The rise of nationalist movements in the United States and among key allies in Europe and elsewhere is shaping how American defense firms do business, driving them to move weapons production overseas, Lockheed Martin CEO Marillyn Hewson said Monday.
The world’s largest defense contractor is increasingly being asked to shift some weapons production to the countries it does business with, as the programs “serve as a catalyst for economic growth and national aspirations,” she said during an annual event in which the company touts is new systems to the media.
Hewson’s steered clear of making direct mention of the drift toward economic nationalism in the United States and elsewhere, but the tenor of her remarks was unmistakable: voters in democratic countries are increasingly looking inward, and that has an effect on how a global powerhouse like Lockheed does business.
“The influence of domestic politics…where in nation after nation, elected leaders and policymakers are putting a premium on domestic capacity building,” are “guiding our corporate decisions” Hewson said, and her company is working to thread the needle between meeting the needs of international customers while not running afoul of the Trump administration’s “America First” policy.
As domestic politics shift, Hewson tried to position her company as a force for American foreign policy, as “we recognize we play a key role in serving as a bridge to greater international cooperation.”
Hewson was quick to attempt to tie requests for more foreign production back to jobs at home. The company hit a record for sales in 2017 – inking deals for $52 billion in 2017 – while increasing foreign deals from 17 to 30 percent of the company’s overall sales over the past five years. But Hewson presented an argument that foreign sales also help the economy at home, highlighting thousands of new jobs in Texas, Colorado, and Florida created to produce and test new satellites, aircraft, and missile defense systems for domestic and foreign customers.
Part of the rise in foreign sales comes from longtime clients like Saudi Arabia, which Hewson expects to buy about $28 billion worth of Lockheed kit over the next decade, and from future sales of the F-35, about half of which will be sold to foreign militaries over the next five years.
During her annual speech two years ago, Hewson said international sales were expected to climb to 25 percent of the company’s total in the near future. By last March that estimate had risen to 30 percent, where it currently sits. Hewson didn’t give a percentage for the company’s foreign sales in 2017 as compared to its total, but in 2016 it was 27 percent, up from 21 percent the year before.
Overall, the U.S. government greenlit the record-setting sale of $42 billion worth of American military kit to foreign customers in 2017, meaning Lockheed’s share of that pie was pretty substantial.
This year alone, the State Department has signed off on a $6.5 billion deal for 34 Lockheed-made F-35s to be sold to Belgium, a $500 million joint deal with Raytheon to service Patriot missile systems for Saudi Arabia, $70 million for Mk 41 vertical launching systems for four new Finnish corvettes, and $62 million worth of F-16 work for Oman.
Hewson said that the company has identified four main lines of effort for modernization that it plans to invest in: hypersonic missiles, directed energy weapons, artificial intelligence, and electronic warfare, a list that generally follows what the Obama era-Pentagon called the Third Offset and continues under Trump, albeit shorn of its old name.
Asked about the surprise announcement made by President Trump last week that he would slap sanctions on foreign companies in the steel and aluminum industries, Hewson tread lightly, saying that “it’s important for us as a nation to continue to look at how we can be competitive around the world,” but adding that her company hasn’t had any conversations with foreign customers about the effects of the potential trade war any such tariffs would almost certainly kick off.
Hewson also gave the Trump administration credit for the “landmark” tax cuts passed by Congress late last year have allowed the company to reinvest about $200 million into research and development.
The rise in foreign sales comes as American and allied defense planners are increasingly concerned about Chinese and Russian military capabilities, and Hewson’s comments came just hours after the Chinese government unveiled its new military budget. Beijing’s new military spending plan calls for the largest rise in defense spending in three years, with a target of 8.1 percent growth for this year.The 2018 defense budget will be roughly $175 billion. The 2017 budget increased 7 percent to reach $164 billion – or about a quarter of what the Pentagon received last year. Beijing does not provide a breakdown of how it spends its defense appropriations, and experts say that the full military budget is no doubt higher than the publicly released numbers.