership could improve Lockheed's defense sales in Europe, where it is marketing its military transport planes to several countries.
Such a deal, however, would be certain to draw scrutiny from politicians and government regulators on both sides of the Atlantic. Among the issues would be an alliance's impact on competition and national security.
Airbus and Lockheed had broached the subject of a partnership in 1997, but their talks had faltered because of former Airbus chief executive Jean Pierson's insistence on Lockheed's involvement in the A3XX. The current talks have the blessing of Pierson's successor, Noel Forgeard.
"Once again, they are talking because Forgeard is more realistic and more diplomatic than Pierson, and there might be some room for negotiations," said Richard Aboulafia, an aerospace analyst for The Teal Group. "We'll see."
An Airbus spokeswoman denied that Airbus and Lockheed were close to announcing a partnership.
"I don't have any indication in that direction," Barbara Kracht, the Airbus spokeswoman, said from Toulouse, France. "There are always conversations taking place all the time in this industry. Sometimes deals are made, and sometimes they aren't."
Jerry Langheim, a Lockheed spokesman, said it was "inappropriate and premature to have any formal comment at this point. I'm not aware of any announcement regarding a partnership with Airbus. We continue to explore business opportunities in the U.S. and overseas."
Airbus thinks superjumbo is key
Airbus, which had less than one-fifth of the global jetliner market before 1993, has risen to become the world's second-largest builder of commercial aircraft. To attain its goal of overtaking Boeing, Airbus believes it must build the A3XX.
But because development of the A3XX would cost an estimated $10 billion to $15 billion, Airbus has delayed the program while it seeks customers and risk-sharing partners to help defray the enormous cost.
For the third time, Airbus recently pushed back the launch of the double-decker jet project from the end of 1999 to the end of 2000. The first delivery was rescheduled from 2004 to late 2005 or early 2006.
With Boeing and Airbus dividing the $40 billion commercial jet market, Lockheed, the largest U.S. defense contractor, must consider re-entering the commercial industry to remain a viable airplane maker, some analysts say.
Lockheed once vied with Boeing and McDonnell Douglas in the civil-aircraft industry, but dropped out of that cutthroat business after sales of its L-1011 sagged. That three-engine jetliner, dubbed the "Tri-Star," continues to fly worldwide.
Lockheed already has struck a number of partnerships with foreign aerospace companies, including Airbus partner British Aerospace. The British company has signed with Lockheed as a partner on its bid to win the contract for the Joint Strike Fighter (JSF). Lockheed is competing with Boeing for the lucrative defense contract.
Over the past year, Lockheed also has considered joining Airbus as the only U.S. partner on its project to build a European military transport. That program, formerly called the Future Large Aircraft, has been renamed the A400M. Airbus plans to supply 288 new airlifters to seven European countries, each of which is a partner in the venture.
Industry officials say Jack Snyder, vice president of business development for Lockheed's aeronautics division, discussed details of an Airbus partnership April 29 with a senior executive from France's Aerospatiale - another of the four Airbus partners. They met at Lockheed headquarters in Bethesda, Md.
Snyder reports to James "Micky" Blackwell, president of Lockheed's aeronautics sector. Blackwell is responsible for the company's military-aircraft programs, and his business unit would be the link to any civil-aircraft partnership.
Last September, Lockheed's chief executive told reporters that his company was not interested in an Airbus partnership. "I'm not sure that I see large equity stakes being swapped in the real near term," Vance Coffman, the Lockheed chairman and CEO, said then.
Langheim, the company spokesman, re-emphasized yesterday that Lockheed has no intention of investing in the A3XX at this time.
Still, Lockheed has been forming strong ties with foreign defense companies.
But Lockheed may still not be ready to make a move. The company is wrestling with several internal problems.
The company's space and missiles sector has suffered a string of military and commercial space-launch failures. A Lockheed-Martin Titan IV rocket sent a military satellite into the wrong orbit last week. That was the fourth failed military or commercial mission in eight months.
Blackwell's aeronautics sector has experienced its share of troubles. The latest model of the C-130 military transport plane is one year behind schedule. Lockheed's bid to win the JSF contract is plagued by a $100 million cost overrun.
And sales of its F-16 fighter jet had nearly dried up until Greece recently decided to purchase 50 jets. Some in Congress also have concerns over the proposed sale of advanced F-16s to the United Arab Emirates, a deal that would include a transfer of highly sensitive technology.
With those issues, plus concerns over Lockheed's sluggish financial performance, now might not be the best time to test congressional reaction to a proposed partnership with Airbus, one industry observer said.
"If I were a senior manager looking at the whole company, you've got to wonder if forming a blockbuster partnership with Boeing's mortal enemy is a wise move at this time," the observer said.