Marillyn Hewson, Chairman, President & CEO

2018 Lockheed Martin Media Day

 

Remarks as Delivered by

Chairman, President & CEO

Marillyn A. Hewson

 

Arlington, Virginia

March 5, 2018

Building Bridges to a Brighter Future

Good morning, and welcome to “Lockheed Martin Media Day.”

We’re pleased to host you here at our Global Vision Center.

At Lockheed Martin, as you know, we put tremendous focus on listening to our customers and understanding the challenges they face.

The journalists in this room are part of this effort, as you tell the stories of our customers and their challenges.

Every morning, I start my day reading your work.

So, I want to begin with my personal thanks to you for your efforts to research, report, and think deeply on such important topics.

One of the reasons we hold Media Day is to give you an opportunity to hear how we are responding to the needs of our customers, and to invite you to interact with leaders and innovators from our company who are shaping some of the most exciting frontiers of human endeavor.

To help kick off Media Day, over the next 30 minutes, I’ll briefly highlight our business performance, and I’ll give you a quick overview of the global challenges our customers face.

Then, I’ll discuss the many ways that Lockheed Martin is acting as a bridge to the future,  providing new and visionary technologies, developing critical security solutions, building stronger alliances, and serving as a catalyst for economic growth.

Performance

I want to begin with performance, because nothing is more important to our customers.

Across our business, we can point to strong and consistent performance over the past year, and we’re off to a strong start in 2018.

No program demonstrates our performance better than our largest program, the F-35, the most advanced fighter jet in the world.

We continue to progress toward full-rate production, having met our commitment to deliver 66 aircraft in 2017. And we’re on track to deliver more than 90 jets this year.

In fact, to-date, we’ve delivered more than 280 aircraft to our U.S. and allied customers.

F-35 aircraft have now accrued more than 120,000 flight hours, and operate today from 15 bases, both domestically and internationally.

Most recently, and in support of Japan’s Air Self Defense Force, the first F-35 aircraft for Japan arrived at the Misawa Air Base on January 25th.  

With the program’s expansion here at home and around the world, the game-changing nature of the aircraft is becoming more apparent.

Customers across the globe are recognizing the tremendous capability it brings to their forces.

For example, the Norwegian Minister of Defense said at the arrival ceremony of the F-35 in Norway in November: “With its highly advanced sensors, high speed, low radar visibility, long-range precision weapons, and superior survivability, the F-35 combat aircraft will be crucial to the combat strength of the Armed Forces for the next 40 years.”

As we provide this revolutionary aircraft to our customers, we are also working to make the F-35 more affordable.

We continue to collaborate with our industry partners and to advance toward our goal to reduce the price of an F-35A to $80 million dollars per aircraft by 2020.

Another area of strong performance is integrated air and missile defense.

At Lockheed Martin, we are deeply proud to be the only company in the world that provides multi-layered air and missile defense.

We continue to extend this global leadership, with advances in our PAC-3 Missile Segment Enhancement – or “MSE” interceptor. Our PAC-3 MSE offers greater range and mobility to counter advanced threats.

Another Lockheed Martin missile defense technology that embodies our comprehensive capabilities is the Terminal High Altitude Area Defense system, known as “THAAD.”

In January, our customers at the Missile Defense Agency renewed their commitment to this critical program by awarding us a contract modification for production and delivery of more THAAD interceptors.

THAAD is interoperable with PAC-3 and Aegis, making it an important addition to integrated air and missile defense architectures for the U.S. and allies.

Lockheed Martin’s strong performance for our customers in the current environment also includes command and control systems. These technologies are key to strengthening alliances and preserving peace.

For instance, our Aegis Combat System is now deployed on more than 125 U.S. Navy and allied ships – including multiple destroyers operated by the Japan Maritime Self-Defense Force.

The Japanese government recently announced that it will expand these command and control capabilities by purchasing two Aegis Ashore land-based systems.

This move will improve their layered missile defense capability, and enable coverage over a wider range, with the ability to address a greater number of threats in the region.

Another key driver of our performance is our ongoing expansion of international sales.

Five years ago, international sales accounted for 17 percent of Lockheed Martin’s annual sales.

Last year, that number was 30 percent, and we see strong demand and growing opportunities to expand sales in nearly every region where we operate.

One of the most important examples of this potential is our central role in the security cooperation agreements signed between the United States and the Kingdom of Saudi Arabia last May.

The historic agreements opened up the potential for the sale of $28 billion of Lockheed Martin technologies over the next decade. Saudi Arabia has expressed its intent to procure integrated air and missile defense systems, combat ships, helicopters, surveillance systems, and tactical aircraft in the coming years.

And as we look to the future of our largest program, nearly half of new F-35 orders over the next five years will come from countries other than the United States.

Our strong performance is also reflected in Lockheed Martin’s outstanding financial results in 2017.

Our sales grew eight percent year-over-year, surpassing $51 billion and setting a new record for our corporation.

We also set new records with $54.2 billion in orders, and $6.5 billion in cash generated from operations.

We now have a robust backlog of approximately $100 billion, positioning our corporation for further growth in the long term.

And our shareholders saw a total return of 32 percent in 2017 – contributing to a 307 percent total return over the past five years.

These outstanding results would not have been possible without the strong performance of our world-class workforce.

Our 100,000 employees are focused on our customers’ needs and performing with excellence.

We seek to listen and understand the challenges our customers face, and we believe this is the key differentiator for us in the aerospace and defense sector.

Our Customers’ Global Challenges

With that in mind, I’d like to take a few minutes to talk about the needs we are hearing from our customers in the United States and around the world.

From a national security and global stability perspective, there’s no doubt that the threats faced by our customers are numerous and far-reaching.

Today’s rapidly evolving threats can come from any domain – land, sea, air, space, and cyber.

They range from rogue states pursuing nuclear weapons to territorial expansionism – from lone-wolf terrorism to well-orchestrated cyberattacks.

And, increasingly, our customers see the development of what Secretary of Defense James Mattis has called a “great power competition.” They face challenges from near-peer nations and regional powers which will demand what he defines as a “more lethal, resilient, and rapidly innovating” military.

At Lockheed Martin, we recognize that every nation and region where we do business has its own unique needs and challenges.

However, no matter where we go in the world, the overarching message we are hearing from our customers is the same: They need trusted industry partners who can help them counter the threats they face today, while also helping them stay ahead of the threats they will face tomorrow.

They need us to be a bridge to new and decisive technologies to address the evolving threats and protect their citizens.

A second consistent message we are hearing from our customers is the need for affordability.

Economic and political factors have created significant budgetary pressures around the world.

Our largest customer, the United States Department of Defense, has endured years of budgetary uncertainty, sequestration, and cuts. These fiscal realities have significantly hampered the ability to plan, invest, train, and modernize for the future.

With the recent release of the “National Security Strategy,” the president underscored the need for consistent investments across our nation’s military and industrial base.

And policymakers are seeing the need for more than just strong investment in innovation. There’s also a need for a culture shift that places a premium on acting with speed and agility.

Since his confirmation hearing more than a year ago, Secretary Mattis has consistently spoken of how the acquisition system and culture must adapt, so hardware and software systems can be rapidly integrated and upgraded to meet warfighter needs.

We have heard his message loud and clear that we must all operate at “the speed of relevance.”

Another area of global challenge and national response is in space.

Space is rapidly becoming a strongly contested environment. According to the investment firm Morgan Stanley, global governments are projected to double their space budgets over the next two decades.

Last June, the administration announced the re-launch of the National Space Council, sending a strong signal that it is committed to advancing and renewing American leadership in space.

We’ve been proud to work with Vice President Mike Pence, who is serving as the Council’s chairman, to communicate the importance of space to our national security, our economic growth, and to human progress.

As the industry leader, we will continue to be a key player in shaping the future of the final frontier.

Last week, I attended the launch of the GOES-S weather satellite. Our first GOES satellite, GOES-16, is already delivering forecasting data with revolutionary speed and precision. Among its capabilities, its specialized instruments will enable the government to track lightning and precisely predict severe weather, so we can better protect lives and communities.

The influence of domestic politics and budgetary pressures is shaping the global defense environment in another way.

In nation after nation, elected leaders and policymakers are putting a premium on domestic capacity building, job creation, and economic growth.

These changing customer dynamics mean that we, at Lockheed Martin, must find ways to serve as a catalyst for economic growth and national aspirations.

Elected leaders and policy makers increasingly want us to purchase products and services from their local companies to help broaden their industrial base, build capability, and support their economy.

They are also looking to us to invest in education and training that will equip their citizens with the skills necessary to compete for high-tech jobs.

These complex factors are shaping national priorities and government decisions.

They are also guiding our corporate decisions, as we seek to maximize the value we create for our customers, and help strengthen their national security that supports their economic security and progress.

With these national dynamics and imperatives, we see opportunity.

Our corporation is uniquely positioned to help our customers build a bridge to the future – a bridge that facilitates a strong national defense, greater international cooperation between nations, and the shared development of technologies that can change the world for the better.

We have proven that it can be done.

In nations around the world, Lockheed Martin is lending its expertise and making strategic investments to help our international partners grow their technology development and manufacturing capacity.

It’s been a year since we stood up the Lockheed Martin STELaRLab in Melbourne, Australia.

STELaRLab stands for “Science Technology Engineering Leadership and Research Laboratory.”

It’s our first multi-disciplinary research and development facility outside the United States. It’s a hub for exploring technologies such as hypersonics, autonomy, and robotics with Australian customers and universities.

Last August, from our headquarters in Maryland, the Australian Ambassador to the U.S. Joe Hockey and I joined via video conference the Minister for Defence Industry, Christopher Pyne, in the STELaRLab in Melbourne, along with three other locations across Australia.

A group of Melbourne University engineering students presented the minister with their idea to use an autonomous, unmanned aerial vehicle to monitor electrical lines, even using the lines to recharge itself.

This innovation could lead to significant savings as the UAVs replace helicopters and other methods of monitoring the power lines, which currently cost Australian taxpayers about $785 million a year.

Minister Pyne recognized how innovative public-private partnerships like this are the key to building stronger ties between our nations, militarily and economically.

He said these partnerships will “…make Australia a better ally to the U.S...more able to defend our nation and its people, more capable of projecting our power in the region” and be “a regional power that is standing up for the values that our countries... believe in.”

STELaRLab is just one example of how we build bridges to the future.

In a global security environment where every domain is contested, our customers need industry partners like us who transcend technological boundaries, making it more affordable and more efficient for nations to share costs and work together.

We recognize that we play a key role in serving as a bridge for greater international cooperation, which makes defense more affordable for every ally.

As the National Defense Strategy outlines, the U.S. must partner with our allies to “act together coherently and effectively to achieve military objectives.”

We believe the ultimate example of this is the F-35.

With the most powerful integrated sensor package of any fighter aircraft in history, the information it gathers can be securely shared with commanders at sea, in the air, or on the ground, providing a comprehensive view of ongoing operations.

The F-35 is more than a 5th-generation fighter – it’s the central node of a 5th-generation fighting force, built for multi-domain, network-centric warfare.

And the F-35 will continue to grow its international footprint, with the recent approval to submit

a final offer for the F-35 to Belgium in support of their fighter competition solicitation, as well as several other nations around the world evaluating the aircraft’s unmatched capabilities.

Around the globe, Lockheed Martin is providing interoperable technologies to partner nations through Foreign Military Sales.

  • Our F-16 program is poised to begin producing 16 new aircraft for the Royal Bahraini Air Force.
  • Qatar, Saudi Arabia, and Romania will upgrade their missile defenses with PAC-3 MSE interceptors.
  • Last year, we delivered six C-130J Super Hercules aircraft to India.
  • And the French Air Force will receive a total of four C-130Js through 2019.

These interoperable technologies serve as a force multiplier for allied nations, allowing them to train and fight together, which creates a strong deterrent for hostile actors.

In addition to helping promote peace between nations, international cooperation on defense and aerospace programs also serves as a foundation for economic growth at home and abroad.

Our corporation employs nearly 93,000 of our 100,000 people here in the United States.

So, when a company like ours grows, there are broad-based benefits to the American economy.

Over the past year at our Aeronautics facility in Fort Worth, Texas, we’ve hosted a series of career fairs to find candidates to fill jobs on our rapidly growing F-35 assembly line.

Last year, we provided 1,300 new jobs in Fort Worth, and plan to hire approximately 500 more people by the end of this year.

Texas is not the only place where we’re making investments and creating jobs.

Last June, we started construction on a 266,000-square-foot “Satellite Factory of the Future” at our Space campus outside Denver, Colorado.

This state-of-the-art facility, which we call the Gateway Center, will be a paperless, digitally-enabled production environment that houses reconfigurable production lines and advanced test capabilities. Employees at the Gateway Center will produce next-generation satellites for government and commercial customers.

Approximately 1,500 contractors will help build the facility, which will support our growing Colorado workforce of more than 9,000 people.

Another hub of investment and expansion is our Missiles and Fire Control facility in Orlando, Florida.

We broke ground last month on a new 255,000-square-foot research and development facility that will be used to support advanced-combat systems, and manned and unmanned systems, as well as missile and rocket programs for customers including the U.S. Department of Defense, NASA and allied nations.

To support our expansion, we also plan to hire about 1,800 people across our Missiles and Fire Control business over the next two years. Five hundred of these jobs will be based in Orlando, and the remainder will be across several other states, from California to Kentucky.

In addition to the direct investments Lockheed Martin is making in our facilities and our workforce, our programs also make a major economic impact through our vast supply chain.

Some 93 percent of our nearly 16,000 suppliers are U.S.-based. In 2017, we awarded $4.4 billion in subcontracts to small businesses. And our F-35 program alone supports more than 170,000 direct and indirect jobs in 46 states and Puerto Rico.

These examples are reminders that our industry is a driver of broad-based economic development and opportunity.

Transformative Technologies

The last element of our “bridge to the future” that I want to discuss this morning is the development of technologies that will re-define the battlespace.

Last month, I heard from a former senior official who recently left the Pentagon about the leadership challenges he faced in his position.

He said that the immediate threats and personnel issues that he faced day-to-day limited the amount of time he could spend focusing on the future needs and capabilities of the force.

He looked to his industry partners to provide thought leadership, holistic solutions, and turn-key ideas that anticipate the challenges our service members will face in the decades to come.

As we look to the challenges facing our customers, we’ve identified four promising areas for transformative innovation.

The first is hypersonics.

With hypersonic technology, an aircraft or cruise missile could fly at speeds greater than Mach 5.

This could forever change our ability to deter and respond to conflict, allowing warfighters to quickly address threats before an adversary may have time to react.

It would unlock a game-changing capability – on par with stealth technology, which changed the definition of airpower by giving the U.S. significant tactical and strategic advantages.

The second transformative technology is laser weapons.

Lasers are the best match for high-volume, low-cost threats such as drones, which are becoming increasingly prevalent on the battlefield.

Lockheed Martin has made significant progress in overcoming the challenges inherent with fielding laser weapons.

We’ve increased the power of our systems while maintaining beam quality and optimizing size and weight, as demonstrated with the world record-setting 60-kilowatt laser we delivered to the U.S. Army last year. We have also received a contract from the U.S. Navy to develop and deliver two laser weapon systems for shipboard integration by 2020. And we’re working with the Air Force Research Lab to develop a high-power fiber laser for testing on a tactical fighter jet by 2021.

A third area we are pursuing for our enterprise is artificial intelligence and machine learning. We all know we have entered an era in which data is a strategic asset.

With the rapid integration of more advanced sensors and networking capabilities, our products are able to produce and disseminate enormous amounts of data.

Artificial intelligence can help sort through this data, recognize patterns and anomalies, and provide users with actionable information about threats and options to mitigate them.

By improving human-machine collaboration, artificial intelligence can provide people with the right information to drive better decision-making, which will fundamentally change how our customers operate.

The final area of focus I’ll highlight is electronic warfare. In an age where our customers and their adversaries rely on electronic systems for situational awareness and critical communications, dominance of the electromagnetic spectrum is essential to mission success.

Technologies to counter enemies’ attempts to jam communications, as well as offensive capabilities, must be easily integrated on a variety of platforms across every domain.

And since electronic warfare threats evolve quickly, open-architecture solutions that allow for the rapid integration of new technologies will be crucial.

Lockheed Martin has taken a leadership role in these four technology areas, and many others, to build an enterprise that can successfully support our customers’ rapidly evolving technology needs well into the future.

As we look ahead, I’m confident that the future of Lockheed Martin in the 21st century is bright.

Across the business landscape, we see several reasons to be optimistic.

First, our prospects for strong core growth have improved since we gathered here a year ago.

One reason for our optimism here is the bipartisan commitment in Washington to increase investment in national security and defense.

The framework for a two-year spending plan that Congress and the administration agreed to last month gives us hope that our customers will see at least a temporary break from the cycle of continuing resolutions that has hampered their ability to plan and invest for the future.

Another positive aspect of the framework is the relief it will provide from the sequestration spending caps imposed by the Budget Control Act of 2011.

And importantly, the national security and defense strategies recently laid out by the administration clearly demonstrated a commitment to recapitalizing our military and national security.

Lockheed Martin’s portfolio is well-aligned to support our customers’ plans to invest in missile defense, nuclear, space, cyber, and intelligence capabilities. We will continue to work with our customers to provide innovative, reliable, and affordable solutions.

The second reason we’re confident about our growth prospects is that Lockheed Martin is well-positioned to compete in several key competitions that will likely be decided over the next year.

We have strong offerings for the Advanced Pilot Training, or “T-X” program, as well as the UH-1N helicopter replacement.

The third factor is the passage of the Tax Cuts and Jobs Act. This landmark legislation will have a significant positive impact on our corporation. And it will allow American companies – including many of our supply chain partners – to compete more effectively in global pursuits.

We are investing the savings generated by tax reform in ways that will drive long-term growth, improve our competitive posture, attract and retain talent, create jobs, and increase shareholder value.

As part of this effort, this year we’ll increase our investment in research and development and capital expenditures by a combined $200 million. And, we’ll be increasing our funding for the Lockheed Martin Ventures Investment Fund. In place for more than a decade, the charter of the Ventures Fund is to strategically invest in promising companies – companies that are developing disruptive, cutting-edge technologies in core businesses and new areas that are important to Lockheed Martin.

We will also be using tax savings to expand our education offerings and worker training to encourage the development of critical skills. We have already announced an expansion of our employee tuition assistance program.

And we plan to increase our corporate giving to promote education in science, technology, engineering, and math. This will help address an urgent global need and ensure the pipeline of talent exists to meet the challenges of the 21st century.

Encouraging a Future of Innovation and Growth

At Lockheed Martin, we take our position as the global industry leader seriously.  We know that we are a bridge to a brighter future. And, today, you will hear from those shaping the future of space, the future of flight, the future of information, and the future battlespace.

As we look to that future with hope and optimism, we will continue to seek ways to support policies we believe will help serve our customers, strengthen alliances, grow economies, and save taxpayers money.

In 2018, we’ve identified three policy focus areas that will have the most impact on our business and the U.S. economy.

The first is regulatory reform. As discussed last year, Lockheed Martin has had the honor of working closely with the administration to identify opportunities to sensibly streamline regulations and introduce robust cost-benefit analyses to our nation’s regulatory discussions and processes.

We believe advancing these reforms is especially important to our nation’s small- and medium-sized businesses.

More than 50 percent of Lockheed Martin suppliers are small businesses.

Onerous regulations hit them the hardest, hurting our nation’s economy, its ability to innovate, and its capacity to create jobs.

The second area where we will lend our voice and collaboration is in acquisition reform. We are encouraged by Secretary Mattis’ focus on streamlining requirements and acquisition processes as part of the three “lines of effort” he outlined for the Department of Defense last fall.

Significant opportunity remains to shorten the timeline for contract awards and open up competition, enabling all of industry to provide solutions at the “speed of relevance.”

The third issue I’ll highlight is one that is integral to the future of our corporation, and our nation’s global competitiveness. Government, industry, and civil society must continue to work together to develop a workforce that has the skills to compete in a 21st century high-tech economy.

At Lockheed Martin, our workforce has always been the ultimate driver of our leadership and success. That’s why we are investing heavily on a number of fronts to grow our pipeline of talent in the areas of science, technology, engineering, and math.

We know the importance of investing in advanced manufacturing and workforce training.

And we also know our diverse workforce has a powerful voice to encourage young people from all backgrounds to pursue careers in STEM.

In 2017, Lockheed Martin provided almost $12 million in grants to organizations that promote STEM opportunities for young people. Our employees supplemented our monetary contributions by volunteering more than 115,000 hours to participate in STEM activities.

Through these actions, we are focused on the future in the most important way: Ensuring the world has the talent in science and engineering needed to meet the challenges of the 21st century.

This commitment to opportunity and to investing in talent early is exemplified by our new Executive Vice President of Missiles and Fire Control, Frank St. John.

Frank started working for us the summer before his senior year in high school.  

He was 15 years old.

His mother would drop him off at our Orlando facility.

Frank began as an engineering intern – and 35 years later he is still with our company, now leading Missiles and Fire Control.

People like Frank are the ones who drive Lockheed Martin, who make it a special place to work, and who help our company define the future.

They are the ones who bring a special sense of mission as we serve our customers and fellow citizens.

As I wrap up my opening remarks, I want you to know I’m confident that the briefings you’ll hear today will reinforce Lockheed Martin’s sense of mission and our reasons for optimism.

I know you will see a company that is creating the technologies that will shape a brighter future.

Thank you again for attending Lockheed Martin Media Day, and for your commitment to telling the story of an industry that is vitally important to America’s highest ideals and our shared aspirations for global progress together.

I look forward to your questions.

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