GLOBAL DEFENSE MARKET

Lockheed Martin Looks to 'Trump Effect' as it Targets International Sales

3/21/2017
By Yasmin Tadjdeh
Marillyn Hewson

Photo: Lockheed Martin

Lockheed Martin is planning to grow its international sales as countries around the globe make investments in defense platforms, and President Donald Trump pressures European allies to spend more on security, said the company’s CEO.

International sales made up nearly 27 percent of Lockheed’s sales last year, Marillyn Hewson said March 21. She wants to raise that figure to 30 percent in the coming years.

Trump’s push for increased defense spending is sending a signal to NATO allies, she said during remarks at Lockheed’s annual media day in Arlington, Virginia.

There is “a ‘President Trump effect,’” she said. “NATO members are considering the shifts of U.S. priorities and many see a greater need to shoulder more of their own defense burdens. This is significant. In fact, if NATO members fulfilled their already stated pledges to spend 2 percent of their GDP on defense, it could result in a $100 billion increase in spending across the alliance.”

The company has seen a new willingness and resolve from governments around the globe to increase their investments, she said. In 2016, the company's international sales came to more than $12.7 billion — nearly 27 percent of its total sales, she said. “In fact, more than 40 percent of our new business came from international customers.”

That includes a $1.2 billion contract with the Republic of Korea’s air force to upgrade 134 of its F-16 aircraft, she said. Lockheed also last year inked a deal to serve as the combat system integrator for the Royal Australian Navy’s future submarine program, the country’s largest defense program in its history.

“These achievements are just the beginning,” she said.

Global security challenges are one of the leading reasons foreign nations are looking to boost their defense spending, Hewson said.

“Our customers are grappling with security threats that are increasing intercontinental, asymmetric and unpredictable,” she said. “We have seen deliberate and repeated aggressive action and provocations from near-peer nations. We have seen volatile leaders and regimes stoke instability in their quest for regional dominance.”

The financial crisis of 2008 and weak economic growth caused many European nations to cut their defense spending, which exasperated a post-Cold War trend, she noted. Even now debt crises and the impending exit of the United Kingdom from the European Union will cause uncertainty, she added. However, Lockheed is optimistic about its future in the international market.

“At Lockheed Martin we recognize that our customers need innovative solutions in this period of defense cuts and budget constraints. They’re looking to us to maximize the value of every dollar, euro, pound, yen, riyal or dirham that they spend,” she said. “Despite these long and ongoing trends, we have proven that Lockheed Martin can meet these challenges and succeed in a constrained environment.”

One of the biggest drivers of Lockheed’s international growth is the company’s F-35 joint strike fighter program, Hewson said. Last year, the program established new agreements with Denmark, Israel, Turkey and the Netherlands.

“Approximately 50 percent of all F-35 orders over the next five years are expected to come form international customers,” she said.

Trump has previously criticized the program — which has suffered cost overruns and schedule delays — as being too expensive. When Lockheed recently announced a contract for its newest lot of aircraft, known as LRIP 10, Trump took much of the credit and said his involvement had shaved hundreds of millions of dollars off the cost of the planes. Defense experts noted that the price of the aircraft, by the very nature of the military purchasing it in lots, was already planned to go down.

Hewson said, however, that Trump’s intervention into negotiations between the company and the F-35 joint program office made a demonstrable difference.

“We were in discussions on the Lot 10 … [and] he helped accelerate that along,” she told reporters. “He put a stronger focus on price and how we could drive the price down.

“I will admit that as we are ramping up the program we are going to continue to see cost reductions just through volume, but his emphasis and his engagement did absolutely make a difference,” she said.

Hewson said she was confident Lockheed could sign an LRIP 11 contract this year, but noted that Trump has not been involved in those negotiations.

Meanwhile, Lockheed is making larger investments in its internal research and development, she said. For the fourth consecutive year, the company has increased its funding for IRAD. In 2016, it spent $988 million on such endeavors. The company is pursuing technologies such as directed energy weapons, hypersonics, autonomy and advanced manufacturing, she said.

Topics: Global Defense Market, Defense Department

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