TIME: Almanac 1995

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<text id=92TT1220> <title> June 01, 1992: Giving Away the Weapons Store </title> <history> TIME--The Weekly Newsmagazine--1992 June 01, 1992 RIO:Coming Together to Save the Earth </history> <article> <source>Time Magazine</source> <hdr> NATIONAL SECURITY, Page 37 Giving Away the Weapons Store </hdr><body> The proposed sale of a troubled defense contractor to the French triggers an argument over America's security needs By BRUCE VAN VOORST/WASHINGTON Americans wince when something distinctly "American," like California beachfront or Rockefeller Center, is bought by foreigners. But an April 10 decision by a federal bankruptcy court in New York to allow the sale of the Texas-based LTV Aerospace and Defense Co. to Thomson-CSF, whose principal stockholder is the French government, raised questions far more vexing than matters of mere national pride. About 75% of LTV's products are defense-related, including such advanced systems as the Multiple Launch Rocket System and the B-2 Stealth bomber. French ownership would effectively guarantee French acquisition of LTV's classified American defense technology. On the other hand, for six years LTV has been in Chapter 11 bankruptcy, which allows for rehabilitation rather than liquidation of a company's assets. Without a bail-out from somewhere, LTV is almost certain to go belly up, leaving a $3.1 billion pension shortfall for more than 100,000 current and retired -- American -- employees. Beyond secrets and beyond jobs, what's at stake is how the U.S. should cope with an industry that is bound to shrink as the country comes home from the cold war. Complicating matters further, Thomson-CSF, with $6.8 billion in sales last year, recruited the Carlyle Group, an investment concern specializing in defense firms, to join in the offering for LTV. Their combined bid of $450 million bested by $65 million an offer by a consortium of two U.S. weapons-makers, Martin-Marietta and Lockheed Corp. After a protracted review process, Manhattan bankruptcy judge Burton Lifland awarded LTV's missile division to Thomson-CSF and its aircraft operations to Carlyle. Critics challenged the sale, charging both unfair competition and a giveaway of American technological secrets. Not only is Thomson-CSF 60% owned by the French government, but so is Credit Lyonnais, the French bank that is the leading creditor for the Carlyle Group in the deal. As Martin Marietta chairman and ceo Norman Augustine puts it, "I can't compete with the deep pockets of the French government." The Pentagon's Defense Intelligence Agency has determined that the sale of LTV's missile technology to the French firm poses major security problems. Thomson-CSF, aware that access to LTV's Stealth technology would never be approved, brought the Carlyle Group into the deal specifically to buy the aircraft operations. Still, critics object that Thomson-CSF is essentially buying U.S. secrets. Asks a Pentagon insider rhetorically: "Why else would Thomson buy a bankrupt LTV in a declining defense market except to get the technology?" Under U.S. law, either the U.S. Defense Department or the President can restrict or veto the sale. Last week, reflecting growing concern over the deal, the review process was extended to late July. One particularly sensitive point being raised is Thomson-CSF's record of supplying arms to rogue governments, including Libya and Iraq. Already, 45 Senators and many Congressmen have petitioned President Bush to stop the sale. Argues Senator Jeff Bingaman, chairman of the U.S. Senate Armed Services technology subcommittee: "There isn't a country in the world that would permit the U.S. through a government-owned company to purchase its defense industry." The battle involves some powerful protagonists in the international defense industry. Championing the proposed deal is former U.S. Defense Secretary Frank Carlucci, now Carlyle's vice chairman, who argues that the LTV missile operation is a natural complement to Thomson-CSF's heavy involvement in communications, radar and guidance systems. Carlucci claims that LTV will benefit from the strength of Thomson-CSF, and to prove his point he cites opposition to the sale by French missilemakers Aerospatiale and Matra. "The U.S. cannot escape the trend toward greater internationalization of the Western defense industry," he says. Carlucci charges that Martin Marietta's Augustine wrongly claims that the French government's ownership of Thomson gives it control of the firm. Carlucci argues instead that such French firms enjoy considerable autonomy. Dozens of international firms have classified contracts with the Pentagon, he points out. Thomson-CSF itself shares with GTE a $4.3 billion contract for the state-of-the-art battlefield-communications system that played a critical role in the gulf war. For that matter, Martin Marietta shares classified contracts with Thomson-CSF for sophisticated terminally guided munitions. James Bell, chairman and president of Thomson-CSF Inc., the American subsidiary, told the U.S. Congress, "Thomson-CSF has an impeccable record on compliance with American security regulations and export controls." The proposed sale exposes the vagueness of U.S. policy on selling sensitive defense firms to international competitors and the absence of guidelines to determine which U.S. firms are vital to national security. Augustine hopes to make the LTV sale a test case in clarifying the issues. "If we can't have a level playing field with foreign firms," he says, "the least we can hope is that somebody turns on the lights." </body></article> </text>