After reshaping, Lockheed still considering cuts, acquisitions

May 29, 2011

After significantly reducing its employee count and consolidating facilities, Bethesda-based contracting giant Lockheed Martin is not ruling out further cuts.

Chief executive Robert J. Stevens said last week that the company has gone from 146,000 employees two years ago to 126,000 today. Through a buyout program launched last summer, it has reduced its roll of senior executives by 600, or about 26 percent.

The employee count “may well continue to decline,” Stevens said during a media breakfast last week.

Anticipating shrinking government demand, contractors have been changing their organizational structures and buying and selling businesses in pursuit of a lean organization and a portfolio aligned with government priorities.

Stevens last week said some of Lockheed’s moves have already yielded significant savings. For instance, the buyout program for executives is expected to reduce net costs by $350 million in the first five years and about $105 million each year after, he said.

A recent consolidation that closed an Eagan, Minn., facility and relocated work from a Middle River, Md., site is expected to lower costs by about $160 million, he added.

“We were well within the parameters of judgment that said now is the time to get leaner and to take more definitive action,” Stevens said of the cuts and consolidations the company has undertaken. “Our sense is we’re going to need to continue to make adaptations in this business.”

In an interview, he expressed confidence in Lockheed’s remaining lines of business, arguing that the company is well positioned to pursue burgeoning markets such as health information technology, cybersecurity and energy. In recent months, some contractors have bought smaller companies with specialties in these areas.

“We’re pleased with our core business, although we know we have to work harder to get that core business to perform better,” he said.

Last year, Lockheed undertook its own reshaping efforts. The contractor put up for sale most of its Enterprise Integration Group (EIG) and Pacific Architects and Engineers (PAE), two units within its Information Systems and Global Services business.

EIG, which provides systems engineering and integration services, posed potential conflict-of-interest concerns with Lockheed’s units that build products. The company said PAE, which supports operations at facilities such as embassies and base camps, didn’t fit with its strategy.

Lockheed is moving cautiously as it explores potential acquisitions; Stevens said he prefers to grow the company’s business organically.

“We do have an interest, but not at any price,” he said. “The value proposition has to be good.”

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