Create and Deliver Superior Products Through Innovative Minds

Solutions

Missions Technology

Skunk Works – Solution Provider

Approved for Public Release

© 2009 Lockheed Martin Corporation

Create and Deliver Superior Products Through Innovative Minds

Solutions

Missions Technology

Skunk Works – Solution Provider

2

Trends & Challenges

– Declining Support for Defense Spending

– Defense Budgets - Product Implications

– Globalization of the Supplier Base

– Aversion to Risk

– Future Shortage of Skilled Workers?

Dynamic industry requires dynamic response

3

A&D Economic Contributions

(AIA, Bureau of Labor Statistics, National Science Foundation)

Keeping America Competitive

around the Globe

7

8

9

10

11

12

13

14

94 96 98 00 02 04 06 08

Milit

ary

Aero

sp

ace E

xp

ort

s M

($B

)

Billions in Defense Exports

Providing Quality Employment

0

5

10

15

20

25

30

Pro

du

cti

on

Wo

rkers

:

Av

era

ge H

ou

rly E

arn

ing

s (

08$)

11

16 18

19 20

21 22

30 Competitive Compensation

0

200

400

600

800

1000

1200

91 94 97 00 03 06 09

Aero

sp

ace W

ork

ers

(th

ou

san

ds)

Hundreds of Thousands of Jobs

• Aerospace R&D Investment 13.3% of Sales

Versus 2.9% Industry Average

• Average Aerospace Compensation $38K

per year with A&D at $62K per year

• Significant Pressure for Global Suppliers

Fueled by Many Factors, Wages Being One

4

10%

20%

30%

40%

50%

60%

70%

80%

90%

1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

DoD Budget as % of Total Federal Budget 1940-2011 (DOD)

Source: National Defense Budget Estimates for FY2011, Office of the Undersecretary of Defense (Comptroller), March 2010

Defense Investment as a Percentage of

Total Federal Budget

Cold War Vietnam Korea GWOT WW 2

XP-5Y

A-2D

XC-120

F-4D

F-8H

B-52

A-3D

X-3

S-2F

X-2

F-10F

F-100

F-2Y

B-57

F-102

R-3Y1

F-104

A-4D

B-66

F-11F

C-130

F-101

T-37

XF-Y

F-8U

F-6M1

U-2

SY-3

F-105

X-13

C-133

F-107

B-58

F-106

X-14

F-5D

C-140

T-2

F-4

A-5

T-39

T-38

AQ-1

X-15

F-5A

X-1B

A-6

B-52

SR-71

SC-4A

X-21

X-19

C-141

B-70

F-14

C-5

S-8

YA-9

A-10

F-15

F-18

F-117

F-20

X-29

C-5B

F-22EMD

YF-22

YF-23

JSF X-32

JSF X-35

C-17

JSF-SDD

UCAV

JCA

K-CX ?

NGB ?

XC-142

F-111

A-7

OV-10

X-22

X-26B

X-5A

X-24

T-46

T-45

B-2

V-22

YF-17

B-1

YC-15

YC-14

AV-8B

F/A-18

Average %

Korea 35.3

Vietnam 46.2

Cold War 38.9

GWOT 18.3

5

0%

5%

10%

15%

20%

25%

30%

35%

40%

1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

DoD Budget as % of GDP 1940-2009 (DOD)

Cold War Vietnam Korea GWOT WW 2

Defense Investment as a Percentage of

Gross Domestic Product

XP-5Y

A-2D

XC-120

F-4D

F-8H

B-52

A-3D

X-3

S-2F

X-2

F-10F

F-100

F-2Y

B-57

F-102

R-3Y1

F-104

A-4D

B-66

F-11F

C-130

F-101

T-37

XF-Y

F-8U

F-6M1

U-2

SY-3

F-105

X-13

C-133

F-107

B-58

F-106

X-14

F-5D

C-140

T-2

F-4

A-5

T-39

T-38

AQ-1

X-15

F-5A

X-1B

A-6

B-52

SR-71

SC-4A

X-21

X-19

C-141

B-70

F-14

C-5

S-8

YA-9

A-10

F-15

F-18

F-117

F-20

X-29

C-5B

F-22EMD

YF-22

YF-23

JSF X-32

JSF X-35

C-17

JSF-SDD

UCAV

JCA

K-CX ?

NGB ?

XC-142

F-111

A-7

OV-10

X-22

X-26B

X-5A

X-24

T-46

T-45

B-2

V-22

YF-17

B-1

YC-15

YC-14

AV-8B

F/A-18

Average %

Korea 6.7

Vietnam 8.3

Cold War 7.4

GWOT 3.8

Source: National Defense Budget Estimates for FY2011, Office of the Undersecretary of Defense (Comptroller), March 2010

6

Defense Investment Implications – Industry

Consolidation

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2007 2008

LOCKHEED MARTIN Lockheed

GD Ft. Worth

Martin Marietta GE Aerospace

GD Space

Loral

LTV Missiles

IBM Federal

Comsat

SAVI

PAE

Acculight

Unitech

ACS

Northrop

Grumman

Westinghouse

Logicon

Litton

Newport News

TRW

Essex 3001 Int’l Raytheon

BAe Corporate Jets

E-Systems

GM-Hughes

GD Missiles

Texas Instruments

Boeing Australia Flight Options

Sarcos Research SI Govt

Boeing

Rockwell

McDonnell Douglas

Hughes S&C

Aviall

Insitu General Dynamics

GulfStream

Motorola IISG

GM Defense

Veridian

United Defense

Anteon & FCBS

SNC

Jet Aviation Group

NORTHROP GRUMMAN

RAYTHEON

BOEING

GENERAL DYNAMICS

Reduced Demand - Reshaped the Primes

7

• Typically primes perform 30% of work

content

• Critical systems and materials

suppliers

• Companies in all 50 states & worldwide

• Includes small, disadvantaged and

minority-owned businesses

• Experience base across industry being

lost at an alarming rate

• Cost concerns have reduced capability Lower-Tier

Suppliers

Sub-Primes &

Systems Partners

Global Primes

A&D Industry Make-Up

Globalization Has Significantly Changed Supplier Landscape

8

The Challenge of People

1950’s 1960’s 1970’s 1980’s 1990’s 2000’s 2010’s 2020’s 2030’s

XP-5y

A-2D

XC-120

F-4D

F-3H

B-52

A-3D

X-3

S-2F

X-2

F-10F

F-2Y

F-100

B-57

F-102

R-3Y1

F-104

A4D

B-66

F-11F

C-130

F-101

T-37

A-6

B-52

SR-71

SC-4A

X-21

X-19

C-141

B-70

XC-142

F-111

A-7

OV-10

X-22

X-26B

X-5A

X-24

F-14

S-8

YA-9

A-10

F-15

F-18

YF-17

B-1

YC-15

YC-14

AV-8B

F/A-18

F-117

F-20

X-29

T-46

T-45

B-2

V-22

F-22 EMD

YF-22

YF-23

JSF X-36

JSF X-37

C-17

F-18 E/F

JSF EMD

UCAV

F-22

F-35

UCLASS? F-35

40 Year Career Span – Multi Starts

Multi Program Experience

6+ Program Experience

Retired

Retired

Retired

1-2 Program Experience Close to Retirement

1 Program Experience Very Few

XF-Y

F-8U

F-6M1

U-2

SY-3

F-105

X-13

C-133

F-107

B-58

F-106

F-5D

X-14

C-140

T-2

F-4

A-5

T-39

T-38

AQ-1

X-15

F-5A

X-1B

Declining Experience Levels in Military Aircraft Programs

(Vertical Bars: Military Aircraft Programs Starts, Horizontal Bars: Typical 40 Year Career Span

B-X

The Next Gen Engineer

9

LM Aero Engineering Workforce

Age

0

200

400

600

800

1000

1200

1400

1600

1800

2000

0 - 25 25 - 30 30 - 35 35 - 40 40 - 45 45 - 50 50 - 55 55 - 60 60 - 65 65 -

Age Distribution

Chief Eng

Test Labs

Flight Ops

Signature Tech

Airframe Design

Avionics

Air Vehicle Science

Software Engr

Systems Engr

Process & Tools

Engr Integ Stff

Engr VP

Eligible for Retirement: 15.2%

and Growing

10

Mathematics Scores

1973 1996 1999 2004 2008 1990 1992 1994 1978 1982 1986

9 yr olds

13 yr olds

17 yr olds

Average mathematics scale scores on the long-term trend

National Assessment of Education Progress (NAEP), by age

Original Assessment format Revised Assessment format

Scores of High School Graduates in Math Have Remained Relatively Flat

Source: U.S. Depart. of Education

Test

Based

on

a S

co

re o

f 500

500

325

250

225

200

300

275

Create and Deliver Superior Products Through Innovative Minds

Solutions

Missions Technology

Skunk Works – Solution Provider

Approved for Public Release

© 2009 Lockheed Martin Corporation

Create and Deliver Superior Products Through Innovative Minds

Solutions

Missions Technology

12

Back up

13

A Shrinking Pool of Skilled Labor?

As the A&D Workforce

is Expected to Decline

(Aviation Week)

0%

5%

10%

15%

20%

25%

30%

Engineering Research &

Development

Manufacturing

Labor

Program

Management

Eli

gib

le t

o R

eti

re

Workforce Eligible to Retire by 2013

Workforce Age Distribution

Under 35

35-49

Over 50

38%

39%

23%

New Science & Engineering Talent

(Department of Education)

Science and Engineering as % of Total U.S.

Undergraduate Degrees

6%

7%

8%

9%

10%

11%

89 92 95 98 01 04 07

Declining Popularity of Science and

Engineering Among Undergraduates

A&D Workforce Dilemma