Loral Corporation - Company Profile, Information, Business Description, History, Background Information on Loral Corporation

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History of Loral Corporation

Loral Corporation is one of the largest electronic warfare companies in the world. Specializing in radar and infrared detection equipment, Loral is also involved in satellite communications. Loral Electronics Corp. was founded in 1948 in New York by William Lorenz and Leon Alpert, who combined the first syllables of their last names to create the name of their company. The young firm initially concentrated its efforts on developing radar and sonar detection methods following World War II, winning contracts for advanced airborne radar systems and U.S. Navy navigation computing. In 1959, with a series of U.S. military contracts under its belt, Loral went public, offering 250,000 shares at $12 each. It used the proceeds to build and equip a new building at its Bronx, New York headquarters.

Loral's newfound capital allowed it to expand and diversify through acquisitions. In 1959, the company purchased Willor Manufacturing Corp., which made stamped metal parts, and the electronic-equipment leasing arm of Allor Leasing Corp. In 1961, Loral formed a division for developing communications, telemetry and space navigation systems for satellites. It also bought American Beryllium Co., Inc., of Sarasota, Florida, for 95,840 shares of stock. American Beryllium was one of the largest precision machiners of beryllium, a lightweight, toxic material that could withstand harsh environments. Under Loral, American Beryllium became a contract manufacturer of components for aerospace guidance systems and nuclear reactors. In 1961, Loral bought Arco Electronics, and in 1963 acquired A & M Instrument Co., Lerner Plastics and Circle Plastics. To help pay for this expansion, Loral borrowed $15 million from the Massachusetts Mutual Life Insurance Co. in 1965.

Loral's diversity won it a number of military contracts in the late 1960s. The company won a $3.9-million Navy contract for Doppler navigation radar in 1965, and in 1969, a $14-million contract from General Dynamics for advanced electronics for the Air Force F-111, and a $3.9 million contract for airborne countermeasures for the RF4C plane. By the late-1960s, Loral specialized in radar receivers, which identified the signatures of enemy radar systems on missiles and anti-aircraft guns, separating them from the numerous non-threatening signals also present.

Despite its contract successes, Loral's buying spree was hurting the company by the late 1960s. Loral lost $3 million in 1971, and was not always able to make its loan payments. Many of its acquisitions were unprofitable and unrelated to Loral's primary business, earning Loral the reputation of being a company with good engineers and bad management. Lorenz and Alpert were ready to sell half their interest. Robert Hodes, a Loral director, helped bring in troubleshooter Bernard Schwartz to turn the company around. Schwartz, a former accountant, had helped turn around a packaging materials business run by his brother during the mid-1960s, and in 1968 he became the chief strategist in the diversification of Leasco, a computer leasing company.

Schwartz became president and chief executive officer of Loral in 1972 with a $2 million investment that brought him about 11 percent of the company. Alpert and Lorenz resigned from Loral's board and management. Schwartz reduced costs through measures like reducing security at the firm's South Bronx plant. To make certain he understood what his engineers were doing, Schwartz secretly hired a Columbia University Ph.D. candidate to give him lessons in advanced electronics. To help win and keep talented engineers, he began offering stock options. This move helped bring Frank Lanza, a vice-president of the Dalmo Victor division of Textron, to Loral, where he became executive vice-president and engineering chief.

Schwartz renegotiated the firm's loans and quickly sold many of Loral's money-losing acquisitions, concentrating on getting the firm's government contracts back on schedule and within cost. A important project to design a computerized display system for a Lockheed-built U.S. Navy plane was running behind schedule, so Schwartz flew to California to meet with Lockheed officials. He convinced them that Loral could finish the job, and got their backing for the firm's bid to produce the components. But Schwartz realized that the firm's growth depended on their move from building components to building entire electronic-warfare systems.

By late 1973, with the firm's work back on schedule, Loral began looking for ways to expand its markets. An important early victory was the contract to develop the radar-warning receiver for the U.S. Air Force's F-15 fighter plane. To counter NATO warning receivers, the Soviet Union constantly shifted its radar signals, meaning that NATO planes had to have their receivers taken out and rewired to detect the new signals. Loral proposed a system that used computer tape to reprogram the microcomputers in the warning receivers. This could be done in 20 minutes rather than the days or weeks required for rewiring. Actually putting this system into practice took Loral over four years and required an investment of $2 million beyond the $20 million invested by the U.S. government. Loral's system proved successful, and by 1980 had resulted in $400 million in orders.

Electronic warfare gear had been low on lists of defense priorities, but the 1973 Yom Kippur war changed that. Egypt used Soviet radar-guided weapons to shoot down 100 Israeli planes in one week. Israel's American-made fighters did not have the equipment to detect and jam the radar frequencies used by the missiles, which caused NATO countries to increase electronic warfare spending 600 percent over the next seven years. In 1974, Loral began buying again, purchasing Conic, a maker of missile-tracking systems and microwave communications equipment, for $4.5 million. The purchase of Conic, which had profits of $1.1 million in 1973, allowed Loral to lessen its dependence on government contracts.

Another successful mid-1970s deal was a $4.8 million contract with the Belgian air force for an integrated radar system. Loral had no international experience and had never built the tracking and jamming equipment required for an integrated system. Since no single company built all these components, Loral decided to go after the contract, though it faced competition from bigger firms like ITT and Sanders Associates. To increase Loral's chances of winning the contract, Schwartz signed an agreement with MBLE, one of Belgium's biggest electronics houses, that arranged for MBLE to produce part of the system if Loral won the contract. It did. The victory simultaneously made Loral a full supplier of electronic warfare gear and put it on the map of NATO weapons suppliers.

The Belgian radar system had such tight deadlines that Loral actually lost money on the deal, but Loral executives were confident that Belgium would later expand the contract. It did so in 1979, bringing Loral a further $75 million. Other countries soon expressed interest in buying the system. In the late 1970s, Loral sold electronic surveillance systems worth about $200 million to Canada, Britain and West Germany. In each case Loral agreed to share the production with companies in the customer countries to help seal the contract.

In 1979, Loral acquired Frequency Sources Inc. through a stock trade. Frequency made smaller components for electronic warfare and telecommunications systems, and had about $27 million in sales. By the end of the decade, Loral was the largest electronic warfare company in the United States. Loral's successes lead to a significant rise in the price of its stock. As a result, the firm was able to raise $58 million in a January 1980 stock offering. The money was used to make acquisitions and pay for a new $25 million electronics headquarters in Yonkers, New York, intended to help the firm attract talented engineers.

The electronic warfare market continued to grow during the 1980s, fueled by a defense buildup during the Reagan administration, and the Falklands War, during which a $200,000 missile severely damaged a $50 million battle cruiser. Loral made equipment for virtually every electronic warfare system in the U.S. military, including new airborne warning systems. Even so, Loral became the number two electronic warfare company when Dallas-based E-Systems surpassed Loral's $197 million in electronic warfare sales, though Loral remained far more profitable. It had total sales of $255 million in 1981, with profits of $24 million, and an order backlog of $346 million. The reprogrammable radar receiver for the F-15 had become its biggest program, with 750 sets delivered by 1982, and the likelihood of at least 250 more. The integrated system originally designed for Belgium had been bought by Israel as well. The U.S. government had passed over it, however, in favor of a non-integrated system developed by ITT, Westinghouse, and Itek.

Loral did well partly because it put so much of its resources into improving products before customers were even ready for the improvements, thus meeting or exceeding reliability requirements. It also brought projects in on schedule and without cost overruns by identifying potential problems early on, before they had a chance to mushroom. Because problems usually came from subcontractors, Loral frequently sent personnel to subcontractors to check up on their operations.

Loral's non-defense businesses were also doing well in the 1980s. Its $15 million plastic packaging business was as profitable as its electronic warfare unit, and its $30 million telecommunications business was growing again by 1982 after two slow years. Nevertheless, defense was the firm's major priority, and in 1986 it sold the packaging division to its president while trying to purchase Sanders Associates, which was for sale. Lockheed's bid of $1.18 billion beat out Loral's $980 million offer, but Loral made a major acquisition the following year when it bought Goodyear Aerospace Corp. from Goodyear Tire & Rubber for $588 million. Loral and Goodyear Aerospace already supplied electronics for some of the same military hardware, so integration was expected to be fairly easy.

In 1989, Loral bought the electro-optic division of Honeywell for $58 million. The division, which specialized in guidance systems, had been for sale for a number of years, and many industry analysts felt that Loral had gotten a good price, given the division's annual sales of $130 million. The same year Loral sold the aircraft braking and engineered fabrics divisions of Goodyear Aerospace for $455 million. The buyer was a group headed by Schwartz and included Manufacturers Hannover and Shearson Lehman. The deal raised a few eyebrows and lead to a number of lawsuits, though few felt the price was unfair.

Loral's experience with guidance systems helped it become a leader in flight simulation and training, and in 1989 it won a Special Operations Force training and rehearsal contract worth up to $2 billion over the next 15 years. Loral also won a major contract to supply U.S. Air Force F-16 fighters with radar warning systems in 1989. However, after a complaint from competitor Litton Industries, the U.S. General Accounting Office found that Loral had improperly acquired information on Litton's system. Loral pleaded guilty to three charges and the government awarded a bigger share of the contract to Litton. As a result, Loral took a $10.5 million charge against earnings. Still, profits reached $87.6 million in 1989 on sales of $1.187 billion.

In 1990, with the Cold War over and analysts predicting that defense expenditures would decrease dramatically, many defense companies began downsizing and selling defense-related divisions. Loral, however, felt that regional and ethnic conflicts would replace the superpower standoff. It therefore maintained its commitment to defense, and looked for bargains offered by other corporations.

In July 1990, Loral bought 51.5 percent of Ford Aerospace for $715 million, virtually doubling the size of Loral. Ford Aerospace had $1.8 billion in sales and $120 million in profits in 1989. Its primary focus was the building of commercial and military satellites, an area where Loral had only been a supplier of components and subsystems. The purchase strained Loral's finances, and it quickly sold off parts of the company, recouping about 40 percent of the purchase price.

Some industry observers considered Loral's refusal to downsize risky. The showdown leading to the Persian Gulf war began a few months later, however, and electronic warfare played an important role during the hostilities. In fact, the Tomahawk missiles used in the initial attack on Iraq used Loral computer guidance systems. The missiles received much praise for their accuracy during the war, though post-war analysis muddied the picture somewhat.

In 1991, Loral sold 49 percent of Space Systems/Loral to three European aeronautics firms for $182 million. In 1992, the firm bought 90 percent of LTV's aerospace and missile division for $261 million. Loral won a $202 million contract to supply the U.S. Army with a new anti-tank missile, a $71 million Air Force contract for REACT missiles launch control centers, and a $141 million contract to maintain tethered aerostar radar systems for the Air Force. Loral also worked on its civilian businesses, forming a mobile phone services company called Loral Qualcomm Satellite Services with Qualcomm.

As the mid-1990s approached, Loral was an increasingly strong defense company, though it was trying to diversify into civilian telecommunications markets. It also was working on medical diagnostic imaging and computer-related information management. It was in the process of finishing a three-year layoff of 5,800 employees that further cut costs, resulting in $49 million in severance payments.

Principal Subsidiaries: Loral Electro-Optical Systems; Loral American Beryllium; Loral Conic; Loral International; Loral Randtron Systems; Loral Rolm Mil-Spec Computers; Loral Space Information Systems; Loral Systems Company; Loral Systems Manufacturing Company; Space Systems/Loral.

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Further Reference

Alster, Norm, "Thank You, Saddam," Forbes, October 15, 1990.Chakravarty, Subrata, "Concept Reborn," Forbes, June 21, 1982.Kraar, Louis, "The Brooklyn Boy Who Debugged Loral," Fortune, June 16, 1980.

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