UPDATE 1-Pentagon's message to Lockheed: Stay focused on F-35

Mon Nov 12, 2012 4:46pm EST

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By Andrea Shalal-Esa

WASHINGTON, Nov 12 (Reuters) - Lockheed Martin Corp said on Monday Pentagon officials have voiced support for Marillyn Hewson, named to take over as chief executive after an ethics scandal forced out the previous CEO-designate on Friday, and have urged the company to stay focused on its flagship program, the F-35 Joint Strike Fighter.

Current Chief Executive Bob Stevens, who will stay on as executive chairman when he retires as CEO at the end of the year, told analysts that the Defense Department was understanding about the management changes, but that it also reiterated the importance of keeping the F-35 fighter on track.

Stevens said Lockheed informed the Pentagon after the close of the stock market on Friday that its president and chief operating officer, Chris Kubasik, had been forced out after admitting to an inappropriate personal relationship.

Kubasik had been due to replace Stevens as chief executive in January. The news on Kubasik emerged hours after CIA Director David Petraeus resigned after admitting to an extramarital affair.

Analysts said the news was disappointing for Lockheed since Kubasik had been well-regarded by investors when he served as the company's chief financial officer.

Lockheed shares dropped as low as $89.10 on Monday, their lowest level since July, but recovered some ground to close down 17 cents at $89.81.

Rob Stallard at RBC Capital Markets said investors know Hewson less well, but view Hewson's leadership of the electronic systems division positively.

"With Bob Stevens staying on as executive chairman, and Bruce Tanner still the experienced CFO, we doubt if Lockheed's operations or financial results will be notably impacted by this change," Stallard wrote in a note to clients.

Stevens said Lockheed was focused on meeting its commitments to customers, investors and employees, adding, "We will do the right thing and focus on returns and our commitments."

Hewson and Stevens spoke with analysts on Monday morning to try to reassure investors that the company's leadership changes would not alter its focus on cutting costs, delivering programs and expanding international sales.

"The initial response has been an understanding of the situation that we faced here and an understanding of the actions that we've taken and a full measure of support for Marillyn in her new position," Stevens said.

Stevens said Pentagon officials also told the company: "Don't lose focus on the commitments that you've made on the F-35 specifically and on other programs."

Stevens said Hewson was very familiar with the breadth and depth of Lockheed's operations and had been deeply immersed over nearly 30 years in many of the company's key programs, including the F-35 fighter program over the past nine months.

For the last three years, Hewson had run Lockheed's largest business area, electronic systems, with 45,000 employees and annual revenue of more than $14.5 billion, which would rank among the top 30 defense companies if it were a stand alone business.

"She's consistently grown revenue, expanded margins, generated cash," Stevens said. "She has been an exemplar in modeling ethics and integrity in her personal and professional life and she will make an outstanding chief executive officer."

Hewson, who was already slated to become president and chief operating officer in January, said she had taken part in high-level talks with the Pentagon about a contract for a fifth batch of F-35 jets, and would remain closely engaged in the process.

Those talks have been under way for nearly a year, prompting one of the Pentagon's top F-35 officials to describe ties between Lockheed and the government as the worst he'd ever seen.

Hewson said she was committed to securing a contract for those jets, which would free up funds for a sixth batch, and said Lockheed would deliver all airplanes as scheduled this year despite a strike that slowed production earlier in the year.

Lockheed last month warned investors that it faced a potential termination liability of $1.1 billion on the F-35 fighter program unless it received additional funding for work on a sixth batch of airplanes by year-end.

"We are going to meet our commitments this year on delivering the aircraft that we committed to, the support for the customer is strong and so we'll continue to be very much engaged and we won't miss a beat on F-35," Hewson said.

Stevens said Hewson was well suited to be CEO because of her long years of experience in running various company divisions, as well as what he described as her "remarkable" people skills.

"I know you're going to find this extraordinarily hard to believe, people seem to like Marillyn more than they like me," Stevens joked, adding that he had learned "a lot from her in our ability to work together over the years."

For her part, Hewson said she was focused on clearly communicating the company's priorities, fostering innovation, listening to customers, and continuing to develop its workforce. She also plans to step up visits to lawmakers in Congress, and to increase her outreach to Wall Street investors.

"I think it's also important that a leader put in place an environment where people can do their best work, where they feel comfortable to bring their best ideas forward," Hewson said.

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