Lockheed Martin Part II

From the person who will hence forth be known as Publius, who also attended the Lockheed Martin dinner this past Wednesday, some more thoughts on the presentation:

At its best, Dr. Trice’s 30-minute PowerPoint presentation effectively conveyed the importance of America’s aerospace and defense (A&D) industry and demonstrated the perhaps underappreciated challenges faced by defense contractors: inefficient government procurement systems, whimsical political decision-making, and astronomical research and development costs, to name a few. He also gave a succinct history of the industry, logically explained why the A&D market consolidated, and showed big defense companies to have more diverse operations than expected. But his finest point came during the question and answer period. When asked by a fellow student whether the U.S. military was perpetually preparing to fight the last war, Dr. Trice responded by listing innovations that have originated with private A&D firms over the years and previewed some developments to come. Military advancements such as new armor suits, communication devices, and satellite technology are expected to save lives in the near-team, even as the nation begins to withdraw from ongoing overseas engagements. And innovations related to cyber-security, logistics management (including radio-frequency package tags), and information transmission show promise for spillover effects into the broader economy.

However, Dr. Trice often used hyperbolic language designed to obfuscate the true size and power of America’s A&D industry, no doubt aimed at derisively debunking the supposed myth of the Military Industrial Complex. While most interns seemed to drink this alluring tonic, to the more skeptical of interns his disposition only served to arouse greater suspicion. Three points stood out:

1)       “I wish I was in the business of making Frosted Flakes. That’s where the money is. We’re a niche company.” While no one is claiming A&D is bigger than the food industry, this struck many as an odd point. After all, Lockheed has a higher market cap than Kellogg (the maker of Frosted Flakes), has a higher average salary than Kellogg, and has seen their stock price grow over twice as much over the past ten years as Kellogg. If Dr. Trice had invested in Kellogg or had been employed there as a median or average worker instead of at Lockheed Martin, he would most assuredly be less well-off.

2)       “Lockheed is small potatoes.” This is similar to the above point. Lockheed generates more revenue than Pepsi or Coca-Cola, than Apple or Intel, than Best Buy or Sears, than Time Warner or Comcast, than Disney or News Corp, and on and on. It is true that many companies with smaller revenues are seen as much more valuable, but in terms of actual money received (as well as net profit) there are few potatoes larger than Lockheed.

3)       “We have a very poor customer.” To some this seemed to be almost insulting to a country that accounts for over 50% of all A&D spending worldwide, that allocates 49% of its discretionary spending to the Department of Defense, and that has single-handedly, as Dr. Trice would later admit, caused a boom in the A&D sector over the past ten years. This was especially puzzling coming from Lockheed, who are more reliant on the government than other A&D firms. According to Washington Technology, Lockheed received more in government contracts than any other company in the country; they received more than Northrop Grumman (2nd) and General Dynamics (6th) combined.

Overall, it was tough reconciling how a small potatoes company could account for such a large portion of U.S. exports, how a company that couldn’t pay its employees or shareholders like a cereal company could be so competitive hiring top talent, or how a government so difficult for an industry could simultaneously give them so much of its tax dollars. That being said, Dr. Trice was an engaging speaker and the burritos were delicious.

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