An advisory assignment in the latest aerospace megamerger has put J.P. Morgan & Co. front and center as banks vie for a piece of the action in the sector's consolidation.
Morgan's role as McDonnell Douglas Corp.'s adviser in its sale to Boeing Corp. helps the bank maintain its already high profile in aerospace, even though the deal doesn't entail traditional bank financing.
The bank and CS First Boston, which advised Boeing, declined to discuss the $13.3 billion deal beyond noting long-standing relationships with their clients, but other experts said participation positioned the advisers for more lending and advisory work in the sector.
J.P. Morgan had led the syndication last February for Lockheed Martin's acquisition of Loral Corp., along with BankAmerica Corp. and Citicorp. The syndication raised more than $13 billion in commitments from 47 banks for the $10 billion, investment-grade loan.
The same banks have brought to market a second syndication for Lockheed that replaces the original credit's $5 billion 364-day facility with a $1.5 billion, 364-day facility and a $3.5 billion five-year revolver, according to Loan Pricing Corp.
Chase Manhattan is another top contender for aerospace business. Prior to Chase's merger with Chemical Banking Corp., Chase, Chemical and BankAmerica led a syndication for Northrop Grumman's $3 billion acquisition of Westinghouse's defense unit. That syndication raised over $7 billion for the $4.8 billion low-investment-grade loan.
The banks are likely to face stiff competition from investment banks who have dominated securities underwriting for aerospace.
Goldman, Sachs & Co. leads the way with $4.2 billion underwritten for the industry so far this year. CS First Boston ranks second with $1.9 billion raised, while Salomon Brothers Inc. stands third at $160 million, according to Securities Data Corp.
Salomon raised another $326 million for the sector via private placements, beating out CS First Boston ($311 million) and Merrill Lynch & Co. ($298 million).
The aerospace industry has been consolidating rapidly since the end of the Cold War forced cutbacks in defense spending. Claims that the Boeing deal will be the industry's last are wrongheaded, said Pierre A. Chao, an aerospace and defense industry analyst at Morgan Stanley & Co.
"That's what they said when Loral was acquired," Mr. Chao said, noting that the Loral deal was followed by Boeing's $3.2 billion acquistion of Rockwell International Corp.'s aerospace and defense business.
"There is still a lot more to go," Mr. Chao maintained. But he said much of that activity will be for companies valued at under $1 billion and those in the industry's second and third tier. "We'll see one more round (of activity) as people swap assets and clean their portfolios," he said.
The merger of the two aerospace giants has put pressure on the next biggest firms, Raytheon Co. and Northrop Grumman Corp., to grow by merger or acquisition. Two likely candidates to be bought are Hughes Electronics' defense and aerospace business and Texas Instruments Inc.'s defense- electronics unit, analysts said.
Analysts expect the Boeing acquisition is to drive up bids for the two businesses, which are already on the market, by as much as $1 billion.
