Lockheed Martin beginning to feel impact of pandemic

by

WASHINGTON — Lockheed Martin says it is starting to feel the effects of the coronavirus pandemic across all of its business units, including space, as its suppliers encounter difficulties.

The aerospace giant, in its first quarter financial results released April 21, said that the pandemic “did not have a material impact” on the company’s results that quarter, which ended March 29. However, the company acknowledged that, as the financial effects of the pandemic extend and deepen, it is starting to see effects, particularly in its supply chain.

“We are beginning to experience some issues in each of our business areas related to the coronavirus, primarily in access to some locations and delays of supplier deliveries,” said Marillyn Hewson, chairman, president and chief executive of the company, in an earnings call.

Ken Possenriede, executive vice president and chief financial officer of Lockheed Martin, said the impact on the company’s space division was relatively limited. To maintain proper distancing, he said shifts of those workers who still need to come to company facilities are being staggered. “It is impacting some of their classified programs, but we seem to be doing a nice job working around that,” he said.

Another factor is that the programs in the company’s space division have long production cycles and low volumes compared to other parts of the company. “Any issues that they would see in the supply chain or at our facilities, they feel they could contain,” he said. “It is low volume, certainly relative to the F-35 production line.”

The company’s aeronautics division, which includes work on the F-35 fighter, is feeling a larger impact from the pandemic, Possenriede said, because of greater supply chain disruption. The company reduced its projected net sales for 2020 by $375 million because of the effects of the pandemic on its aeronautics division, but did not decrease its sales projections for space or guidance for overall company profit in 2020.

The pandemic has caused some other issues, he said. They include restrictions on travel and access to some sites as well as “absenteeism impacts” for the company’s workforce.

While some companies have laid off or furloughed employees, Hewson said that Lockheed is continuing to hire new employees. The company has hired nearly 1,000 new employees in the last few weeks, with 5,000 open positions across the company.

Possenriede said the company expects — or at least hopes — the worst of the pandemic and its economic fallout will be over in the next few months. “Our current expectation is that the next few months will be the peak of disruption as the country and the rest of the world looks to successfully flatten the curve and move forward,” he said.

“We’re hoping that the curve starts flattening in the second quarter, end of second quarter,” he added later, “and we get to some kind of semblance of business as usual, whatever that is, starting in the third quarter.”

Lockheed’s space unit recorded an operating profit of $281 million in the first quarter of 2020, down from $334 million in the first quarter of 2019. The company said lower risk retirements for government satellite programs, as well as a $35 million drop in earnings from its stake in United Launch Alliance, caused the decline in profits.

The space unit’s net sales, though, rose from $2.64 billion in the first quarter of 2019 to $2.917 billion in the first quarter of 2020. The company credited the increase to government satellite programs, such as work on a next-generation missile warning satellite, as well as hypersonic and other missile work.