Lockheed CEO encouraged by budget but warns of sequestration

Even with the framework of a budget agreement and defense spending increases in place, Lockheed Martin’s chief executive likes to remind anyone who will listen that one headwind remains: sequestration.

During Lockheed’s first quarter earnings call with investors Tuesday, CEO Marillyn Hewson sounded encouraged by the omnibus spending bill cleared by Congress and signed by President Donald Trump in March.

That legislation funded agencies for the rest of fiscal 2018, plus raised spending caps for both 2018 and 2019 for defense and nondefense agencies. And that lift for defense, Hewson said, was “tremendously welcome” to the Pentagon after years of short-term funding measures and spending downturns during the earlier part of this decade.

“We’ve been in a situation with the budget caps and others where the spending on recapitalization as well as on readiness was not at the level it needed to be,” Hewson told analysts on the call.

While Hewson sees the current budget as helping solve near-term issues on readiness, she cautioned that another round of sequestration budget cuts like those that came down in 2013 loom again without another budget deal.

Defense and nondefense agencies alike would bear the sequester in 2020 unless lawmakers find a way forward.

That is a factor “which everybody would like to see go away… so I won’t ignore the fact that that’s sitting out there,” Hewson said.

With respect to the current budget, Lockheed likes what it sees for this current fiscal year from a program support perspective. Hewson said the deal Congress struck added $7 billion in funding for Lockheed-built platforms, weapons and other equipment above what the Defense Department asked for.

Along with the increases to defense budgets is more activity among certain technology investments Lockheed has prioritized for both near-term and long-term. Those investments, Hewson said, are intended to help the U.S. in its “great power competitions with Russia and China and other geopolitical rivals out there.”

“The threats are not going away, they’re accelerating and so in my view… we need to continue to spend more on defense,” she told analysts.

During Lockheed’s annual media day March 5 in Arlington, Virginia, Hewson identified the company’s four primary technology innovation areas as hypersonics, laser weapons, artificial intelligence and machine learning, and electronic warfare.

The company recently scored a key win for its hypersonic push with the award of a $928 million contract on April 18 to develop a weapon that can travel five times the speed of sound or higher.

That followed a separate award earlier this month of a $247.5 million contract by NASA to Lockheed’s legendary Skunk Works research-and-development arm for an experimental supersonic demonstrator plane.

This collaboration between NASA and Skunk Works seeks to gather data in an effort to enable commercial supersonic passenger air travel over land, which current government regulations prohibit.