Lockheed CEO gives new warnings about sequester danger

Lockheed CEO gives new warnings about sequester danger

DoDBuzz readers may have thought they’d heard every possible reason why sequestration would be bad for government and industry, but Lockheed Martin CEO Robert Stevens has a new one for you.

In a stemwinder for reporters at the defense titan’s annual media day, Stevens gave many now-familiar arguments for why Congress must step in and prevent the sequester — then a twist.

“The near-tem horizon is completely obscured by a fog of uncertainty,” he said. “With only 196 days remaining, we have no insight into how sequestration, this law, will be implemented. Which programs will be cutailed; which sites will be closed; which technologies will be discontinued; which contracts will be reformed; which suppliers — particularly our small business partners who are vital to our supply chain — will be impacted and certainly, most tragically, how many people are going to be affected; how many dedicated employees are going to lose their jobs; how many families are going to be disrupted.”

The defense industry simply cannot withstand another $487 billion in reduced DoD budget growth over the next decade, Stevens said. It just can’t do it.

“I suspect that on one level, it might be flattering to believe our industry is so robust, so durable, to as to absorb the impact of sequestration without breaking stride, but this is a fiction. The widespread disruption of across-the-board cuts with significant layoffs means our industry will suffer a loss of learning, a loss of talent and an erosion of quality.”

Stevens returned to the bit about the contracts in response to a reporter’s question, and here’s where the new wrinkle comes in: Because the sequester takes place in the middle of the fiscal year, the disruptions it would cause to existing contracts between DoD, Lockheed (and other firms) and sub-contractors would fall like a rockslide. Stevens warned that if federal funding dropped off for a given program, Lockheed would have to dial back its deals with its own vendors. They could claim Lockheed had violated their contracts and charge it more money, and Lockheed would have no choice but to pass those charges onto Uncle Sam.

Here’s how Stevens spelled it out — notice his use of the legal and technical jargon that might well appear in Lockheed’s agreements with the feds and its own vendors:

“In our drive for affordability, where I think we’re quite aligned with Pentagon expecations, many people have stretched, throughout our supply chain, to lower their costs to provide the most affordable prices for high technology and equipment,” he said. “They’ve done that within reasonable boundaries of what the future business environment is likely to look like. If sequestration occurs, those expectations upon which those cost and pricing structures have been built will be completely off the table. The question will be: How will the contracts will be modified?

When we have a modification of our contracts, we’re going to come out and re-phase and reschedule, in our case, 40,000 suppliers. My sense is, those 40,00 suppliers will say that’s a business disruption, and we’re going to provide a claim to you for the adverse impact for a disruption in business. It’s happened before, even when individual contracts are modified.  You will therefore be compelled to assemble this portfolio of requests for equitable adjustments for claims and pass that along as the prime contractor to our government customers. I have not heard any discussion about how that number of requests for equitable adjustment of claims will be managed.

[I’ve also not heard] whether or not $53 billion [in the first year of sequestration] is a net number or a gross number, because if $53 billion is gross, I rather suspect there’s going to be some kind of add-back for the adverse costs consequences of modifying across the board, perhaps every contract that we have. So it’s just not clear to us and, more importantly, not clear to our small business suppliers — and that really puts them under an enormous amount of pressure.”

Did you copy all that? Stevens is warning that the drop-off in funding caused by the sequester would effectively abrogate the contracts that DoD has with its big prime contractors. That would, in turn, force those vendors to abrogate the deals they have with their suppliers. Those suppliers could say, all right, under the terms of our deal, I get to charge you, Lockheed, for this disruption. Lockheed would come back to the feds and say, guess what, Mr Secretary, you owe us X percent more to cover all these ripple effects.

Stevens also warned, as other defense leaders have, that the contractual problems in the defense industry might start before sequester even takes effect. We’ve heard before that the mid-fiscal year drop of the guillotine means that in October, at the beginning of the fiscal year, vendors and their sub-contractors must assume sequester will take effect and begin laying people off. But even as that’s happening, vendors might also insist on a premium in the fewer deals that can actually get done, to protect against the risk of sequestration. So even as firms are tightening their belts and laying people off, the business of the Pentagon could still cost more.

Still reading? Thanks for sticking with it — here’s the bottom line: Sequester could turn into chaos, Stevens warned, and it would be much more costly than anyone seems to appreciate. He urged Congress to act fast to keep the blade from falling, but even his warnings didn’t seem likely to break the deadlock between Democrats and Republicans.

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I’ll I hear is Mr Stevens saying, “Blah, blah, blah, gimme more money so I can keep giving you faulty aircraft.”

Funny though how all he has done with the F-35 program is mislead people. After it is cancelled (due to program management incompetence) we may be able to move forward with a real strike fighter replacement program. Also funny how Kendall (DOD) has stated that the services haven’t set a projected IOC for the F-35. … yet somehow it is just knocking out test points. Add the fairy dust by Venlet (BS about how no one could have predicted the trouble with the hook-wire-trapping issues). So, in any event, it should be interesting how the mistake-jet factory will get all this done during a major strike.

If anyone wants the short version here it is: Lockheed will lose out big time if the defense cuts go through. They are sore losers and will make as many people as they can suffer with them, most notably the feds.

I felt more like I was being threatened than warned by Mr. Stevens. This cut is something that can potentially kill the F-35 program (or at the very least get two models cancelled). Lockheed is clearly sweating bullets. A strong part of me does not want the cuts in defense, but the other part of me thinks that the spending cuts will actually do some good and force the services to be smarter with their money. It just might get them to stop buying obscenely expensive high tech, high risk white elephants that don’t provide their worth in capability like the LCS and F-35C.

Bob Stevens, the most powerful bean-counter in the defense industry. Why would you possibly doubt such an honest guy?

The truth is, that even without sequestration, the F-35 Program from inception was/is simply not sustainable and will therefore only be afforded at a fraction of the currently still assumed total procurement.

Hence, even without sequestration.. “F-35 Program contracts will be reformed; suppliers — particularly the small business partners who are vital to the supply chain — will be impacted and tragically, many people are going to be affected… many dedicated employees are going to lose their jobs and many families are going to be disrupted.”

Defense planners, strategists and policymakers should have better calculated and estimated this fundamental flaw in the original F-35 business model. Tragically, there’s simply no way — without magical, indefinite high single digit annual budget increases — that this Program as originally designed would be sustainable.

Lessons learned on how not to acquire a fighter recapitalization Program.

Mr. Stevens. As you see in these discussions, you are part of the problem. You can be part of the solution by providing a competent workforce that provides consistent and high quality products. When you shortchange the DoD you are shortchanging the nation.
Stop branding your very junior and inexperienced technical people as experts when they clearly do not earn the title of engineer or scientist. The onus is on you and your company because the leaders in DoD will not or cannot bring in or develop technical anything anymore.

More bull crap from a BIG money pintcher who eats pork after pork from other unneeded DoD program many of which failed and where cancelled. The F-35 needs some trimings in cost and the B model needs to go its a waste and so the BIG spends cry. Overall its this system of DOD aqresitions is what cased this problem to start with.

Should have been titled “Crime boss attempts blackmail to stop crackdown.”

Why is his guy even walking around he should be in an FBI cell being interrogated for federal fraud and racketeering.

We don’t know what the results of the spending cuts will be. Like you I’d hope the cuts would “force the services to be smarter with their money” but given the mentality of the government folks I’ve dealt with over the last 25 years I doubt that would be the result. Most of the government folks have a very bureaucratic mindset and can’t (or choose not to) think in more efficient terms. So what I think will happen is that we’ll just have a more less capable military. However even if that were known to be the case I don’t see it as justification to settle for the current way of getting things done. Reform is needed. But we need a change in mindset in both the government and contracting side of things and I’m not sure that will ever happen without an external threat forcing it to happen.

more so than our current POTUS but that’s not really saying anything.

BS. While I don’t and have never worked for LM I’ve worked for other contractors, as a government employee and for private industry and the mix of competetent and incompetent personnel is nearly identical between private industry and contractors If you want to find imposters then look at the government employees, espeically in the IT field. Every organization has some duds but the government crony hiring system brings in more nonqualified people than the contracotrs. I’ve seen many, many security police, weather, and other non IT people hired for IT positions in the government and then watched while they made series of awful decisions.

Because the F-35 program is mismanaged doesn’t mean that every program is mismanaged. Maybe it’s that way where you work but not where I’m working.

Is it really a coincidence his initials are BS?

I disagree. I think it will finally snap them out of whatever gold plated dream they’re living in and force them to wake up. I believe it will get the F-35C and F-35B cancelled at the very least and it will also force some changes to take place. However, I do agree with you that vast reform is needed, especially at the top.

Okay, now that’s just funny. I can’t believe I didn’t see that.

Considering this guy can’t even keep his own striking employees in check, why again should we take his word?
Is he actually an engineer who understands the technical aspects of his troubled children (F-22, F-35),
or is he just yet another over-glorified defense salesman, trying to drum up every perk his product SHOULD deliver, yet trying vainly to distract us away from all the failures and costly disappointments?

Saw some recent advert in a defense journal, with LM trying to live off its former glory of having built the SR-71.
These modern engineers are nothings compared to the Kelly Johnsons of days gone by.
And let’s face it: Lockheed NEVER built a world-beating fighter aircraft that wasn’t more sales hype than actual substance.
P-38? P-80? F-104? All mediocre performers compared to all their peers of those eras.
More sales pitch for yet another troubled mediocre-performing LM product.

In Jan when Sequestration hits, LM will loose funding for two major programs the F-35 & LCS. Both of which are way over budget, and with the F-35 years behind schedule. If Romney wins and Sequestration can be avoided, he’ll probably cancel the F-35 because in business Failed programs are cut and you cut your loses before you waste anymore money. Now the LCS stands a better chance because a least a couple are in service, but they are not much more than a Glorified Patrol boat because of it’s severely limited weapons systems. But we will see soon enough, most likely after the election. If Obama wins Sequestration is pretty much a done deal.

I agree. My comments intent to reflect that it is looking like the Government has no real interest or capability to bring back a smart buyer technical oversight function. There are many who used to do the work and i suspect would like to bring back their skills but DoD does not show any interest in anything more that contracts, budgets and schedule.
The only hope may to get the LM and Boeing and NG (etc.) to get off their rear and start hiring real skills and developing reliable cost effective products.
The Weapon System Acquisition Reform Act was signed over 3 years ago to no effect.

First people would have to make what he does illegal. It is already immoral, but it has to be illegal to put him in jail. Nice thought, though. Few deserve it more.

He’s a finance guy, hence the bean-counter moniker. There are no new Kelly Johnson’s because Kelly Johnson’s position was retired with him. There are no more aircraft designers, thus no more Kelly Johnson’s. Now we design aircraft by committee. Can’t you tell by looking at them? I can. The last airplane designed by an airplane designer was the F-23 — and MD had to hire a contractor firm to find one. That was why Stonecipher set up the Phantom Works, so they’d have aircraft designers for the next competition. Too bad that didn’t work out.

Everyone in these blogs seems to forget that it was the US government that set the specifications for the F-22 and the F-35. There are real technical limitations involved and that the bugs have to be ironed out in the real world. Lockheed still builds the F-16, but I suppose that everyone thinks it’s a dud also? The real issue is if the sequestration does actually happen, then thousands of skilled people will lose their jobs. The problem there is many of those jobs don’t cross to other industries and these people will not be able to find work in other fields. The problem is once a specific capability is lost, it costs many times more to start over and rebuild it. The costs of the sequestration will skyrocket and nothing productive will come out of it.

Outside of probably being overpaid and overcompensated like most CEOs, what is he doing that is immoral?

Seems the politicians pushing for sequestration are more interesting in buying the unemployed vote than things like having a strong industrial base and people who are actually employed. Not surprising really.

Don’t be upset with his speech, its practice for Jay Leno monologue. Someone wants US dollar pegged on Lockheed’s airplanes too expensive to fly. They will sit around world guarded by military, maintained to highest standards maintaining their value. No general in military at the expense of his career going to hand the keys to anyone under 40 having less than 5,000 hours fly new Lockheed planes at $2 Billion a copy, They will make nice static displays at air shows.

It is disgraceful the current aircraft in the Air Force that are fighting the fight, that have lost out on upgrades like the Joint STAR re-engining to pay for the over-runs of the F-22 and F-35. This proves that Lockheed still cannot manage a aircraft program successfully

I’d be OK with cancelling the F-35 (especially the B version) if it really resulted in reform. There are many times when I wonder just how more bureaucratic the government can get and still function.

Design by committee never works yet people keep pushing it.

The F-16 was a General Dynamics product, not designed by LM. LM produces them now as a result of purchasing part of GD.

The thing that folks seem to be missing here is that the White House has directed the Pentagon to ignore sequestration as if it is going to disappear. The defense industry leadership has asked for guidance from the Pentagon on how they want to implement the cuts so that plans can be made in a timely fashion without disrupting EVERYTHING. Sure the DoD budget can take a $50B hit, but somebody needs to PLAN FOR IT. For the White House to direct the Pentagon to stick their collective heads in the sand is to invite the chaos that Stevens describes. Then the industry can do nothing except to cut everywhere at once. This isn’t going to just hurt the F35 or the LCS because the White House apparently wants to spread the pain to all.

uh wait

you talk about how awesome kelly johnson was

then you say the p-38 p-80 f-104 were all junk


But there’s a “Lockheed” sticker on the side that means everything is Lockheed’s fault!

You know, someone like you, who claims to be an old industry veteran, really ought to understand what Stevens is talking about. If you think that aerospace engineers can just put their heads in the CAD scope and pretend the world doesn’t exist, then you’re an idiot.

I didn’t say they were junk (read it again before you accuse me of saying something I didn’t),
I just said they were comparably mediocre (read: nothing phenomenal over their adversaries) at what they did, compared to their peers.
All were fairly quickly surpassed by better designs offering more capability (other air forces were soon to replace them with better types in fairly short time).

Consider also: Johnson’s legacy culminated in the SR-71, something very few others in aviation history can compare to, especially today’s committee folk.
Ed Heinemann is another name that comes to mind, but seriously: how many modern-day aviation engineers (by individual name, not by what their committee did) are as well known for their designs?
Any (besides Rutan and his crew over the years at Scaled…) ?

(And before anyone extols the virtues of the proven “Lockheed Martin” F-16,…General Dynamics designed it first.)

You have a point on the upgrades:
look at what the latest F-15(K,ST,SA, SE, etc), F-16 (Block 60) and Super Hornet/Growler offer for their price (upgraded legacy designs).
The LM birds will deploy the same weapons these do.
The only real advantage over the legacy designs is in first-days-of-war low observability (maybe,…-22s were hangar queened during Libya when they could’ve strutted their stuff…but it’s OK to bounce them off to Japan for non-combat parade duty…maybe we need another Cope India in the near future?).
It’s already been well-established that the promised cheaper maintenance these two LM birds were supposed to have (initial requirements) over the legacy designs just isn’t going to be there.
And did any of these legacy platforms have as long a period of teething troubles before they proved their worth?

Is it a case of today’s computer-dependent design committees just aren’t as talented as previous generations’ slide-rules-and-human-brains aircraft designers?
Or is it just that today’s salesmen are just more capable of selling imaginary concepts that, when their products fail to measure up to original spec, the customer has to keep lowering the requirements until the products can?

uh wait

Lockheed Martin’s Forth Worth plant IS the former General Dynamics aircraft plant.

A distinction without a difference. The Ft. Worth plant where the F-16s are built today IS the former GD aircraft plant. LM acquired the GD team lock, stock, and barrel.

How long does this dude want the war in Afghanistan to go?

Dude, maybe the country cannot afford another 487b dollars on defense? Ever think about that? If your company cannot afford the government not spend 487b on defense, than expand your business into other fields.

He does not care about the Nation, he only cares about the share holders and the bottom line.

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