AIA Supplier Management Council Summer Meeting

AIA Supplier Management Council Summer Meeting
June 14, 2016

Thank you, Dave, and good morning, everyone.

It’s my honor to welcome you on behalf of the 125,000 men and women of Lockheed Martin and to serve as host for this year’s AIA Supplier Management Council Summer Meeting.

We’re glad to have you here in Fort Worth – home to our Aeronautics business and one of our largest manufacturing facilities, which you’ll all have a chance to visit tomorrow afternoon.

I’m disappointed that I wasn’t able to join you last night at Billy Bob’s Honky Tonk.

I heard you all had a great time with your colleagues down at the Stockyards and really got a taste of Texas.

I hope you enjoyed the evening and had the opportunity to really connect with one another.

Those connections are one of the key purposes of this meeting and the reason it’s so valuable for us all.

First, I want to thank you for taking the time to be here.

Maintaining a strong and healthy supplier base is critically important to the continued health and vitality of the Aerospace and Defense industry.

Our industry plays a significant role in the economic growth of our nation.

Just last month, AIA released the results of a study that quantified that impact.

The study found that in 2015, the U.S. Aerospace and Defense industry supported 1.7 million jobs, generated 300 billion dollars in economic value, and accounted for $63 billion dollars in tax revenue for local, state and federal government.

And that’s just the economic impact.

Our industry is responsible for some of the most important technological breakthroughs ever produced.

Innovations such as jet propulsion, satellite communications and stealth technology, to name a few.

And we are leading the way in shaping the future of aviation, with advancements in areas like alternative fuels, hypersonics and unmanned platforms.

I’ve been hooked on this industry since the first day I walked onto our C-130 production line in Marietta, Georgia more than 30 years ago.

In the decades since, I’ve seen a lot.

And I can honestly say there has never been a more exciting time to be in Aerospace and Defense.

We are producing some of the most important technologies ever developed – technologies that connect the world, preserve our freedoms and expand our knowledge of the universe.

It’s important work and our customers depend on us every day to deliver for them.

At Lockheed Martin, our tagline says, “We never forget who we’re working for.”

For us, that means our employees know that the work they do is providing a critical capability to a soldier on the ground, an airman in theater, an astronaut in space or an airline pilot flying across the ocean.

We know that our customers aren’t only government agencies or major corporations.

Our customers are people – end users who rely on our technology to do their jobs, complete their missions, and get home safely to their families and friends.

I believe that each of us in Aerospace and Defense takes that responsibility very seriously.

And I believe that’s what sets us apart as an industry.

So it’s clear that the work we do is critical.

And we’re here this week to talk about how we can work together to ensure we can continue to deliver for our customers around the world while keeping our businesses thriving.

Throughout the meeting today, you are going to discuss key policy issues, engage with some excellent guest speakers and share best practices with your peers.

This morning, I’d like to set the stage for those discussions by sharing some insight into what I consider to be the defining challenges and opportunities for our supply chain; and to discuss the role each of us can play in strengthening our position, supporting our customers and ensuring our continued success as an industry.

Like many of you, I travel all over the world meeting with customers, partners and leaders in government and industry.

Whether in Washington, D.C., Singapore, Munich or Riyadh, one message is overwhelmingly consistent.

Our customers are facing one of the most challenging, dynamic and unpredictable environments they’ve ever experienced.

Defense customers are experiencing unprecedented threats – escalating conflict in the Middle East, a migrant crisis in Europe, and provocative behavior from Russia, China and North Korea.

These are just some of the factors that are putting pressure on the defense resources of our nation and our allies.

At the same time, we are seeing increasing pressure on the defense and civil agencies' budgets.

On the Commercial side, airlines are feeling some relief from lower oil prices.

However, they still struggle with a difficult business model overall.

At the International Air Transport Association’s Annual General Meeting in Dublin earlier this month, the organization projected that global airlines would turn a collective net profit of $39.4 billion dollars this year.

It’s only the second year in the industry’s history, and the second in a row, in which airlines will make an aggregate return in excess of the cost of capital.

It’s a significant achievement for the industry, though a fragile success.

Margins remain critically thin.

On average, airlines will make only $10 dollars and 42 cents for each passenger carried this year.

Even a small increase in fuel costs can erase those profits entirely.

And we're all facing increasing threats from terrorism, whether overt attacks on commercial airliners or coordinated cyber-attacks on government agencies and industry suppliers.

According to a recent Department of Defense memo, there were 30 million known malicious intrusions into DoD networks between September 2014 and June 2015.

Because of the nature and importance of our business, our industry represents one of the world’s biggest targets for hackers.

This threat is even more alarming when you consider the thousands of companies in the Aerospace and Defense supply chain that manage sensitive data, many of which are small businesses that may not have the resources to maintain the most sophisticated cyber defenses.

This is a serious issue and the stakes are incredibly high.

Clearly, our industry is facing a challenging and dynamic business environment.

That’s why coming together in forums like this is more important than ever.

The Aerospace and Defense industry has faced challenges in the past, and we always rise to the occasion.

It is the spirit of overcoming challenge that defines our industry.

Look around this room.

Your colleagues here represent centuries of innovation, immense resources and exceptional talent.

The issues of the day demand our best solutions and I know we are up to the challenge.

President Franklin Delano Roosevelt said in his famous “Arsenal of Democracy” fireside chat that:

“American industrial genius, unmatched throughout the world in the solution of production problems, has been called upon to bring its resources and talents into action.”

That call to action rings just as true today as it did in 1940.

And the people in this room and the companies you represent are best suited to answer that call.

So as you prepare to tackle some of these issues today, I’d like to share my thoughts on how we as an industry, can overcome these challenges, support our customers and navigate this dynamic environment to become stronger businesses.

I believe that we will be most successful if we pursue three key priorities:

1.    An intense focus on affordability;

2.    A collaborative approach to risk management and cyber security; and

3.    Tireless advocacy for our industry and our customers.

Let me touch on each of these priorities, starting with affordability.

Our customers’ budget constraints are having a significant influence on their decision-making.

Just as our customers rely on our ability to deliver break-through technologies, they also need us to pursue innovation in areas like manufacturing, materials and sustainment – all of which are key drivers of cost and value.

More and more, the cost-saving innovations we need to drive affordability come from our partners in the supply chain.

Major advances in additive manufacturing throughout Lockheed Martin’s supplier base are making a significant impact.

For example, when our Space Systems business area was looking for ways to reduce costs on our satellite parts, while also maintaining product quality, a company called Sciaky came to us with a solution.

We worked together to develop titanium propellant tanks that can be 3-D printed through the use of their electron beam additive manufacturing process.

The result was a tank that met our customer’s performance standards, with an 80 percent reduction in the amount of time needed to manufacture it, a 75 percent reduction in waste and a 55 percent reduction in cost.

We’re confident that innovations like these will continue to drive greater quality and reduce costs for our customers, which benefit our entire supply chain.

Just as prime contractors collaborate with their suppliers to drive affordability, we can make significant progress by coming together as an industry with our customers as well.

For example, the Air Force Research Laboratory has convened the Metals Affordability Initiative since 1999.

The working group brings together companies from up and down the value chain; from mills, forges and casting shops, to airframe and systems integrators and engine manufacturers.

The goal is to reduce the cost and improve the performance of metals and alloys, an important driver of cost given that metals make up nearly three-fourths of turbine engine components and two-thirds of a typical airframe's weight.

So far, the initiative has resulted in over half a billion dollars in savings for the customer on programs ranging from fighter jets to spacecraft.

By coming together as an industry in forums like this Council, I know we can make even more progress and deliver better and more affordable products for our customers.

The second priority is to increase our collaboration on risk management, particularly in the area of cyber security.

We face unprecedented threats to the continuity of the Aerospace and Defense supply chain.

It’s important for us to address these issues at an industry level because they impact every one of us.

In Price Waterhouse Coopers’ most recent Global State of Security survey, they found that between 2014 and 2015 – in just one year’s time – the number of cyber security incidents detected throughout the world increased by 38 percent.

And it is widely believed that the prevalence of cyber threats will only grow in the years ahead.

We cannot afford to be in a reactive position as this issue evolves.

That means industry players must come together to share best practices and resources, especially with small- and mid-size companies that may not have the infrastructure to support a comprehensive cyber security program.

At Lockheed Martin, we regularly survey our suppliers to evaluate the state of their cyber security infrastructure.

In 2012, we found that one of our suppliers had some significant risks in their system.

We brought in our experts through a series of virtual meetings to train their team on the latest cyber security practices.

We shared information on the current threat environment and supported them in implementing industry best practices.

As a result of this teamwork, the supplier went from a red to a green cybersecurity rating.

And the partnership was recognized earlier this month with a Nunn Perry Award from the Department of Defense, which recognizes outstanding Mentor-Protégé collaboration.

The Supplier Management Council is making good progress on this important issue as well.

Since AIA released our first cybersecurity baseline standard in 2013, we’ve been positioning our industry as a leader in protecting sensitive information.

Helping our members understand and comply with evolving requirements is a key priority for AIA and I’m encouraged to see that you’re focusing on some of those issues during this meeting.

I know this Council has done an excellent job of getting out in front of this issue and working with our key stakeholders to develop strong industry standards.

I encourage you to keep up the good work.

The third priority I would like to suggest we focus on is the need for each of us to be vocal advocates.

We need to be advocates for our industry and our customers on the issues that drive our mutual success.

We are uniquely positioned to drive the conversation in Washington and across the country when we come together on common priorities.

Issues like securing robust, balanced and stable funding for defense, space and civil aviation; promoting a healthy, efficient and innovative industrial base and Aerospace supply chain; improving industry-government collaboration on research and development and international trade; and shaping the regulatory environment for emerging technologies such as biofuels, next-generation air traffic control and unmanned aerial systems.

A coordinated effort to address these issues through forums like AIA will allow us to harness the collective capabilities of our entire industry.

A great example of collaboration across our industry is our engagement in the NextGen Advisory Committee.

As many of you know, NextGen is a comprehensive program to modernize America’s air traffic control systems.

The advisory committee has brought together a wide variety of stakeholders from the FAA, airlines, cargo carriers, airports, the DoD, labor organizations and manufacturers to facilitate collaboration with a common goal of successfully implementing NextGen.

Thanks to the coordination happening through the committee, our customers are already seeing tangible benefits.

Right here in Texas, the Dallas/Fort Worth International Airport is reaping the benefits of this great work.

NextGen technologies have allowed for flights to safely take off with less distance between each aircraft.

According to the FAA, the result has been a 15 to 20 percent increase in departures per hour, which is a big difference at the fourth-busiest airport in North America.

NextGen shows that when our industry comes together with our customers to implement our innovative technologies, we can make a positive impact on the millions of people who depend on our products and technologies.

This is just one example of our collective success when we work together and advocate for our shared priorities.

And while there are many more success stories I could share, there is also still work to be done.

Each of us must make a commitment to get involved.

Every member of AIA has a unique opportunity to be the “grassroots” voice of our industry.

We have employees in all 50 states and that equates to a strong voice in the halls of Congress.

It’s important that we work together to make sure that policymakers understand the positive impact we have on America’s economy and the critical role we play in protecting American citizens.

I encourage each of you to continue to come together and actively look for ways to advocate for our industry and our customers with your local, state and federal government officials, with your local media and with your employees.

I truly believe that our industry is a national asset.

And we should proudly tell our story.

So to conclude, this is an exciting time for our industry, defined by technological breakthroughs, promising new technologies and increasing collaboration around the world.

At the same time, our customers face unprecedented challenges and are looking to us to rise to the occasion.

I’m confident that by focusing on affordability, collaborating to address the risks we face and advocating for our industry, we will succeed – and help our customers succeed – for the foreseeable future.

Seeing the great work you’re doing here this week makes me excited about what we can achieve together.

Thank you again for being here and for inviting me to join you this morning.

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