Growth and Innovation in Challenging Times

Remarks By Robert J. Stevens
Chairman, President and Chief Executive Officer,
Lockheed Martin Corporation
Helsinki, Finland - 10/02/2009

Edited Remarks at the AeroSpace and Defence Industries Association of Europe Annual Convention

Thanks very much for the warm welcome and Allan [Cook, president of ASD], thanks very much for the overly generous introduction. You know as the Obama administration adds executives to our administration in Washington, I'm meeting a lot of people for the first time and in the spirit of trans-Atlantic cooperation, I might ask you to come and introduce me in some of those meetings because I could use that overly generous introduction.

This is my first visit to Helsinki and I must tell you my wife and I are having a wonderful time ... we've been met with very warm and genuine hospitality and we're both very grateful for that.

It's a great pleasure to be with our industry colleagues and counterparts here in Europe. And I want to take a moment to especially acknowledge Allan Cook for his extraordinary leadership of ASD at a time when I thought that leadership counted enormously.

You know, I've seen him in action in the United States representing the interests of this organization in some pretty high-energy exchanges. And I can assure you that he has always held the highest standards of ethics and integrity and set a standard for professionalism that I genuinely admire.

So Allan, I want to thank you on behalf of not only the Aerospace Industries Association and our Board of Governors and our membership, but many colleagues throughout Lockheed Martin. I find it's a great personal privilege to have you as a business colleague and a great personal pleasure to call you my friend. Thank you, sir.

I think that there are three principal forces that are shaping the architecture and the prospects for our industry today: the global economic environment, the global security environment, and the policy environment that our governments are advancing as they seek to create a better set of circumstances for our citizens.

I really don't know that I can add more to the discussions that have unfolded here over the last day as to the status of the global economic environment. I think the effects of the recession are very broadly felt. The impact has certainly been felt across our industry. The demand for air travel is down. The demand for air cargo is down. Aircraft orders are off. And we rather suspect that there will be continuing pressure on government budgets for the foreseeable future.

And while in America there are some early reports that maybe the economy is starting to turn, in the American press you'll hear it described as green shoots or new blossoms, and not to overuse the agricultural metaphor, however, I don't think our industry is going to see a bumper crop any time soon. I think we're rather going to see a slow recovery and we're going to deal with this for some period of time to come.

Against the backdrop of reduced economic resources, we think the global security environment is only getting more complicated. In fact, the Director of National Intelligence in the United States, Admiral Dennis Blair, recently observed that a prolonged recession actually increases the risk of instability that can loosen the fragile hold that many countries have on evolving law and order.

In the last year alone, we've seen conflicts in Georgia; a wide-scale terrorist assault on Mumbai with interesting new tactics; nuclear tests in North Korea; a progressively more demanding set of missile tests in Iran; pirate attacks off the coast of Somalia; truck bombs in Baghdad and in Afghanistan; and coordinated cyber attacks on Web sites around the world.

We now have state adversaries that are refining their asymmetric tactics. We have non-state actors seeking the most powerful weapons that we have, those weapons of mass destruction. And we think we see a persistent evolution in conventional threats developing along with new and emerging challenges.

Our governments are compelled to deal with an expanding range of security concerns from combat capabilities to stability operations to preparations for humanitarian relief or natural disasters or even preparation for a response to a pandemic like the H1N1 virus.

At the same time around the globe, we're seeing a broader definition of security itself in a world where our fate and fortunes are increasingly linked as peoples, as countries, and as regions. Very often, the most meaningful definition of security often comes down to the basics that our citizens depend on in their daily lives: access to clean water, health care for their families, reliable, affordable energy, the building and maintenance of critical infrastructure, the efficiency delivery of government services and most importantly, strong institutional mechanisms for stability and peace.

This new security environment is not simply a pendulum that has swung from one set of challenges to another, but rather an ever expanding portfolio of demands that is not receding at a time when the velocity of change is accelerating day by day.

On the government policy front, I trust you know well that I and my colleagues across Lockheed Martin have been strong and consistent advocates for open markets, for a fair and level playing field for competition, for a vastly-improved export control process that does not impede our international trade and for an overall policy framework that respects and facilitates the vital role that our industry plays in advancing technology and innovation -- developing and nurturing an amazingly creative and productive workforce to assure that our citizens and our institutions are safe because we are indispensable contributors to both integrated global security solutions as well as sustained economic revitalization.

Today, I want to touch on three areas where I think we need to focus more attention going forward: what we do for our customers, what we need from our customers, and what we need to do together to help ourselves.

First, what we do for our customers. Our customers are out of necessity fundamentally compelled to rethink how they must revise and prioritize how they spend money to meet expanding threats, infinite contingencies, and limited resources. For example, in the last few months, we've seen the Obama administration make some politically difficult decisions, truncating some programs that we thought were viable including programs where Lockheed Martin has been very proud to take the lead, with cuts affecting our international partners including a number of companies in this room. But as industry, our job is to serve our customers, not the other way around. And what our customers want are high levels of technological readiness, maximum performance, flexibility and agility, on the fastest possible time line, at the most affordable cost.

As U.S. Defense Secretary Robert Gates has said recently, and I'll quote him here, "we need to shift away from the 99 percent exquisite, service-centric platforms that are so costly and so complex to build and look more to the 80 percent solution, the multi-service solution that can be produced on time, on schedule, and in significant numbers."

Now this does not mean limiting the value of what we do. It's a test of our innovation and our imagination. How can we ensure that the greatest capability for our customers is delivered in real time to meet evolving threats? This is a chance for our sector to push the envelope on progress and to reframe the public debate away from seeing defense investments as predominantly costly or cumbersome or unnecessary to an understanding of defense investment as essential, valuable and pioneering. It means helping our governments, and I'm sure this is true in Europe as it is in the United States, understand that our industry is much more than a producer of weapons or a source of industrial employment. It means helping our governments realize the enormous potential for innovation in our industry and the broad contributions we can make to the research and technology base.

I think one great example of the potential in this regard is the Littoral Combat Ship, the most cost-effective ship the United States Navy has ever produced. It can fight in blue water and in the littoral environment. It can cover a wide range of operational requirements from anti-piracy to search and rescue to support for special forces. Its modular construction allows for mission packages to be swapped out within the span of 24 hours and it's networked to the gunnels, with unprecedented situational awareness. And it's so automated it only needs a 40-person crew.

Underway, this vessel can make a zero radius turn which means it can turn along its center line, turn fully loaded at 30 knots in the span of 3 ship lengths and reach speeds of more than 40 knots in less than two minutes. In my judgment and personal experience, it's also a time machine. I've stood on the deck of this ship at 54 miles an hour in a 20 mile an hour headwind and I can tell you that I looked 20 years younger. If you want to be good in combat, there's no reason you shouldn't look fantastic in the process and this ship will contribute to that goal.

You might think that developing a ship this advanced would take an excessively long period of time, but in fact, together with, not in spite of, but with our global partners, the Littoral Combat Ship was delivered in just six years which is about half the development time for a combat vessel of this type.

This development approach has also proven so flexible that we've now designed a multi-mission variant for international customers. This new variant will share the same hull form as the U.S. version with its reconfigurable bay. It will focus on anti-air and surface warfare missions with the superstructure altered to accommodate a fixed, phased array radar and vertical launch systems to accommodate larger missiles. And a crucial aspect of the Littoral Combat Ship's success is its multi-national heritage and its international participation. It includes components from many European partners, some in this room with us now. It has an Italian design, a Swedish gun, a magnificent British propulsion engine, and much more ensuring that our customers get the very best quality and sophistication that their money can buy from the most creative sources on earth.

At Lockheed Martin we've long believed in and relied upon the value of partnerships like this with both European governments and industry and we look forward to deepening these partnerships and bolstering trans-Atlantic defense trade.

And that leads me to my second point for consideration: what we need from our customers. We need their wisdom to recognize that if they want the best defense and security products, they need to resist protectionist impulses and other restrictive measures that undermine our ability to innovate and collaborate across national boundaries and they need to stabilize investments in our industry. It's incumbent on all of us to continue to make this case. And I know Allan has spoken up forcefully in representing these interests in the conversations that we've had together. And I applaud ASD for work done in these past two years in shaping the directives of the European Commission on Defense Procurement and the transfer of defense articles. I know that ASD and its members played a significant role in shaping the content of those directives, resulting in the absence of protectionist or reciprocity language. This was an important outcome for the future of trans-Atlantic defense relations and you are all to be commended for that work.

I'm also encouraged that the Obama administration has recently announced a broad-based interagency review of the export control process. Lockheed Martin and the Aerospace Industries Association with all of its member companies will continue doing all we can to promote a more efficient, transparent, and predictable system for the future.

We also need to work with our customers to help them become more strategic buyers and to recognize the consequences of short-term budgetary decisions on long-term industrial capability. In previous eras, it was easier to rapidly build up and reduce defense as needed. During World War II, the United States converted commercial manufacturing to military products. The Singer Sewing Machine Company, for example, made airplane parts, including bomb sights, gun sights, and even propellers. But in today's technologically advanced environment, the systems on which our security depends are simply too complex. The capabilities are too unique or the quantities to be produced are too few, and the barriers to entry are just too great for most commercial companies to engage in their production.

Only the defense industrial sector itself is equipped to meet these demands and we need predictability in order to plan and stability in order to execute.

No one can afford to maintain excess capability or unproductive assets or more importantly, underutilized people.

I've had the opportunity to share these concerns in person with Secretary Gates, and I've been very encouraged by his response. He recently said what we need is a steady defense budget that we can plan for and that provides modest, real growth each year that allows us to sustain the programs we have because we've been down the road of cuts to the defense budget before and the result is that you always end up having to go back up because the world hasn't really changed. We could not agree with the Secretary's observations more.

But investment by the United States cannot sustain the entire market. It's in all of our interests for European governments to move in that same direction as well, assuring robust, dependable funding for European industry, narrowing the spending gap between Europe and the United States, and enabling the state-of-the-art tools and processes that innovation depends upon and trans-Atlantic collaboration depends.

The flip side for industry is that government can provide stability and predictability in requirements and funding that is needed by industry. Then we have to provide stability and performance and cost and outcomes. We have to deliver consistently on the commitments that we make and demonstrate that we're worth our customers' significant investments and confidence in us. While challenging, I believe these objectives are possible and we're doing exactly that on the F-35 Joint Strike Fighter, our flagship for multi-national cooperation, technological superiority, and strategic acquisition. I regard this program as a revolutionary partnership for a revolutionary aircraft. It's breaking new ground in the global make up of the technological industrial base that will support it throughout its life cycle with indispensable roles for our European partners in not only designing and delivering the aircraft, but maintaining it throughout its life cycle, creating thousands of advanced technology jobs in the process.

This summer, we successfully completed the first aerial refueling tests. Software development is on schedule and more than 70 percent complete. And when the jets return from their test sorties, they're coming back "Code 1" with no issues, ready to fly again which is exceptional for a developmental aircraft and would not be possible without our close collaborations.

Secretary Gates recently visited our Fort Worth, Texas plant where the F-35 is being assembled. He saw the production line, the robotics, the advanced automation. He met with the incredibly dedicated team responsible for this aircraft and he expressed his confidence in the program which he called the heart and the future of tactical aircraft. And when reporters asked him about the program's viability in the face of mounting budgetary pressures, his answer was crystal clear. The Secretary said we cannot afford, as a nation not to have this airplane. That is a statement of value.

The F-35 clearly serves as a model for future programs and we're committed to that vision.

And that brings me to my third and final point, what we in our industry must do for ourselves in order to succeed. When it comes to providing for national security, our governments are increasingly under pressure to make the most cost-effective decisions. This is bigger than any one program. It is bigger than any one company and bigger than any single economy. It is, in fact, a challenge for the entire trans-Atlantic community and it needs to be addressed in that context.

As budgets labor under the immense strains of social demands, demographic challenges, and a recession, efficiently spending resources on security will be more critical than ever. Together, we have to figure out how to leverage our increasingly scarce resources and how to give our customers the best possible platforms and systems for the most affordable price because in a climate of enduring budgetary constraints, there will be no tolerance for stumbling performance. And if we let short-term political concerns drive national procurements, we are only delaying the inevitable. Struggling programs or those that are inadequately resourced will not survive. None of us can hope to be immune.

All in Lockheed Martin will continue to work with our new administration, to advance the recognition of our shared values. We know very well the tremendous capabilities our European colleagues offer as I've reflected in the Littoral Combat Ship and the Joint Strike Fighter, as we see in helicopters and light transport aircraft and land vehicles and shipbuilding and in many, many other areas. For example, we're working with Eurocopter to offer a version of EC-145 helicopter to the United States Army.

We're facilitating the acquisition of the CN-235 Maritime Patrol Aircraft for the United States Coast Guard. We're joined with Patria to bring a version of their eight-wheeled armor vehicle to the United States Marine Corps. We're providing the Aegis Naval Combat System in partnership with shipbuilder Navantia of Spain. And we're making good progress on the Medium Extended Air Defense System in conjunction with our partners in Italy and Germany.

We firmly believe that working together on cooperative multi-national programs is the best way to maintain an advanced across sectors cutting edge capabilities. It's the best way to increase affordability and maximize the benefits of economies of scale, to make our allied systems interoperable and to reap the best of multi-national innovation. It's the best way to create new and exciting technologies and applications and it's our best chance at inspiring and attracting the brightest talent in our country to replenish the generation of aerospace leaders who are nearing retirement and to reassert our role at the pinnacle of technological innovation and manufacturing prowess so vital and essential to our economy.

In the long run, partnerships and a healthy defense industrial base on both sides of the Atlantic are in the interests of this industry and key to our competitiveness and our survival. And if we work together to build a truly trans-Atlantic marketplace and a truly integrated trans-Atlantic industry, that's how we'll best support the enduring security upon which our future prosperity and the well being of our people depends.

Thank you very much. You're very kind. Thank you.

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