Lockheed Martin looks overseas to recoup sequester losses

{mosads}The sequester cuts $41 billion from the Pentagon in 2013, with another $500 billion in cuts coming over the next decade. Senior military leaders have said those cuts, if left in place, would require the Pentagon to change its strategy and dramatically scale back procurement.

Lockheed Martin is poised to lose roughly $825 million in total sales this fiscal year due to the sequester, Hewson told reporters during a speech at the company’s offices in Northern Virginia.

The majority of the losses are centered in the company’s information systems and missile defense sectors, according to an internal analysis conducted by Lockheed officials. The remainder is spread across Lockheed’s weapons portfolio, which includes tactical aircraft and warships.

The fiscal strain being placed on U.S. defense firms like Lockheed “isn’t anything new to us,” Hewson said, adding that the defense industry has been very vocal on the impact of sequestration for more than year.

That said, “the alternative cannot be to [just] stand still,” Hewson said.

Lockheed will try to make up for lost U.S. business by focusing on exports of missile defense systems and unmanned aircraft, as well as foreign sales of the F-35 Joint Strike Fighter.

Nine nations, including the United States, have already agreed to purchase the F-35 from Lockheed. 

Most recently, Israel and Japan have confirmed F-35 buys while Singapore remains a “security cooperation participant” on the program, according to company officials. 

Other, older aircraft and weapons in the U.S. military’s arsenal, such as the Navy’s MH-60 combat helicopter and the Air Force’s F-16 fighter jet, are ripe for overseas sales, according to Hewson.

“We are delivering,” she added, regarding progress on the international side of the F-35 program.

The Lockheed CEO did not go into detail as to which foreign militaries the company is targeting to boost sales.

Defense observers say defense sectors in Asia, Brazil and the Middle East are among the emerging buyers on the international market.

But countries like China and Iran are also looking to gain a larger foothold in the global weapons trade, raising concerns not only for the American defense sector but for U.S. national security as well.

Despite the anticipated losses in weapon sales, stock in Lockheed Martin and other American defense companies has soared since the first tranche of sequestration went into effect March 1.

Lockheed Martin stock has surged 8.3 percent, while competitor Boeing has jumped 9.6 percent. Shares in Northrop Grumman have climbed 6.1 percent, while Raytheon is up 6 percent.

But Hewson warned those upticks might be short-lived, as the sequester’s true weight begins to be felt across the defense sector.

“The larger impact [of sequestration] will be in 2014 and beyond,” she said.

Key delivery dates on a growing number of Lockheed’s weapons systems are already beginning to fall by the wayside, which is a sign of things to come, she indicated.

Lockheed has stopgaps in place to cut costs and increase efficiencies to prepare for whatever the future might bring, Hewson said.

But Lockheed Martin and other defense firms are fairly limited in what they can do “until we get some detail from our clients” via a large-scale Pentagon review of the department’s priorities.

Defense Secretary Chuck Hagel ordered the review of the plan in March in order to account for sequestration.

Pentagon leaders have combed through nearly one-third of all the programs and policies included in the Obama administration’s long-term military strategy approved last year, Deputy Defense Secretary Ashton Carter said earlier this month.
 
The review represents “a clear delineation of choices we may [have to] make” under sequestration, Carter said.

–updated at 1:34pm