If members of NATO achieve their pledges to achieve defense spending levels that reflect the size of their respective economies, that could mean as much as $100 billion annually in additional defense spending, Lockheed Martin’s [LMT] top executive said on Tuesday.
“In fact, if NATO members fulfill their already stated pledges to spend 2 percent of their GDP on defense, if could result in a $100 billion increase in spending across the alliance,” Marillyn Hewson, chairman, president and CEO, of Lockheed Martin, said at the company’s annual media day.
GDP is the acronym for Gross Domestic Product and basically is the measure of the size of a nation’s economy.
International defense sales are a growing part of Lockheed Martin’s overall revenue. Hewson said that in 2016, the company’s international business was more than $12.7 billion, nearly 27 percent of overall sales. She added that in a few years the goal is to achieve international sales to 30 percent of the business.
Lockheed Martin reported $47.2 billion in sales in 2016 and projects between $49.4 billion and $50.6 billion in 2017.
The largest driver of the company’s future growth in international business is the F-35 fighter, Hewson said, adding that about 50 percent of orders for the aircraft in the next five years are expected to be from international customers.
Hewson also said the Sikorsky business unit, which Lockheed Martin acquired from United Technologies Corp. [UTX] in November 2015, will also contributed to international sales through defense and commercial helicopter programs. Missile defense programs are another major driver of international business.
Beyond a growing international business, Hewson also said that President Trump’s commitment to increasing domestic defense spending bodes well.
“Although the path ahead on the federal budget remains complicated, we are optimistic that this renewed emphasis on national security issues will be sustained,” she said.
Hewson also lauded the president’s and Congress’ support for budget stability, corporate tax reform, and the reduction of inefficient regulations and ineffective government processes,” saying that moving out on one or all of these will help the larger defense industrial base and result in “a stronger economy and more robust job creation.”
Hewson is a member of the Manufacturing Jobs Initiative launched by Trump to find ways to get U.S. companies to manufacture products domestically rather than build plants in other countries. Hewson said that she is on a working group charged with reducing regulations as well as on a workforce of the future group.
“It’s all about creating jobs,” Hewson said.
Hewson said that former President Barack Obama’s executive order in 2014 on Fair Pay and Safe Workplaces only served to add “onerous reporting requirements” on top of existing laws and regulations, adding that these additional requirements were harder on small and medium size businesses that don’t have the resources to easily comply.
Trump this year nixed Obama’s order, which required federal contractors to disclose violations of labor laws.
Hewson said Trump’s directive to agencies to look at reducing regulations across the federal government is good for small businesses, which she called the “innovation engines,” because they often don’t add value and will decrease reporting requirements.
After the election and before his inauguration, Trump criticized the F-35 program for its high costs. The president has taken credit for $700 million in program cost savings, although no evidence has been cited by anyone that his involvement in the program has decreased costs.
Earlier this year the Pentagon and Lockheed Martin inked a nearly $9 billion contract for the Lot 10 buy of F-35s, a deal that brought the Air Force’s variant of the aircraft to under $95 million per copy, the first time the unit price dipped below $100 million. However, the program’s production costs have been on a downward path for years as volumes ramp up and the learning curve comes down.
Hewson credited Trump for helping get the Lot 10 contract negotiated sooner than expected but stopped short of crediting the president with any program savings. The company and the F-35 program office have said the unit cost of the fighters will continue to decrease as production increases.
The F-35 production contract for Lot 11 is expected to be finalized later this year.