By Marjorie Censer
Capital Business Staff Writer
Wednesday, September 8, 2010; 10:24 PM
Bethesda-based contracting giant Lockheed Martin announced Wednesday that more than 600 executives have taken the company up on an early-exit program that provides financial incentives in exchange for leaving.
The total represents about 25 percent of all company executives and follows Lockheed's move to cut its workforce of 136,000 worldwide by about 10,000 since the beginning of last year.
The initiative - which sends top Lockheed employees into the job market and potentially into the offices of competitors - reflects a much larger shift underway as defense contractors scramble to prepare for Pentagon budget cuts. Even during a recession that hit hard in many parts of the country, these contractors have been buoyed by urgent needs for equipment and services for troops in Iraq and Afghanistan.
But in recent months, Defense Secretary Robert M. Gates has called on the Defense Department and its contractors to become more efficient and cost-conscious. Scaled-back operations abroad and an increasingly large federal deficit have only made more real to contractors the threat of reduced spending.
"The defense industry has gotten the message that the years of big budget increases are over," said Loren Thompson, a defense industry consultant at the Lexington Institute. "This is not about posturing. This is about fundamental reorganization in anticipation of softening demand."
Some companies have announced organizational changes. BAE Systems, which headquarters its U.S. business in Arlington County, restructured its company from 10 lines of business into five sectors this summer, while ITT Defense and Information Solutions in McLean consolidated seven business units into three and reduced its staff by about 1,000 early this year.
More recently, Boeing, which bases its defense operations in St. Louis, announced Tuesday that it will consolidate its six military aircraft divisions into four as of Oct. 1. As a result, the company said, it will reduce its workforce, starting with about 10 percent of its executive positions.
Lockheed itself has moved to divest two business units and cut in half its participation at this summer's Farnborough International Airshow, a major aerospace industry exhibition in England.
"I think that we're really at the beginning of this," said Todd Harrison, a defense analyst with the Center for Strategic and Budgetary Assessments. Contractors "are trying to get ahead of the curve in the sense that they're going to get leaner and more efficient."
Some of the 600 departing Lockheed executives might not necessarily leave. Lockheed spokesman Jeffery Adams said the company reserves the right to rescind the buyout offer in cases of "extenuating circumstances or severe program impacts."
In its announcement, Lockheed said the program will provide substantial savings in 2011 and in future years, but Adams did not identify how much.
Some executives have already left, but the final deadline for departing is February, according to Adams. He declined to identify any particular executives who will exit.
"We're grateful to the executives who will be leaving, because we built this corporation on their leadership and dedicated service," Robert J. Stevens, Lockheed Martin's chairman and chief executive, said in a statement.