Lockheed eyes foreign, non-defense work as Pentagon budget drops

WASHINGTON, June 9 Mon Jun 9, 2014 8:36pm EDT

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WASHINGTON, June 9 (Reuters) - Lockheed Martin Corp on Monday said it was banking on international and non-defense orders to offset a drop in U.S. military spending, with Pentagon orders accounting for a low 61 percent of overall sales in 2013 and trending lower.

Lockheed Chief Financial Officer Bruce Tanner said U.S. defense orders would likely dip further as a percentage of overall revenues in 2014 and 2015, and orders could drop as low as 50 percent, depending on what happened in other business areas.

"It's not in our long-term vision to get to 50-50 ... but it's not out of the possibility that it could drop there," Tanner told Reuters at the company's annual media conference.

He said Lockheed's revenues would remain "fairly flat" in 2014 and 2015, but could start to edge higher in 2016 or 2017, based on current Pentagon budget projections.

Lockheed Chief Executive Officer Marillyn Hewson told reporters the company was focused on delivering next-generation weapons like the F-35 fighter jet, expanding its international footprint, and developing new technologies to address the need of a growing world population for clean water and affordable energy.

She said Lockheed expected to reach its target of generating 20 percent of revenues overseas in the "next year or so," up from around 17 percent now, with further growth seen in coming years. The remaining 21 percent of Lockheed's revenues come from civilian U.S. agencies, and 1 percent from commercial orders.

Hewson cited strong foreign demand for the F-35 fighter jet, which will comprise about 25 percent of Lockheed's total revenues when the jet reached full production later this decade, missile defense, space programs, and the C-130J cargo plane.

Despite flat to declining U.S. military sales, Lockheed is continuing to invest in new technologies, Hewson said, citing promising work in several areas such as generating energy from the world's oceans, and new nanocarbon fibers.

She said the company raised internal spending on research and development (R&D) projects by 13 percent in 2013 to around $700 million, and expected another 5 percent increase this year.

Tanner said the company was investing more of its own funding in research now so it was positioned for new programs when Pentagon spending began to edge higher again in 2017, once the brunt of mandatory congressional spending cuts were over.

"I'm not a big race car driver, but I've always heard that races are won in the corners," he said. "Downturns are sort of the analogous 'corners' in this industry. That's when you do make some differentiation that hopefully sets you up for the straightaways."

Lockheed executives are watching for several big potential foreign orders, including a missile defense competition in Poland; Canada's decision on whether to buy 65 F-35 fighter jets; and negotiations with Saudi Arabia over a large number of PAC-3 missile orders. (Reporting by Andrea Shalal; Editing by Lisa Shumaker)

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