Lockheed Martin - Space Systems

Lockheed Martin’s slogan is “we never forget who we’re working for.” That’s not difficult, given that the company receives some 84 percent of its revenue from the U.S. government, mostly the Pentagon. It is the largest federal contractor and the largest weapons producer in the world. It trails Boeing, United Technologies and EADS in total revenues, but those companies, unlike Lockheed Martin, have substantial revenue from civilian products. Most of the 16 percent of Lockheed’s revenues that doesn’t come from Uncle Sam comes from foreign governments.

Formed by the 1995 “merger of equals” of two long-time military contractors—Lockheed Corp. and Martin Marietta Corp.—Lockheed Martin produces a wide range of combat aircraft (F-16, F-22, F-35 fighters, C-130 transports, etc.), combat ships, missiles (Hellfire, Javelin, Patriot, etc.), space systems (Hubble Space Telescope, Mars Reconaissance Orbiter, etc.), military electronics and even the new Presidential helicopter.

Lockheed has been involved in numerous controversies involving questionable foreign payments, overbilling of the federal government, race and age discrimination, and environmental racism. Yet it continues to receive a steady stream of new contracts and has made itself indispensable to the U.S. military establishment.

Lockheed Martin is the result of the 1995 merger of two of the largest U.S. military contractors—Lockheed Corp. and Martin Marietta Corp.—both with roots in the early 20th Century.

Martin Marietta dated back to a company formed in 1917 by aviation pioneer Glenn L. Martin to build combat planes for the U.S. military. During the 1930s he branched out into commercial passenger aircraft and got involved in producing the Clippers (also called “flying boats”) used by Pan American Airways on its trans-Pacific routes. During the Second World War, Martin’s company built thousands of planes, mainly bombers, for the Allies.

Lockheed had its origins in a company founded in 1916 by Allan and Malcolm Loughhead (who later changed the spelling of their name to Lockheed). The brothers later left the company, which under new management and ownership also built commercial planes in the 1930s and became a major producer of combat planes during the war.

Both companies tried to reenter commercial and military aircraft production after the war, and both had difficulty competing with the likes of Boeing and Douglas. Martin Co. decided to focus instead on missiles (Pershing, Titan, etc.) and by 1960 was operating exclusively in that field. In a diversification move, it merged in 1961 with chemicals and construction materials producer American Marietta Corp. to form Martin Marietta.

Lockheed, which produced the first U.S. jet fighter (the P-80 used in the Korean War) and later the U-2 spy plane, made a new foray into commercial jets in the 1960s with the introduction of its L-1011 TriStar, a rival to Douglas’s DC-10. Problems with that project and the C-5A transport it was building for the U.S. Air Force nearly put the company under in the early 1970s. Lockheed had to be rescued by a $250 million federal government loan guarantee, which passed the Senate by only a one-vote margin. Despite the rescue, Lockheed’s commercial aircraft operation continued to struggle, so management put an end to it in 1981. The company later averted a takeover by corporate raider Harold Simmons by forming an employee stock ownership plan.

Although Martin Marietta became a major producer of aluminum and construction materials, it was better known as a contractor for the U.S. space program (its products included the external fuel tanks used on the Shuttles). In the early 1980s it was the target of a hostile bid by Bendix Corp. After a complicated takeover battle, Martin Marietta remained an independent company though Allied Corp. had acquired a 39 percent stake. To reduce the heavy debt the company had taken on during the maneuvering, Martin Marietta’s management sold off its cement, chemical and aluminum operations.

Lockheed’s F-117 Stealth fighters played a major role during the 1991 Persian Gulf War (and later during the initial invasion of Iraq), and the company’s role as a producer of military aircraft was enhanced when it agreed in 1992 to purchased the fighter plane unit of General Dynamics.

Plans for the marriage of Lockheed and Martin Marietta—described as a merger of equals—were announced in 1994, and after passing regulatory hurdles, the deal gave rise to the world’s largest defense company. In 1996 the combined company grew larger by acquiring Loral Corp.’s Defense Electronics and Systems Integration Business, though some of those operations were soon spun off to form L-3 Communications.

During this period Lockheed Martin supplemented its military work with another form of government contracting: it got into the business of doing outsourced administrative work for state social-service agencies. One of its major customers was Florida, which aggressively privatized its public-assistance programs.

In 1997 Lockheed Martin announced its intention to acquire Northrop Grumman, but after federal regulators balked the plan was dropped. Lockheed did acquire the satellite company Comsat Corp. in 1998 but sold it in 2004. In 2000 Lockheed sold its Sanders military electronics business to BAE Systems.

Amid the U.S. military buildup of the past decade, Lockheed has fared well. In October 2001 it was awarded the Pentagon’s largest contract ever—a deal worth at least $200 billion over several decades to produce the Joint Strike Fighter for the Air Force. Shortly after that, Lockheed and TRW were given a $2.6 billion contract to create the next generation of military satellites, also for the Air Force.

In 2005 another major acquisition, this one involving Titan Corp., collapsed. In this case it was because of allegations that Titan executives paid bribes to international clients. Titan ended up as part of L-3 Communications instead.

In 2007 the U.S. Navy cancelled Lockheed Martin’s contract to build the second of two coastal combat vessels because of large cost overruns. The company has also been facing criticism over rising costs on the new Marine One Presidential helicopter it is building using a design from Italy’s Finmeccanica. A March 2008 Government Accountability Office estimated that the cost of the Joint Strike Fighter program led by Lockheed Martin was expected to rise to $337 billion, a 45 percent jump from what was estimated in 2001.

Problems such as these did not stop the company from getting more contracts, such as a May 2008 award worth $1.5 billion to building the next generation of navigation satellites.

Lockheed Martin operates in four principal business segments, as described in its 10-K report:

Aeronautics (29% of 2007 revenues) “is engaged in the design, research and development, systems integration, production, sustainment, support and upgrade of advanced military aircraft, air vehicles and related technologies. Our customers include various government agencies and the military services of the United States and allied countries around the world. Major products and programs include design, development, production and sustainment of the F-35 stealth multi-role international coalition fighter; the F-22 air dominance and multi-mission stealth fighter; the F-16 international multi-role fighter; the C-130J tactical transport aircraft; the C-5 strategic airlifter modernization; and support for the F-117 stealth fighter, P-3 maritime patrol aircraft, S-3 multi-mission aircraft and U-2 high-altitude reconnaissance aircraft. We also produce major components for Japan’s F-2 fighter and are a co-developer of the T-50 advanced jet trainer.”

Electronic Systems (27% of revenue) “is engaged in the design, research, development, integration, production and sustainment of high performance systems and subsystems for undersea, shipboard, land and airborne applications. Major product lines include: tactical missiles and weapon fire control systems; air and sea-based missile defense systems; surface ship and submarine combat systems; anti-submarine and undersea warfare systems; ground combat vehicle integration; avionics, systems integration and program management for fixed and rotary-wing aircraft systems; radars; surveillance and reconnaissance systems; and simulation and training systems.”

Information Systems & Global Services (24% of revenue) “is engaged in providing federal services, Information Technology (IT) solutions and advanced technology expertise across a broad spectrum of applications and customers. IS&GS provides full life cycle support and highly specialized talent in the areas of software and systems engineering, including capabilities in space, air and ground systems, and also provides logistics, mission operations support, peacekeeping and nation-building services for a wide variety of U.S. defense and civil government agencies in the U.S. and abroad.”

Space Systems (20% of revenue) “is engaged in the design, research, development, engineering and production of satellites, strategic and defensive missile systems and space transportation systems. The Satellite product line includes both government and commercial satellites. Strategic & Defensive Missile Systems includes missile defense technologies and systems and fleet ballistic missiles. Space Transportation Systems includes the next generation human space flight system known as the Orion crew exploration vehicle, as well as the Space Shuttle’s external tank and commercial launch services using the Atlas V launch vehicle. Through ownership interests in two joint ventures, Space Transportation Systems also includes Space Shuttle processing activities and expendable launch services for the U.S. Government.”