Lockheed Martin Deep Dive

Welcome to the 85th Pari Passu newsletter.

After diving into the technical topic of Special Purpose Entities last week, today we are going to be exploring Lockheed Martin to understand what made the company the aerospace, defense, and security giant it is today.

Since Lockheed’s founding in 1926 by brothers Allan and Malcolm Lockheed in 1926, the company has been a pivotal player in shaping American history through its various aerospace, defense, and security projects. Following the merger of Lockheed and Martin Marietta in 1995, Lockheed Martin has since become the world’s largest defense contractor, a leader in innovation and engineering, and a key partner of the U.S. government and its allies.

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Overview –  The Aerospace & Defense Industry

To understand Lockheed Martin, we need a basic understanding of the industry it operates in. The aerospace and defense industry is an ever-evolving sector encompassing the design, development, production, testing, and maintenance of a wide array of products and systems. It serves both civilian and military purposes and is divided into two primary segments: aerospace and defense.

Aerospace Segment

The aerospace segment further comprises various subsegments:

• Commercial Aviation: This subsegment encompasses the manufacturers and operators of passenger and cargo aircraft. Prominent companies in this sector include Boeing, Airbus, and Embraer. They produce the airliners that transport millions of people and goods across the globe.

• Business Aviation: Business aviation involves private jets and corporate aircraft used for executive travel. Key players include Gulfstream, Bombardier, Dassault, and Textron, which cater to the needs of corporate clients.

• General Aviation: General aviation focuses on small planes, helicopters, and drones. Companies like Cessna, Bell, and DJI contribute to recreational flying, agriculture, surveillance, and various other applications.

Defense Segment

The defense segment is equally diverse, encompassing several subsegments:

• Military Aviation: Manufacturers like Lockheed Martin, Raytheon, Northrop Grumman, and BAE Systems are pivotal in producing fighter jets, bombers, transport aircraft, and helicopters for armed forces worldwide.

• Naval: This subsegment is dedicated to the manufacture and operation of ships, submarines, and naval weapons for the Navy. Key players include General Dynamics, Huntington Ingalls, and Naval Group.

• Land: Companies such as Rheinmetall, Leonardo, and Oshkosh are involved in producing tanks, armored vehicles, artillery, and land weapons for ground-based military operations.

• Space: The space subsegment caters to both military and civilian space agencies. SpaceX, Blue Origin, and NASA are at the forefront of manufacturing satellites, rockets, and spacecraft, advancing our exploration of the cosmos.

• Cyber: Providers like Leidos, Booz Allen Hamilton, and Palantir offer critical cybersecurity, information technology, and intelligence services to enhance the defense and security sectors' capabilities in the digital realm.

Key Influencing Factors

Several factors shape the dynamics of the aerospace and defense industry:

• Globalization and Interconnectivity: The industry is highly globalized and interconnected, with companies operating across multiple regions and countries. They collaborate and compete, serving diverse customers and stakeholders.

• Cyclical and Volatile Nature: The industry is highly cyclical and volatile, with fluctuations in demand and profitability depending on business cycles, travel patterns, and geopolitical events.

• Regulation and Scrutiny: The industry is highly regulated and scrutinized, with strict compliance, accountability, ethical and social responsibility, and environmental and sustainability considerations. This is crucial to ensure safety, security, quality, protect national interests, and address public concerns.

To summarize, the aerospace and defense industry is a multifaceted and highly regulated sector. The industry's globalized and interconnected nature, cyclical volatility, innovation, and competitiveness, along with strict regulation and scrutiny, all contribute to its complexity and significance in the world economy.

History – Founding

Lockheed Corporation, founded in 1912 by Allan and Malcolm Lockheed, emerged as a trailblazer in the aviation industry. Inspired by the Wright brothers, they established the Alco Hydro-Aeroplane Company in Santa Barbara in 1910, which later became known as the Lockheed Aircraft Company.

Their early achievements included the creation of the Model G seaplane, capable of carrying four passengers and reaching speeds of up to 60 miles per hour. Additionally, Malcolm’s contributions to automotive technology, particularly the invention of the modern hydraulic brake system, marked their versatility and ingenuity.

However, the advent of the Great Depression brought significant challenges. In 1929, they sold their company to the Detroit Aircraft Corporation, which unfortunately went bankrupt in 1932. Recognizing the untapped potential of Lockheed, Robert Gross, along with Courtlandt and Richard von Hake, acquired the company for $40,000, a decision that would prove pivotal in its future development.

During World War II, Lockheed Corporation, under the leadership of the Gross brothers, significantly ramped up its production capabilities to meet wartime demands.

They produced the P-38 Lightning, a fighter plane celebrated for its distinctive design and formidable power. This aircraft played a crucial role in several key war missions, including the significant operation that led to the downing of Admiral Isoroku Yamamoto's plane in 1943.

Another noteworthy aircraft from this period was the Electra airplane, an all-metal, twin-engine monoplane, famously used by Amelia Earhart in her 1937 circumnavigation attempt.

History – Skunk Works

Skunk Works, known formally as Lockheed Martin's Advanced Development Programs (ADP), has been an integral and highly influential division within Lockheed Martin. Renowned for its significant contributions during and after the Cold War era, Skunk Works is a hallmark of innovation and advanced technology in aerospace.

Founded during World War II by Kelly Johnson, an extraordinarily talented engineer from the University of Michigan's Engineering School, Skunk Works became synonymous with cutting-edge aerospace designs. Johnson, known for his intuitive problem-solving skills and hands-on approach, implemented a set of principles in Skunk Works that emphasized speed, agility, and minimal bureaucracy, famously known as the "Skunk Works rules” which are listed below.

• Rule 1: The Skunk Works manager must be delegated practically complete control of his program in all aspects. He should report to a division president or higher

• Rule 2: Strong but small project offices must be provided both by the military and industry

• Rule 3: The number of people having any connection with the project must be restricted in an almost vicious manner. Use a small number of good people (10% to 25% compared to the so-called normal systems)

• Rule 4: A very simple drawing and drawing release system with great flexibility for making changes must be provided

• Rule 5: There must be a minimum number of reports required, but important work must be recorded thoroughly

• Rule 6: There must be a monthly cost review covering not only what has been spent and committed but also projected costs to the conclusion of the program

• Rule 7: The contractor must be delegated and must assume more than normal responsibility to get good vendor bids for subcontract on the project. Commercial bid procedures are very often better than military ones

• Rule 8: The inspection system as currently used by the Skunk Works, which has been approved by both the Air Force and Navy, meets the intent of existing military requirements and should be used on new projects. Push more basic inspection responsibility back to subcontractors and vendors. Don't duplicate so much inspection

• Rule 9: The contractor must be delegated the authority to test his final product in flight. He can and must test it in the initial stages. If he doesn't, he rapidly loses his competency to design other vehicles

• Rule 10: The specifications applying to the hardware must be agreed to well in advance of contracting. The Skunk Works practice of having a specification section stating clearly which important military specification items will not knowingly be complied with and reasons therefore is highly recommended

• Rule 11: Funding a program must be timely so that the contractor doesn't have to keep running to the bank to support government projects

• Rule 12: There must be mutual trust between the military project organization and the contractor, the very close cooperation and liaison on a day-to-day basis. This cuts down misunderstanding and correspondence to an absolute minimum

• Rule 13: Access by outsiders to the project and its personnel must be strictly controlled by appropriate security measures

• Rule 14: Because only a few people will be used in engineering and most other areas, ways must be provided to reward good performance by pay not based on the number of personnel supervised

The division specialized in top-secret, high-priority projects, often pushing the boundaries of existing technology. Among its many groundbreaking projects, Skunk Works developed iconic aircraft like the U-2 spy plane, the SR-71 Blackbird, the F-117 Nighthawk, and the F-22 Raptor.

During the Cold War, Skunk Works played a crucial role in enhancing the United States' strategic capabilities. The U-2 spy plane, for example, was pivotal in gathering intelligence over the Soviet Union. Even after the Cold War, the division continued to lead innovations, particularly in stealth technology and high-performance aircraft.

Its ability to rapidly develop and deploy cutting-edge technology was vital during periods of geopolitical tension, especially in maintaining the balance of power during the Cold War.

The ethos and practices of Skunk Works have not only influenced Lockheed Martin but have also set new standards across the aerospace industry. Its culture of innovation, efficiency, and secrecy has become a model for project management and product development in high-stakes environments. The division's impact is also evident in its demonstration of the importance of visionary leadership in defense and aerospace, showcasing how innovative thinking and management can lead to significant technological breakthroughs.

History – The Cold War

During the Cold War, Lockheed Martin, known at the time as Lockheed Corporation, emerged as a crucial entity in the defense industry. The company's advancements in aircraft and aerospace technology played a pivotal role in maintaining the United States' strategic superiority against the Soviet Union.

One of Lockheed's most critical contributions was the development of the U-2 spy plane, an initiative of its Skunk Works division, led by renowned aeronautical engineer Kelly Johnson. The U-2 program was a direct response to the urgent need for more detailed intelligence on the Soviet Union's military capabilities, especially regarding their nuclear and missile programs.

The design and capabilities of the U-2 were groundbreaking:

• It was engineered to fly at altitudes above 70,000 feet, well out of reach of the Soviet Union's fighters and surface-to-air missiles of that era.

• Equipped with state-of-the-art cameras and sensors, the U-2 could capture high-resolution images from significant distances, revolutionizing aerial surveillance.

• Before the era of satellite technology, aerial reconnaissance was essential for intelligence gathering.

• The U-2's ability to conduct high-altitude missions over the Soviet Union and other hostile areas provided the U.S. with unparalleled insights into their military capabilities.

• This intelligence was crucial in shaping the U.S. military and foreign policy during the Cold War, greatly aiding in maintaining a balance of power.

The importance of the U-2 program was tragically highlighted on May 1, 1960. On this day, a U-2 plane piloted by Francis Gary Powers was shot down over Soviet airspace. This incident was the first of its kind, resulting in the capture of a pilot and the exposure of the U-2 program.

The fallout from this event was significant, leading to the cancellation of a critical summit between the U.S. and the Soviet Union and exacerbating the tensions of the Cold War. This event not only underscored the risks associated with aerial reconnaissance during this tense period but also highlighted the critical role such intelligence played in global politics.

On top of the U-2 program, Lockheed developed another groundbreaking project that would further cement its reputation as a defense innovator: the Polaris Submarine-Launched Ballistic Missile (SLBM) system. This initiative, undertaken by a division of Lockheed distinct from Skunk Works, was instrumental in keeping the company afloat during challenging times.

The development of the Polaris SLBM system marked a significant evolution in military strategy and technology. Submarines had been a part of warfare since World War I, but the concept of a nuclear-powered submarine equipped with intercontinental ballistic missiles was revolutionary. The key breakthrough was the ability to launch missiles from underwater, a feat that seemed almost insurmountable given the challenges of launching from a moving, submerged platform.

Lockheed's Polaris project entailed not just technical innovation but also a strategic shift in Cold War dynamics. The potential to launch nuclear missiles from undetectable locations at sea meant that the United States could maintain a credible second-strike capability. This capability was crucial for deterrence, as it ensured that even in the event of a first strike by the Soviet Union, the U.S. could still retaliate effectively.

Here are the political implications of this development:

• The deployment of nuclear-armed submarines altered the strategic balance, effectively negating the concept of a surprise first strike by the Soviet Union. This change in dynamics was a significant factor in maintaining global peace during the Cold War, as it raised the stakes of any potential nuclear confrontation.

• The Polaris system, and its successors Poseidon and Trident, demonstrated the United States' technological superiority and commitment to maintaining a strong defense posture. This display of strength played a pivotal role in diplomatic negotiations and international relations during this period.

• The success of the Polaris project also showcased Lockheed's ability to collaborate effectively with other entities, such as the U.S. Navy and various subcontractors. This collaborative effort was a testament to the company's versatility and skill in managing complex, high-stakes projects.

Lockheed's development of the Polaris system was not just a triumph of engineering; it was a strategic effort that significantly contributed to the balance of power during the Cold War.

History – Lockheed Merges with Martin

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