Lockheed Martin to Sell ILS Stake to Board Member

PARIS-The man who is buying Lockheed Martin's majority stake in International Launch Services (ILS) says he expects to manage the business with little or no changes and that he made the purchase based solely on the company's  financial prospects.

Mario Lemme, the founder of Space Transport Inc. of the British Virgin Islands, a company established to manage the ILS investment, said he used his own personal resources to arrange the deal and has no partners for the moment. The deal had been in negotiations for the last three to four months.

"I have spent much of my life in Russia and have been involved with the launch business for many years-it's what I know," Lemme said in a Sept. 8 interview. "I have been managing the relationship between ILS and the Russian side since the beginning and I know the financial prospects."

McLean, Va.-based ILS markets the Russian Proton and U.S. Atlas rockets to commercial customers worldwide.

The Sept. 7 announcement by Bethesda, Md.-based Lockheed Martin Corp. that it is selling its ILS stake caught industry officials by surprise, although several said ILS customers had been aware for several weeks of a possible change in company ownership. These officials also said the announcement is a signal that United Launch Alliance, a joint venture between Lockheed Martin and Chicago-based Boeing Co. to sell launch services to the U.S. government, is about to be approved by U.S. regulators.

Lemme, a German national who has been on the ILS board of directors for the past three years, is president of Weissker Inc. of Moscow, a company that has been working with ILS and Lockheed Martin to smooth the considerable paperwork necessary to export U.S. satellite hardware to Kazakhstan-Proton's launch site is there-for launch on a Russian rocket.

Lemme said Space Transport will be offering all of ILS's 70 employees contracts whose conditions will be broadly equivalent to what has been offered by Lockheed Martin.

He also said that, contrary to what several industry officials said upon hearing of the sale, ILS performs its own satellite export-licensing and technology-transfer clearance work with the U.S. State Department. Lockheed Martin is not involved.

"All that licensing expertise and legal expertise is in ILS," Lemme said. "I fully expect all ILS employees, or at least the vast majority of them, to stay with the company."

Lemme also said he has been a signatory to the Technical Assistance Agreements that are needed by the U.S. government for each satellite export.

Lemme said there may be ways to reduce production costs at Proton's prime contractor, Khrunichev State Research and Production Space Center of Moscow. Like all Russian companies, Khrunichev has witnessed a sharp increase in the costs of its raw materials in recent months, putting pressure on the profitability of ILS.

Alexander Bobrenev, a Khrunichev spokesman, said Sept. 8 that Khrunichev does not view the Lockheed Martin exit as a disruptive event to ILS's business. In a Sept. 7 press release, Khrunichev said marketing of the Proton and planned Angara rockets will continue and that "responsibilities for future development of this business will be assumed by the Russian side."

Lemme emphasized that he has had no discussions with Khrunichev on the possibility of Khrunichev taking a larger stake in ILS.

As Khrunichev's costs have risen and as the commercial launch market has improved, commercial launch prices have risen. Lockheed Martin has said in filings to the U.S. Securities and Exchange Commission, and in quarterly reports to investors, that ILS is profitable. The company does not break out ILS results separately.

"Financially this is an attractive investment,"

Lemme said. "I want to return the Proton vehicle to the premium status it had a decade ago. We have a healthy manifest and prospects are good as the market recovers. We don't see any problem with the cash flow."

In the past, Lockheed Martin has advanced substantial sums to Khrunichev to build Proton vehicles up to several years before ILS, and thus Lockheed Martin, starts receiving payments from satellite customers. Lemme said the purchase includes all ILS assets as well as its liabilities.

Perhaps the biggest change in the ILS business will be that it will no longer offer the same backup services with the Atlas rocket as it does today. ILS, established in 1995, has long made a selling point of the fact that it can transfer customers between Proton and Atlas rockets if the first-choice vehicle is grounded or otherwise unavailable.

 Lemme said that once the Lockheed Martin sale concludes at the end of this year, ILS will be focusing on Proton, which has been ILS's workhorse vehicle in recent years as Atlas prices have placed that vehicle outside the range of most non-U.S. government customers.

Lockheed Martin Commercial Launch Services of Denver will retain commercial rights to the Atlas vehicle.

The Lockheed Martin-Boeing United Launch Alliance joint venture is expected to take charge of selling Atlas and Boeing Delta rockets to the U.S. government-a far larger and more profitable business than commercial launch services has been in recent years.

Lemme did not rule out forming some sort of agreement with Lockheed Martin on using Atlas as a backup, but he said such a scenario is not included in the sale.

Simon Saradzhyan contributed to this story from Moscow.