The Current State of Transatlantic Defense Industrial Relations

Remarks By Robert J. Stevens
Chairman, President, and CEO of Lockheed Martin
Security and Defence Agenda Conference on NATO in the Next Decade
Brussels - 06/03/2008

It is a pleasure for me to be at this conference sponsored by the Security and Defence Agenda.  Although this is my first opportunity to attend this annual conference, I have had the opportunity to be at other SDA events in the past, and Lockheed Martin has been a supporter of this organization since its very beginning.  I believe the SDA is fulfilling a crucial role in Brussels in stimulating discussion and debate on defense and security issues, and I applaud Giles Merritt and the entire SDA team for doing this job so well.
 
The topic of our conference today is the future of NATO.  I am sure the next panel will have an interesting debate about the present state of US-European relations and what it means for the future of the Alliance.  Of course, I'm a businessman so, for my part, I want to share with you a perspective from American

industry, from a company that has been at the heart of NATO programs and US-European cooperation for a very long time - and a company that intends to maintain a leadership position in sponsoring and supporting transatlantic cooperation for decades to come.

In my view, the role of the defense "industry" is to enable the freedom of action of our governments.  We do this by providing our government customers with the technology and equipment they need to carry out their most critical missions.  We are the designers, developers, producers and maintainers of vital capabilities for security and defense.  At Lockheed Martin, we take those responsibilities very seriously.  We understand that well beyond the boundaries of ordinary business transactions, in our case, lives are on the line . . . not only the lives of those who use our products, but the lives of those who are protected by them as well.  All are dependent on the performance of our systems.  We cannot fail. 

We also understand that public resources are being applied to obtain these systems, and that quite naturally leads to the expectation of higher standards of transparency and ethical business conduct.  We commit ourselves daily to meeting those higher expectations.

We recognize that in an increasingly globalized world, where security challenges grow only more complex and demanding with each passing day, partnerships remain indispensable.  For us, this is not a new revelation. 

We are a company with a long, proud history of providing the members of NATO with equipment that can be seen as "NATO standard," and we've been providing that equipment since the very beginning of the Alliance.  Products like the iconic F-16 and C-130 aircraft have been mainstays of NATO air forces for decades and will continue to be for many years to come. 

The partnerships we have developed along the way with governments and industry alike, those built on trust and dating back generations, are among our most valued treasures.  At every turn, they have reinforced in us the bedrock principles of mutual respect, full and fair value, and exceptional performance.  We remain committed to continuing this tradition of partnership. 

So, as we look to the future, we believe that, for NATO to be effective in discharging its military responsibilities in the 21st Century, further transatlantic collaboration is critical.  Companies on both sides of the Atlantic must be able to meaningfully contribute the technology and equipment needed to carry out essential missions.  This requires industry health, and long-term vitality is only possible with adequate levels of investment kept lean and efficient through the discipline of an open and competitive marketplace. 

Some trends today in the transatlantic environment appear to be very positive.
 
In Europe, we see a greater focus on the need for open markets and transparency and the benefits of competition, both from the Commission and from the European Defense Agency.  The Commission's recent work, including the draft directive on defense procurement, is a positive step in this regard, as the Commission seeks to achieve greater openness in the European market.   But it will be extremely important, as the Commission's directive is reviewed and ultimately implemented by the European Parliament and the Council, that the focus on openness and competitiveness is retained.  I believe the notion that European markets should first be "protected in order to be strengthened" is misguided.  Protectionism is not now, and has never been, a substitute for competitive strength.  With each passing opportunity, those companies who linger under this veil will only grow weaker - until they will be quite literally  "protected to death."

A second positive trend is the increasing number of transatlantic programs.  The decision by the USAF to purchase Airbus tankers reinforces the openness of U.S. markets and is the most recent example of the growing willingness of the United States to look to global sources of supply for vital equipment.   While our company is not involved in the Tanker program, Lockheed Martin is involved in a number of significant transatlantic programs today:  the MEADS with Italy and Germany; the Presidential helicopter program in the US, where the helicopter platform is designed and manufactured in Europe; and the provision of AEGIS combat systems for naval frigates built in Spain for both Spain and Norway.  The purchase by the United States Army of C-27J transport aircraft and UH-145 helicopters are additional examples of growing transatlantic partnership.  We are also seeing the formation of international industrial teams to pursue opportunities to support NATO directly, as we see in the Air Command & Control System program or the ongoing ballistic missile defense initiatives.

All these efforts require some amount of technology transfer and, while slower and less extensive than some partners would like, progress continues to be made toward creating a more rational technology control regime which is an essential element of continued growing collaboration.

In our eyes, the flagship program for international cooperation is the F-35 Joint Strike Fighter.  In this program, we are breaking important new ground in the number of international partners on the program, and in the global composition of the technological and industrial base that will support the program throughout its lifecycle.  And a very significant segment of that technological and industrial base is with our European partners, partners who will fully participate in this global product for the global market.

I should also note that the U.S. market remains open to the acquisition of defense companies as evidenced by initiatives previously undertaken by BAES, Rolls Royce, Thales, Smiths, EADS and, most recently, Finmeccanica's offer to acquire DRS Technologies. 

Those are positive trends, and their substance should put an end to well-worn laments that the US market is closed to European products or interests, or that US industry is unwilling to partner for the long term with industry in NATO countries.

But the trends on today's horizon are not all positive.  Most worrying is the continued gap in resources devoted to defense investment between the United States and our NATO allies.

At a time when the demands for real capabilities are increasing, when NATO forces are deployed on operational missions around the world and the need to sustain and support those deployed forces is constant, the amount of resources devoted to obtaining capabilities is declining in real terms.  Six countries provide 80% of Europe's defense spending.  Very few European members of NATO meet the nominal requirement of spending 2% of GDP on defense.  Growth in defense spending does not match the growth in the overall economy, and I believe the amount of spending devoted to investment, rather than to personnel and infrastructure, remains inadequate.

In contrast, in the United States, spending continues at rates approaching 4% of GDP, devoting twice as much as the Europeans to procurement and approximately six times as much to defense R&D.  US spending, being concentrated in one market, has the additional benefit of being more efficient than European spending which is more diffused across multiple countries and interests.   

This is, as you know, an often-cited, long-discussed, recurring theme of concern.  I'm sure I've heard it placed at the forefront of discussions for well more than a decade.  But there is a new implication:  the cumulative effect of this differential, repeated year after year, is creating a capabilities gap across the Atlantic that threatens to become unbridgeable.  Without investment, business cannot maintain and advance state-of-the-art tools, processes and systems.  We cannot create new and exciting emergent technologies and applications.  And we cannot hire, retain, and develop the best and brightest talent in our workforce. 

With insufficient resources, if there is not a common body of technological knowledge and practice among us, if there is a continuing disparity among the community of industrial partners such that one continues to advance and one does not, there can be no meaningful collaboration.  If that were to occur, the prospect for a viable transatlantic defense industrial base would be lost. 

There is no substitute for real expenditures on tangible programs if the health of European industry is to be improved and if further transatlantic cooperation is to be possible.  The very best way for European governments to protect European industry is to invest in it.

Our recent progress gives us some cause for optimism, but we will not be able to achieve our collective, long-term objective of a healthy transatlantic industrial relationship unless we have a continued and strengthened commitment from governments and international institutions.  They must:

  • assure open markets supporting transatlantic cooperation
  • invest in programs with transatlantic partnerships and industrial content
  • use international competitions to provide needed military capabilities
  • and work to remove legal, bureaucratic, and political obstacles to true industrial collaboration

As champions of transatlantic collaboration, we at Lockheed Martin will continue to work with our European partners to develop global products and address global markets.  We will continue to invest in technology, work to streamline the regulatory framework through which that technology can appropriately be shared, and seek to provide needed capability to our customers.  And we will continue to advocate for an open and integrated transatlantic marketplace.

We believe our industrial colleagues on both sides of the Atlantic will join us in this effort, because increased and sustained collaboration is the best way to ensure that the industrial base remains viable -- and that's the best way to ensure that NATO retains the capabilities it will need in the 21st Century.  Thanks for your attention and support.

stevens-200px