Lockheed Martin braces for federal cuts while executing missile defense

Defense contractor Lockheed Martin Corp. "fully supports" the Pentagon's recently announced cost-cutting moves, but it will not allow affordability to be defined in ways that sacrifice quality in systems it supplies U.S. warfighters, a panel of executives told reporters Wednesday at the National Press Club.

"Affordability is not cutting corners for safety, compromising our integrity or delivering an inferior solution," said Dennis Cavin, Lockheed Martin's vice president for Army and missile defense programs. "We understand the challenging economic times and are willing to be a viable partner in affordability. But at the end of the day, nothing equals the solid execution of a program."

The Bethesda, Md.-based aerospace giant used the event to announce that its facility in Courtland, Ala., would be the site for future production of the Standard Missile-3 Block IIB, one of many missiles and sea-, ground- and satellite-based systems it helps build for the Missile Defense Agency to defend Europe and the U.S. mainland.

"By pairing our extensive interceptor development and weapons system integration expertise with our full suite of production capabilities in Courtland, Lockheed Martin will be able to offer the Missile Defense Agency and the U.S. Navy a reliable and affordable new interceptor," said Doug Graham, vice president of advanced programs and strategic and missile defense systems at Lockheed Martin.

Given that two other companies are vying for the contract that won't be awarded until 2013, Graham acknowledged the announcement was "a little presumptuous."

The executives said they could not address the likely federal budget impacts on the company until the Defense Department offers specific program cuts in time to meet Congress's emergency budget-cutting deadline in November.

But Lockheed Martin has begun belt-tightening, Cavin said, for example, cutting staff travel to trade shows such as the Paris Air Show. "We reduced our footprint by a third, saving $2.5 million," he said. He also mentioned the recent offer of voluntary executive buyouts (the application period has now closed and the volunteers' offers are under review), which should save the company $350 million over five years, and $105 million each year thereafter, he said.

That cutback follows this summer's announced reductions of up to 1,500 employees in the company's aeronautics business and 1,200 employees in its space systems business.

Another strategic cost-cutting tool Cavin cited is international partnerships. He said the fact that the Patriot Advanced Capability-3 missile system has been executed and sold to such partners as Taiwan, Germany, United Arab Emirates, Netherlands and Japan has saved or deferred $482 million since 2006.

But he cautioned that Lockheed Martin must continue to invest in independent research and development. The military identifies the "capability gaps, and it is up to the industry to keep up," Cavin said. And though the company continually works at ways to cut costs, "we are looking at the margins to improve. If we cut back in critical areas, the capability won't be there."