With a White House proposal to spend a massive amount on defense next year in what one consultant called an “eye-watering” budget for the defense industry, Lockheed, the world’s largest defense contractor, could get even more.
Over the past decade, Bethesda-based Lockheed, which employs 100,000 people across the globe, has averaged about $38 billion a year in federal sales, a reign during which, year after year, Lockheed has received more federal money than any other corporation.
Boeing is in second place with annual sales of $26.5 billion in 2016, a year in which the top five defense contractors — including General Dynamics, Raytheon and Northrop Grumman — had total sales of nearly $110 billion to the U.S. government, according to federal procurement data. The five biggest defense contractors took in more money from the U.S. government than the next 30 companies combined.
But no one can touch Lockheed, the manufacturer of the F-35 Joint Strike Fighter. The company is so big that some have likened it to a government agency and have quipped that Marillyn Hewson, Lockheed’s chief executive, is as powerful as a Cabinet secretary — or higher. When she gives her annual state of the company speeches, flanked by a pair of flags — one American, one with the company logo — she looks, well, presidential.
Over the past year, Lockheed’s stock price has jumped 36 percent to close Thursday at $361. Over the past five years, it’s up 300 percent. Boeing’s stock has doubled over the past year, driven in large part by increased demand for commercial airplanes.
Now, President Trump has opened the floodgates for defense spending, proposing $716 billion for the Pentagon, a 13 percent increase. And the defense industry is poised to profit, with Lockheed in the lead.
“Diplomacy is out; airstrikes are in,” said Richard Aboulafia, an aerospace consultant with the Teal Group. “In this sort of environment, it’s tough to keep a lid on costs. If demand goes up, prices don’t generally come down. And, of course, it’s virtually impossible to kill stuff. You don’t have to make any kind of tough choices when there’s such a rising tide. Warren Buffett always said, ‘When the tide goes out, you see who is swimming naked.’ Well, this is the reverse of that.”
In 2013, Marine Corps Gen. Jim Mattis, now the secretary of defense, told Congress, “If you don’t fully fund the State Department, then I need to buy more ammunition.” As journalist Fred Kaplan noted in Slate, the Trump administration’s budget calls for a more than 25 percent increase in spending on missiles and munitions and a 26 percent cut to the State Department’s funding.
Jim McAleese, a consultant and analyst, covered the “ ‘Wow!’ moments from the 2019 DoD budget roll-out” in a recent note. Among them: Navy shipbuilding “hits juicy” $22 billion, he wrote; Navy aircraft “spiked” to $19 billion; and the nuclear triad “drove the majority of development ‘winners,’ ” he wrote, which included funding for the B-21 bomber, the Columbia-class submarine and missile defense programs.
The Pentagon wants to buy more Super Hornet fighter jets, a boon for Boeing. But in the history of defense programs, there has been nothing like the Lockheed Martin F-35 Joint Strike Fighter. Over its projected 60-year life span, it’s expected to cost more than $1 trillion, making it the most expensive weapons program in the history of the Defense Department. As production has ramped up, sales of the stealthy fighter jet have continued to climb. Last year, Lockheed delivered 66 jets to U.S. and international customers, and this year, that number is expected to grow to 90.
The company is also building the Orion spacecraft for NASA, for which the White House has budgeted $5.6 billion over the next five years.
There’s so much money that when the Pentagon decided last year that it needed a new long-range missile, it chose not one but two companies to develop it. It awarded $900 million contracts — each more than the entire budget of the Small Business Administration — to Lockheed and Raytheon to develop the next Long-Range Standoff Missile, designed to deliver a nuclear warhead from a B-21 or B-2 bomber.
But ultimately, the Pentagon plans to select only one missile in a winner-take-all contract that could be worth as much as $10 billion. The loser? It would walk away with its $900 million consolation prize, leaving the Pentagon with missile technology that may never be used.
The top defense firms have gotten so large in recent years that in 2015, the Pentagon’s chief weapons buyer issued an unusually strong statement warning against further consolidation in the industry.
Frank Kendall, then the undersecretary of defense for acquisition, technology and logistics, said he feared a future in which the Pentagon “has at most two or three very large suppliers for all the major weapons systems that we acquire.”