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Ending fiscal uncertainty would boost economy: Lockheed CEO

CEO of Lockheed Martin Robert J. Stevens addresses a business roundtable discussion at the Reuters bureau in Washington, December 13, 2012.
CEO of Lockheed Martin Robert J. Stevens addresses a business roundtable discussion at the Reuters bureau in Washington, December 13, 2012.

By Andrea Shalal-Esa and David Alexander

WASHINGTON (Reuters) - The United States is poised for strong economic growth if political leaders can just move the nation beyond the current "debilitating" budget uncertainty, the chief executive and chairman of Lockheed Martin Corp said on Thursday.

"I see an enormous opportunity for the country to step forward with a more positive growth agenda if we can get resolution for these policy issues," Robert Stevens said, citing promising trends in manufacturing, housing, the energy sector and even consumer sentiment.

Stevens and Marillyn Hewson, Lockheed's president and chief operating officer, spoke with Reuters in wide-ranging interview that also touched on the company's drive to pump up foreign arms sales at a time that U.S. military spending looks set to flatten after a decade of growth.

"Getting a resolution for the fiscal cliff issues takes away a huge amount of uncertainty," said Stevens, who will retire at the end of this month as CEO of Lockheed, the biggest U.S. weapons maker.

He called for a balanced solution that included spending cuts, comprehensive tax reform and additional revenue, but said Washington also needed to tackle immigration reform and the nation's troubled educational system.

Lockheed, which reported revenue of $46.5 billion last year, is the prime contractor for the Pentagon's biggest weapons program, the $396 billion F-35 Joint Strike Fighter. It also builds F-16 fighter jets, a broad array of missile defense systems and a new class of coastal warships.

Stevens said his company and others were upbeat about America's future but were holding back on investment, hiring and acquisitions because of what he called "compounding uncertainties" about future tax rates and U.S. budget levels.

"If you could create the climate to unlock some of that liquidity you'd see ... stimulative effect from the business community moving forward," he said.

Stevens and other defense industry executives have been speaking out for the past year against automatic, across-the-board budget cuts that would strip $500 billion from projected Pentagon spending levels over the next decade, on top of $487 billion in cuts already scheduled for that period.

He said some further reductions in defense spending may be necessary but that the Pentagon should be allowed to determine which accounts to trim, rather than face the indiscriminate cuts that are now slated to go into effect on January 2 under the process known as "sequestration."

Stevens called those cuts "a very blunt instrument" that would result in broken contracts and layoffs, while undermining U.S. national security and global cooperation agreements.

The budget cuts, together with steep tax increases, are popularly known as the "fiscal cliff."

A Business Roundtable survey published Wednesday showed U.S. chief executives' view of the domestic economy hit a three-year low in the fourth quarter, with fiscal cliff concerns holding back decisions on hiring and capital spending.

Stevens said the automatic budget cuts could lead to furloughs of air traffic controllers, FBI agents and border patrol officers in addition to military program cuts, although it now appeared clear that main impact would not be felt for 90 days or longer - more a slope than a cliff.

Stevens and Hewson, who will succeed Stevens as CEO on January 1, declined to predict whether Congress and President Barack Obama would reach an agreement before the end of the year.

Shares of Lockheed and other arms makers on Thursday fell amid growing concerns that Congress and the White House will not reach a deal before year end. Lockheed shares closed down $1.82, or 2 percent, at $89.99 in trading on the New York Stock Exchange.

Hewson said Lockheed had been preparing for a downturn in U.S. defense spending for the past three years by cutting its workforce from more than 146,000 to around 120,000, streamlining operations, and eliminating 2 million square feet of facilities, with 2.9 million more square feet to be cut by the end of 2014.

She said the company had been "very proactive" in cutting overhead costs, while investing in new materials and processes to reduce the cost of weapons systems, and that would continue.

"Whether there is or is not sequestration, affordability will be a constant theme. We have to get more out of the investments to ensure our security," Stevens added.

He said the Pentagon and its suppliers faced particular challenges in the current budget environment given the long-term nature of developing and buying weapons systems such as the F-35 Joint Strike Fighter, warships and missile defense equipment.

"Our product cycles, our service cycles, our levels of commitment, they go out decades," Stevens said. "We're here today a business that has decades in our planning horizon and a visibility of less than 20 days because in 20 days we don't know if sequestration is going to take place or not."

Hewson said Lockheed, which is also the largest information technology provider for the U.S. government, was poised for continued modest growth despite the difficult environment, citing good prospects for future foreign arms sales and growth in areas such as cyber, space and healthcare IT.

"We do see continued growth," she said, although the trajectory would not equal that since the September 11, 2001, hijacking attacks.

(Reporting By Andrea Shalal-Esa; Editing by Ros Krasny and Steve Orlofsky)

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