Lockheed Martin Media Dinner

Remarks By Robert J. Stevens
Chairman, President, and CEO,
Lockheed Martin Corporation
London, England - 07/13/2008

Welcome everyone.  We're delighted that our senior leadership team have this opportunity to meet with you.

Tonight, I'd like to share some thoughts on developments and trends in the transatlantic marketplace, from the perspective of a company that has been at the forefront of U.S.-European defense cooperation for many years - and that intends to maintain that leadership for decades to come.

But let's begin the evening by acknowledging an important anniversary … because this year marks 100 years of British aviation - with the historic flight of Samuel Franklin Cody.

Sam Cody was a flamboyant American who began his career as a Wild West sharpshooter and performer.  But after coming to England in 1890, he found a fertile new frontier:  the sky.

By late 1907, he was designing his own flying machine - made of metal, fabric, and wood … with bicycle wheels and a 50-horsepower engine … and a Union Jack flag mounted proudly at the rear. 

On October 16, 1908, a large audience watched as Cody flew his aircraft more than 420 meters across Farnborough Common. 

That first flight lasted only 27 seconds - but a year later, Cody's planes could stay in the air for more than an hour.

His experience helped establish Farnborough as a center for aeronautical achievement - and his story reflects a tradition of Anglo-American partnership to push the boundaries of what is possible.

That is a tradition that Lockheed Martin is proud to uphold and carry forward.  And I think the replica of the Cody flyer - which is being exhibited on the air show grounds under Lockheed Martin's sponsorship - serves to remind us all of the astonishing developments in aviation over the past 100 years.

Since the last Farnborough Air Show in 2006, our corporation has invested significantly in our UK operations and partnerships.  Our systems have helped the United Kingdom protect its soldiers in battle … its travelers in the skies… and its citizens calling the 999 phone line for help. 

But just as significant as providing any one individual solution may be to Lockheed Martin, we are especially proud of the capabilities we've helped to build here.  By importing skills and technologies from across the broader Lockheed Martin, we've developed indigenous and in some cases unique capabilities which are creating good new jobs in this country and enhancing Lockheed Martin's offerings around the world.

One of the best examples of this exchange is our role as prime contractor and systems integrator for the Royal Navy's Merlin helicopter.  Together with our partner AgustaWestland, Lockheed Martin has delivered 44 Merlin systems to the Royal Navy, and is now playing a leading role in ensuring these machines stay on the cutting edge of design and capability. 

This success didn't just happen.  It has been the result of a deliberate strategy to create a systems-integration skill base in the UK by bringing together American and British nationals who could draw on best practices from both sides of the Atlantic.
 
And now, these systems integration capabilities pioneered by our Merlin team are being reinvested in other programs such as the VH-71 Presidential Helicopter.  So the benefits of partnership are crossing the Atlantic, back and forth - and are being leveraged to support the best interests of our customers.

This strategy of building a systems integration skill-base in the UK has also helped us achieve significant new business. 

Since our last visit to Farnborough, we've earned a contract from the UK's air traffic authority to provide continued enhancements, maintenance, and support to the London Area Air Traffic Control system.  We developed this system with British partners to keep planes flying safely and smoothly over one of the busiest airspaces in the world. 

Together with our partners on Team Athena, we've started the contract for the Land Environment Air Picture Provision, known as LEAPP - which will give ground troops an unprecedented level of situational awareness in near-real-time. 

We've also signed the UK Military Flying Training System contract, together with our team partner VT Group, to replace the current flight training arrangements for the Royal Navy, RAF, and Army Air Corps - fulfilling every dimension of need from fast-jet pilots and navigators … to rotary wing pilots … multi-engine pilots … and training rear air crews.

And I think it's significant that one-third of the evaluation criteria for the flight training contract was based on partnering.  We're proud of our ability to work closely and collaboratively with our partners and the Ministry of Defence - not only on flight training … but across the full spectrum of programs for which we're devising joint solutions. 

Our work in the United Kingdom is just one piece of our broader strategy for expanded transatlantic cooperation. 

Last month, I had the opportunity to visit Germany, Denmark, and Belgium where we underscored the importance of an open, integrated transatlantic marketplace and the mutual benefits of partnership.

We are a company with a long, proud history of providing NATO allies with equipment that can be seen as "NATO standard."  Products like the 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. 

And the partnerships we have developed with European governments and industry along the way are among our most valued treasures.  They reflect and reinforce our bedrock principles of mutual respect, full and fair value, and exceptional performance.   

Today, as we consider the current economic environment … the new, more complex security threats our nations face … the mutual benefits of acting jointly with interoperable systems … and the opportunities the global supply chain creates to provide value for both our customers and our taxpayers … we think the case for transatlantic collaboration will only grow in strength and urgency. 

For that collaboration to reach its full potential, industry plays a role, and companies on both sides of the Atlantic must be able to contribute both the technology and the equipment necessary to carry out essential missions.  This requires industry health, which is only possible with adequate levels of investment kept lean and efficient through an open, competitive marketplace. 

Some of the trends in today's transatlantic environment seem very positive.

First, 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 an encouraging step in this regard.  
But as the Commission's directive is reviewed and ultimately implemented by the European Parliament and the Council, it will be important to keep the focus on openness and competitiveness.  As I've stated previously, I believe the notion that European markets should be "protected in order to be strengthened" is fundamentally misguided.  Protectionism is not now, and has never been, a substitute for competitive strength.  With each passing opportunity, companies that linger behind this veil will atrophy - and be weakened by the very measure intended to help them.

A second positive trend is the increase in transatlantic programs, and our company is engaged in a number of them:  the MEADS program with Italy and Germany; the U.S. Presidential helicopter program I mentioned previously, with the UK and Italy; and the provision of AEGIS combat systems for naval frigates built in Spain for both Spain and Norway. 

The United States Army's purchases of C-27J transport aircraft and UH-145 helicopters are additional examples of growing transatlantic partnership. 

We are also seeing international industrial teams pursuing opportunities to support NATO directly, as with the Air Command & Control System program or the ongoing ballistic missile defense initiatives.

We know all of these efforts require some amount of technology transfer and, while progress has been slower and less extensive than some partners would like, I believe the US is moving toward more efficient management of licensing to facilitate technology sharing with our closest allies.

To that end, I note the defense trade cooperation treaties the US has negotiated with the UK and Australia.  Lockheed Martin strongly supports these treaties, which will facilitate cooperation on mutually beneficial defense and security initiatives, and we are strongly encouraging their prompt approval and implementation.

In our eyes, the flagship program for international cooperation is the F-35 Joint Strike Fighter. 

This program is breaking new ground in the number of international partners on the team, and in the global composition of the technological and industrial base that will support the aircraft throughout its lifecycle.  Our European partners make up a very significant segment of this technological and industrial base, and they will participate fully in this global product for the global market.

Here in the UK, for example, the JSF program will secure over its life more than 8,400 jobs with £27 billion pounds of work for UK companies - and those figures could be significantly higher if export projections are achieved. 

I should also note that, in addition to programs with international content, 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. 

These varied examples show that the U.S. market is open to European products and interests, and that U.S. industry is willing to partner for the long term with industry in NATO countries.
But not all the trends on today's horizon are positive.  Most worrying is the continued gap in defense investment between the United States and our NATO allies.

At a time when the demands for real capabilities are increasing, the resources devoted to obtaining capabilities are declining in real terms. 

Eighty percent of Europe's defense spending comes from just six countries.  Very few European allies meet the nominal requirement of spending 2 percent of GDP on defense - though the UK is a welcome exception.  Growth in European defense spending does not match the growth in the overall economy, and I believe the spending devoted to investment, rather than to personnel and infrastructure, remains inadequate.

In contrast, U.S. spending on defense continues at rates approaching 4 percent of GDP.  The United States devotes twice as much as our European partners to procurement and approximately six times as much to defense R&D.

In addition, U.S. spending, by virtue of being concentrated in one market, is more efficient than European spending, which is diffused across multiple countries and interests.   

This spending gap is, as you know, a long-discussed theme of concern.  But my worry is that the cumulative effect of this differential, year after year, is creating a transatlantic capabilities gap 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.  We cannot hire, retain, and develop the best and brightest talent in our workforce and assure they are productive. 

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.  And if that were to occur, the prospect for a viable transatlantic defense industrial base would be lost. 

That is why we believe the best way for European governments to protect European industry is to invest in it.  There is simply no substitute for real expenditures on tangible programs if European industry health is to be improved and if further transatlantic cooperation is to be advanced.

For our part, 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 … because we are committed to a healthy, transatlantic industrial relationship - today, as we have been for years. 

We look forward to working with our industrial colleagues on both sides of the Atlantic toward that end.

And now, I'd be happy to take any questions you may have…

stevens-200px