Following an impressive string of successes during the competitive phase of the U.S. government’s satellite fleet recapitalization effort, Lockheed Martin Space Systems finds itself in the position of unofficial guardian of the so-called programs of record.
Many of these programs, including the Space Based Infrared System (SBIRS) for missile warning and the Advanced Extremely High Frequency (AEHF) secure communications satellites, represent nonnegotiable national security capabilities and thus are relatively safe even in an era of declining federal budgets.
But even AEHF and SBIRS are not necessarily immune from the across-the-board budget cuts known as the sequester, whose bite out of U.S. Defense Department spending this year is about 8 percent. Cuts of that magnitude could force production delays on some programs barring a congressionally approved reprogramming of funds.
Longer term, the U.S. Air Force is examining alternative approaches to fielding space capabilities, such as disaggregation, which refers to breaking up the payload sets on large satellites and flying them separately on smaller craft. One of the missions frequently mentioned in disaggregation discussions is AEHF, whose payload supplier, Northrop Grumman, is keen to make some of that system’s capabilities available as a separate offering.
Rick Ambrose, who took charge of Lockheed Martin’s space business early this year, says he’d prefer to stay the current course on programs like AEHF, but that the company is prepared to compete should the Air Force take things in a different direction. He also said Lockheed Martin is finding cost-saving efficiencies as its big programs move from development to production.
Ambrose spoke recently with SpaceNews editor Warren Ferster.
How is sequestration affecting your portfolio?
We’re not making any changes until we actually see which programs will be affected and what direction will come from customers. Now with that said, we are doing everything we can to reduce costs and be more efficient on the program execution.
Can you give me an example?
We’ve been really driving infrastructure costs down. By 2016 we’ll have taken out 1.5 million square feet [about 140,000 square meters]. We’re getting more productive, more automation in our systems, so that saves about $30 million a year.
In Sunnyvale, Calif., there’s one building we’ll have idle this year; we consolidated because we’re getting more efficient, so we don’t need the space and we’ll dispose of that building at the right time. We’ve probably taken out over $300 million in overhead in the last three years.
As programs mature and we move into production we streamline processes, like with SBIRS. Now that you’re in this production run, you can do those things because we’re through the tough development part of the programs.
Is Lockheed Martin Space Systems stable in terms of employment?
In general, our forecast is to be pretty stable. Pretty flat — we call it flat-ish — barring any sequestration move or major program change.
We’re always dealing with specific skill mix issues. We’re moving to more production and it’s real important that we have work and retain that critical development staff. We’re trying to drive that through innovation.
First-tier innovation is around affordability and driving our recurring costs down and second-tier innovation would be mission enhancements as we work with the various customers.
What keeps a talented engineer around as programs move from development to production?
What’s really interesting is our planetary work. We’re about ready to deliver the Interface Region Imaging Spectrograph vehicle, which is a solar mission that’s going to launch on a Pegasus. And the beauty of those is their very fast cycle. So with two-, three-year cycles, we can have young engineers get the full spectrum from design, development to launch experience very quickly.
There’s still a lot of demand in our national systems like the SBIRS and AEHF as we look at maintaining that critical capability yet drive affordability. It usually means looking at the designs a little differently to keep them engaged.
Your predecessor expressed concerns about the health of your supply chain. What’s your assessment?
There’s still a concern. We see a lot of movement: acquisition and mergers; some suppliers just outright relocate some of their operations and then we worry about the skills. So we have hundreds of people deployed throughout the supply chain — technical, business and subcontracts people to assure delivery and do early detection when there’s stress in the supply chain.
There are cases where we’ve gone in with a competitor and shored up a company on low-level parts like isolators. Boeing has GPS 2F, we have GPS 3, so we’re actually teamed up. We had some issues so we jointly went out and worked a second source, so now we have two sources.
What are your thoughts about disaggregating AEHF?
I would say that we would have to execute the AEHF program, make sure we do not gap that critical protected communications capability.
I did see that our partner has offered up lower-cost alternatives and I do look forward to them giving me that cost advantage as I negotiate the follow-on satellites. If they can do 80 percent of the mission at such a low cost, then I look forward to getting my phone call with a price reduction on my core program. You’ve got to have a little fun with this, too.
We want to honor our partnerships obviously because of the mission importance, but once the government makes a decision which path they’re going to go, we’re going to compete and we’re going to compete very aggressively.
Can Lockheed Martin build protected communications payloads?
Absolutely. We’d probably prefer to maintain the current path but if the government disaggregates, we’ll make the shift we need to make.
What are your expectations for the Athena small rocket, which you brought back to the market a few years ago but have yet to sell?
We only see one or two potential sales a year on average and it doesn’t cost us a whole lot to sustain where we’re at right now. The beauty of the breadth and depth of the space organization here is we can flex to those kinds of things back and forth across our different programs.
With government spending declining, are you redoubling efforts to win commercial satellite contracts?
Last year we stood up commercial ventures to make sure we had the right focus, not just in commercial satellites but in any type of commercial opportunities. We do have bids in and we’re looking at other competitions that are coming up.
We have every intention of competing but we’re going to be selective based on where we can add differential value. We want to go after programs where there’s some strong technology needed in the communications side. Some procurements play to our strengths and other ones don’t.
Have you set goals for the number of commercial satellite orders you’d like to win each year?
I’d say two or three per year is what we’d like to see. We still want to be selective but we see a major move in the commercial market with some of the push to Ka-band services. That creates opportunities.
What are your overall expectations for the business over the next five years?
I’ll give you three. The next three years we’ve forecast relatively flat-ish. We are going to be driving on some new opportunities to enhance the portfolio.
In missile defense we clearly see demand for the Theater High Altitude Area Defense system and international opportunities in the Middle East and Asia, and then we’re pushing some of the commercial satellite opportunities.
Do you view missile defense as a growth area?
I want to be careful about characterizing growth. With a big portfolio things are up and down — that’s why we say flat-ish. But if you look at the world right now and look at world events, clearly a lot of folks are interested in missile defense around the globe.
What percentage of your portfolio would you say is missile defense related?
If you bunch strategic missiles and missile defense together, it’s probably about 20 percent.
How is the rest of your portfolio divided?
We blend it in three ways. Strategic missiles is there at 20 percent; then we do national security space; and then we do what we call civil. So civil would probably be about 25 percent and then the remainder is national security space.