To outsiders, the relationship between President Donald Trump and the defense industry got off to a rather rocky start. Tweets about programs costs led many to question how he might play particularly with two of the biggest U.S. defense companies, Lockheed Martin and Boeing.
But if you ask Lockheed CEO Marillyn Hewson, it was all part of a productive dialogue from someone who was a businessman long before he became the leader of the free world. Hewson offered her take on the new administration in an interview with Defense News Executive Editor Jill Aitoro.
What's your impression of President Donald Trump?
I've been impressed with him — how engaged he's been since day one. Even before he got into the White House, he hit the ground running. I'm impressed with the fact he wants to get things done. It's all about job creation, economic growth, increasing defense spending. My interactions have been very positive and constructive; he's a good listener. He cares about making a difference in economic growth.
From the defense industry's standpoint, he recognizes we do need to increase national security spending. But he wants to do it using taxpayers' money wisely. We're right in line with that. We want to provide the best capability to men and women in uniform, but at the same time we want to provide it at the most affordable price. We're constantly looking at affordability and bringing costs down.
He has been quite vocal about program costs, as you noted in your speech. And the F-35 was a focus. Was his initial take on the costs fair?
I'd say yes — if you set aside tweets and look at my interaction, he wanted to first understand the capabilities of the systems and spent time with military leadership understanding the actual programs. And then we had a good dialogue about how do we get through negotiation, how do we continue to bring price down, how do we get to a more economic order quantity — multi-year or block buy. It was all very constructive. He recognizes the capability was needed with the F-35, but he also recognized that he wanted to get the best price. And as a businessman he understands volume and driving costs down. So in that sense I was encouraged by those discussions, and continue to be.
Moreover I am encouraged that he and his team are looking at how to take the constraints off of American businesses so we can grow. Focus on regulatory reform. Getting rid of regulations that are not adding value, but they're adding costs. AIA did a study and determined 20 cents on every dollar you spend on military equipment goes toward regulations. Now some of those you need. But some are onerous and unnecessary and inefficient. So he's getting all over that, he recognizes we're not competitive in the global marketplace with our corporate tax structure. I've been extremely impressed with how quickly they're moving along.
You noted decreases in cost for the F-35, and President Trump did as well. Can you clarify how much of the savings noted are derived from new efforts to trim costs versus those that were already anticipated?
I'm not going to get into details of the negotiations. I don't think that's appropriate. But overall, if you look at the reduction, since lot 1 to lot 10, it's 62 percent reduction. And lot 10 negations brought an 8 percent reduction on the air vehicle, which is the piece we were in negotiation on, and a 7.6 percent reduction overall from lot 9 to 10. That says a lot. Production was ramping up, of course, to 90 aircraft, but there were other elements associated with that.
For so long the focus was on cost, and Lockheed's message was these will naturally come down. Are you now at a point where you can fairly say this is accurately what these planes cost?
Yes, but I'd say we're continuing to work on taking costs down. Through volume we'll get reduced costs. And if we do smart buying — combining lots, doing multi-year buying or economic order quantity — we'll get a better deal throughout our supply chain, because people can plan and invest if they have more volume to work from. But in addition, we've taken initiative to drive out costs with our Blueprint for Affordability, and that's getting Northrop Grumman, BAE Systems and Lockheed Martin to put in the money up-front. We've got projects we've identified in conjunction with the U.S. government, we've got approval to move forward. If you consider the program is about 15 years old from time of award – a little over that – there's a lot of things that have changed as you get through production, whether materials, or the way that things are manufactured. Now's the time to make those changes, but it takes investment to do that. You have to invest in that new capability. But you're going to get a return on that investment. We're seeing great dividends from that activity.
President Trump has vocalized his demands of NATO partners to meet the goal of investing 2 percent of GDP into defense. You've said it's a positive. How would you comment on his approach?
Any time the leader of the free world states priorities it's helpful to the rest of the countries. But this is not a new expectation. If you look at the Warsaw summit, [NATO allies] all agreed they needed to step up their commitments to 2 percent of GDP, which is what the alliance had agreed to. [Former defense secretaries] Gates and Panetta and others had highlighted that. Now the president is highlighting [it], that takes it to another level of recognition that is absolutely necessary. It was in the spirit of recognizing the threats around the world. Everybody needs to contribute to that alliance and coalition to address threats collectively. People listened and reiterated that they're on that path.
There's quite a bit of focus on an "America First" policy. In terms of the defense industry, does that create challenges with partnerships with foreign customers and suppliers?
In the defense industry, for us, we're a net exporter of military equipment. We don't build military equipment outside of the U.S. and import back into the U.S. It's a different model than what you might see with some commercial companies that have taken their production offshore and then come and import it into the U.S. For the U.S. aerospace and defense industry, we do produce for the U.S. government. But we also do produce in the U.S. for other countries. As a net exporter, having the support of the U.S. government, advocacy when we go into these various countries with the systems we're selling, is very important to us.
Being able to partner with those countries on what their defense needs are is also important. Some countries want to build their defense capability and defense capacity, so we'd be looking at their industrial base participating in some way. We have models around the world where we're doing that. There's places where we're doing domestic production for that country. In the U.K. we've done Merlin helicopters in the past, we're now providing support for the Scout vehicle and to the Warrior infantry fighting vehicle where we're doing the turret — that production is being done in the U.K. for U.K. systems, and the U.K. is looking to potentially export some of that work in their country to another country. For the defense industry it's different than [other markets] that might have taken work offshore because of a better competitive relationship.
You mentioned trimming of regulations. There's always been frustration in the market in terms of foreign military sales and how they're managed. Are you optimistic that we can make that run more efficiently?
I am. We've made some progress on export control reform over last several years, but I do know that there's a recognition that we need to speed up the process overall for how we get through technology release. You have to have an assessment of the technology, obviously — you want to protect the technology you don't want to export. But what you can export, that process needs to work faster. There's been a lot of work on the part of Department of Defense and State and Commerce all looking at how to do that. But there's more work to do. We've brought a lot of our ideas forward, and the environment is ripe to be better.
Where are you focusing your internal research and development investments right now?
We always try to align with the Department of Defense's priorities to give an advantage over adversaries in the near term and long term. So our focus is to look at the strategic priorities, whether air and naval superiority, looking at threats around the world. We announced that we've come out with an opportunity on directed energy, with a laser weapon system the Army is buying which has gotten us to nearly 60 kilowatts – which is a tremendous capability for a laser weapon system [and] unusual in its ability to scale. That is one example. Hypersonics, advanced manufacturing to take costs out, advanced materials ... electronic warfare. We stay close to where the various services are focused and that helps us direct our dollars.