Meeting

CEO Speaker Series with James Taiclet of Lockheed Martin

Wednesday, January 26, 2022
Joe Raedle/Getty Images
Speaker

Chairman, President, and Chief Executive Officer, Lockheed Martin Corporation; CFR Member

Presider

Chief Executive Officer, Atlantic; CFR Member

Lockheed Martin Chairman, President, and CEO James Taiclet discusses developments in defense technology, competition between the United States and other military powers, and innovating in response to the complex global security environment.

The CEO Speaker Series is a unique forum for leading global CEOs to share their insights on issues at the center of commerce and foreign policy, and to discuss the changing role of business globally.

THOMPSON: Hello. I’m Nicholas Thompson. I’m the CEO of the Atlantic. I’ll be presiding over today’s discussion.

And it is my great honor to welcome to today’s Council on Foreign Relations CEO Speaker Series James Taiclet. He is the chairman, the president, and the CEO of Lockheed Martin. Incredible to get all three titles. He is a former fighter pilot, though I learned that he has not flown the F-35 yet because they do not have a two-seat version.

And, as always, Lockheed Martin is in the news about the anti-tank weapons that will be used—could be used in Ukraine, and they also—I learned this just talking to him in the green room—they built the infrared instrument that will be used by the Webb Telescope to see into distant space.

So very interesting man. Tons to learn today. Tons to talk about. He’ll begin with some introductory remarks, I’ll ask some questions, and then over to you.

So, please begin, James Taiclet.

TAICLET: Hey, Nick. Thank you very much. I am so pleased to be here at CFR today and appreciate you moderating the discussion.

You know, on returning to the aerospace and defense arena after spending twenty years in the telecom sector, I perceive a tremendous opportunity in front of us, and that’s to significantly enhance our national defense capabilities and our capacity to deter armed conflict by accelerating the latest digital world technologies into our U.S. and allied national defense enterprise.

I mean, I feel this effort is both urgent and essential, given the renewed era of strategic competition, primarily with China and Russia, and also the persistent regional threats that seem to come from Iran and North Korea.

Our potential adversaries, particularly China, are seeking to diminish or overcome our historical military and technical dominance so they actually look to target the weak links in our sensing, targeting, communications, command-and-control systems, specifically.

They’re also using the power of their authoritarian governments to leverage civil-military fusion, as it’s called. They’re intentionally using commercial industry to augment and enhance their military and defense establishment. And, of course, we don’t want to replicate that system of central planning and control, you know, but I do think we have to vigorously address it.

So working together, the U.S. and its allies can counter these trends by taking the very best of defense and commercial twenty-first century digital technologies and driving them into specific mission sets, we think, to continuously increase our capabilities in each mission every six to twelve months instead of just, say, the six to twelve years it takes to field a new weapon system.

So this is the paradigm of the telecom and the tech industries—using digital technologies such as AI, distributed cloud computing, 5G, et cetera, to achieve recurring periodic upgrades to products and services, and we experience that every day as consumers.

So our team at Lockheed Martin is striving to be a pathfinder for this approach in defense. We’ll continue to drive innovation and development into platforms, too, such as aircraft, satellites, and naval vessels—things that Nick already mentioned.

But, in addition, we’ve also been developing technology roadmaps for fourteen key national defense missions, some of them, such as integrated air and missile defense, naval surface warfare, and air-to-air combat, just to name a couple.

Now, each of these roadmaps inserts critical digital world and physical world technology innovations to achieve constant improvements in capability, and we’ve written these roadmaps at the SAP, or the top secret level, so we can really incorporate all of the capabilities that the country has.

We’ve identified, coincidentally, fourteen technologies, such as 5G and AI, as noted before, and we also integrate traditional defense technologies, including hypersonics, directed energy, and electronic warfare, into the roadmaps. And we’re also developing an open architecture standard called 5G.mil to enable other defense companies’ products and platforms to smoothly integrate into the fourteen roadmaps.

And, finally, we know that our industry and the DOD can’t do this alone. So we’re reaching out to the leading commercial U.S. companies in areas such as semiconductors, mobile telecommunications, cloud and advanced computing, gaming and simulation, AI, et cetera, to engage in this effort, and I’m happy to say we’ve had tremendous response from the COs of many of those companies that you would all know and already have a number of active partnerships in place.

Over the past few months, we’ve been sharing examples of these technology roadmaps with senior uniform and civilian leadership in the U.S. military services and the Department of Defense, too. We’ve also begun to draft select mission roadmaps for some of our allied customers, including Italy and the U.K., for example.

So while there’s substantial interest among our senior customers, there’s also the recognition of challenges to implementing a mission-based, you know, kind of upgrade program alongside the traditional military funding and procurement processes we have. Those historical processes are, in large part, based on long cycle development programs for hardware that I mentioned can last years or decades.

So to be successful we’ll have to match our accelerated technology innovation effort with innovation in the defense appropriations and procurement process as well, something that’ll be complex but it’s doable.

So, Nick, I’m really energized about where we are headed. I look forward to today’s discussion with you and to questions from the members who’ve joined us on this and other topics. So let’s go ahead. Thanks.

THOMPSON: Great. Well, looking at the member list, the people you need to accelerate the processes you talked about at the end. They’re right here. So persuade them away.

Let me get going. You have, you said, about four hundred and twenty-two interesting things in that—those very couple, you know, short minutes. Let me start with the first thing I flagged, which was you mentioned that China is looking for weak links in the United States defense technology.

What are those weak links? What are the areas where China has technological scientific superiority over the United States?

TAICLET: Well, just like an aircraft design, our communication command-and-control system should not have any single point of failure, as it’s called, right? So we rely heavily on sort of individual systems, I’ll call them, for really important tasks like missile launch, sensing, and then transmitting that sensor data to a command center, which can then allow us to, hopefully, track, intercept, and hit that missile before it hits our population center or our airport, et cetera.

And so what we’re trying to understand is, are there some single points of failure that can be easily exploited? And one of them is in space, right? So there’s a certain number of satellites that do these tasks. One initiative we need to take, I think, is having redundant what’s called backhaul—redundant connections from the satellite back to the command center so that if one of those connections is cut or it is sort of interfered with, hacked, whatever, we can still get the signal back.

The satellites themselves are vulnerable. So that also takes you to another area, which is redundancy. We’re actually working with the U.S. Space Force as we speak in the Department of Defense to figure out how to have redundant space capability, so multi-layers, low-orbit, mid-orbit, high-orbit, many more numerous satellites maybe doing different tasks and not putting all the tasks into one satellite, et cetera.

So there are some weak spots just in the command-and-control system that you can easily identify, and there are many others. But that’s the goal of the technology roadmap and each mission has to figure out what those weak spots are and try to fill the hole, if you will, early without waiting for a new airplane or new ship to be designed to do it.

THOMPSON: And then not only what are the weak links, which is super interesting, but also what are the areas where, by the nature of the private/government relationship, by the nature of the way technology evolves, by the nature of the way artificial intelligence works, what are the other technological areas where China moves faster than the United States?

TAICLET: Well, they move faster in many areas, including artificial intelligence, for example. The industry—the artificial intelligence industry, so to speak, in China is, like most industries, directly linked and overseen by a ministry, so to speak, and the ministers ensure that any technology development that occurs in that commercial industry, if it’s relevant to the military or defense establishment, gets pipelined over there.

So for AI, as an example, one of the most important things is data sets to do machine learning upon to figure out what the right solution sets are for your AI application. In China, for example, there are tremendous data sets because of the—you know, the surveillance system in the country provides that kind of a dataset. And so when you develop machine learning on large data sets, you could actually port that machine learning, you know, in large part to other problems and use those data sets to train the system.

So that’s one area where it’s a civil-military fusion endeavor in China’s artificial intelligence development. So I’ll just stop with one, but there—as you can imagine, there’s many.

THOMPSON: There are many, and discussing the relative balance of AI between the U.S. and China is endlessly fascinating. But I want to go to a very related question, which is, what is your personal philosophy for the role that autonomous weapons will or should play in future warfare?

Should autonomous systems, for example, just be used for defensive purposes? Should they just be used in purposes where there are very clear lines of authority and software that can explain exactly why decisions are made or should we be imagining a future where we just accept that autonomous decision-making will be absolutely central and move as quickly toward it as we can? How do you think about that issue?

TAICLET: So this is a critical issue. We actually have an artificial intelligence integrity and ethics group in our company that’s trying to sort out some of these questions. The approaches we’re taking to them, and my philosophy as well, would be humans are essential. There’s almost no mission where a human interface in our business should not be applied, right?

So there’s two ways to do that. One is called human in the loop, meaning, that—remember that sensing, communication, decision, and then command process to create a response or to launch a counter missile or to take another action. Somewhere in that sequence, and maybe more places than one, there should be a human and we design human in the loop into almost all of our semi-autonomous systems, frankly.

The other approach to this is called manned/unmanned teaming, right? So, in other words, you could have a four-ship of aircraft, three of those with no human in there but the fourth, the leader, having a human pilot, and those autonomous aircraft that are in the formation will use AI. They’ll use their own sensors. They’ll come up with recommendations for the commander or for the lead pilot, who will then be the person that causes that effect to happen or shoots the missile or unleashes the chaff to divert another missile away.

So human in the loop is one strategy to approach this and manned/unmanned teaming is the other approach. Those are the two that we rely on, in large part.

THOMPSON: And how long do you think we’ll rely on those? Because if you imagine a system where the AI is just better than the humans—it’s just smarter, it’s faster, reaction time is zero, makes errors but far fewer errors than humans—self-driving cars will be vastly safer than humans eventually, not that long.

So you have four American fighters and they’re with some adversary, and we’ve got three that are AI and one we have this dumb, slow human, and the other side has four really fast AI systems and, in fact, because they don’t have a human they don’t even need a seat so the airplane is more efficient, too. And the side with the human loses, right?

TAICLET: Well, there’s some tradeoffs there. Even if you’re fully autonomous on the other side, we might be able to interfere with your transmissions across your formation. We might be able to send a command to one of those aircraft that will then fire at its own brother aircraft or sister aircraft. So there’s hacking risks. There’s communication link risk. There’s just failure mode risk inside the system.

And so if we have a human in the loop or a manned/unmanned team, we are giving up some speed and capability for risk management, and the biggest risk we would have would be to launch a weapon in circumstances where that’s not warranted because these are lethal effects and the risk management side of this needs to have very heavy weight against the capability and the speed side of things.

THOMPSON: These are wonderful questions. If I was an employee at Lockheed Martin, I would apply to be on that advisory committee because what a fascinating and important part of the company to work on.

Let’s talk a little bit—in your introductory remarks you talked about, obviously, Lockheed Martin makes a lot of hardware. Also makes a lot of software, right? And they’re really different cultures in how software is built and how hardware is built, and in software, because you can just go in and change a line of code, the culture is, famously, move fast and break things, right? People move really quickly and they fix whatever they’ve broken. Hardware, you can’t do that, right? You make a nuclear bomb or you have a nuclear-powered sub; it has a failure mode, it’s not really good. So in a company that has to excel at both, how do you align the cultures—the culture of the software engineer and the hardware engineer?

TAICLET: So to start with, Nick, we’ve got about sixty thousand engineers and scientists in the company, about a hundred and fifteen thousand total employees. So most of the people or at least the majority in Lockheed Martin are scientists and engineers. About 20 percent of those are software engineers or software data scientists, et cetera. So we have an embedded culture.

Now, the typical task of those engineers and scientists has been to write software for the platform or for the hardware, so to speak, right? We’re in the midst of an upgrade for the F-35 in that arena at the moment. So we are very good at writing hardware—sorry, writing software for hardware.

THOMPSON: Right.

TAICLET: What we haven’t done as much of because there’s not been the demand signal from our customer is how to write system wide software, and that’s where we need the help. And so we are partnering now with—there’s three or four companies I can mention because we’ve made public announcements jointly that we’re working together.

NVIDIA is one of those, for simulation. So it simulates not only battle management situations, war games, and real action in the field on a screen that decision-makers can be more capable of, you know, of using, we’re also teaming together on the firefighting solution that, hopefully, we’ll talk more about later, because they’ve got modeling software that can show how natural phenomenon will evolve over some period of time with forecasting data.

It’s really great. So NVIDIA is one. They’re moving faster on that front, let’s say, than we probably could and they’ve got talent that we don’t have. They’ve also done R&D that we’ve never done in that space, and so what we’re trying to do is find these key partners and leverage their existing investments and talent so we don’t either have to replicate it, hire it, or spend money to develop it.

Another great partner for us has been Verizon. And you say, well, gee, Verizon’s a telephone company; what do they—they manage a very complex, heterogeneous communications network. They’ve got to route traffic, data and voice, over, you know, a fixed sort of asset set. And they also have to guard against cybersecurity in that network management function, and they have to operate at great scale and speed.

So we work with them on network management and the development of our 5G.mil standard, again, not to replicate everything they do. So we want to learn from our partners. We need to evolve in the direction that you’re suggesting. But we’re kind of cheating and getting a head start by teaming with these great companies to learn from them but also to take advantage of their speed and of the investments they’ve already made.

THOMPSON: So, for example, let me just make sure I understand this. 5G.mil, super interesting, and, presumably, to build 5G.mil you’re building an alternate 5G with better security protocols and other stuff in it. There must be hardware, right? There have to be, you know, towers and signal routers, and you guys make great hardware so you’re going to build that hardware.

There has to be software to run that hardware. You guys are confident in your ability to write the software to run the hardware. But there’s also software that operates on its own for portions of the system, and there you’re sort of less confident and more reliant on partners. Is that the way it’s broken down?

TAICLET: I think it’s a very fair way to say it, and there is a two-way street here and Hans Vestberg, a great friend from—and customer of mine from my telecom days, made a great comment on one of our summit meetings or summit Zoom calls. He said, you know, your problems are easier to solve than mine. So we want to work with you.

So, you know, tying four airplanes together is a lot easier than tying, you know, a million autonomous cars together on roads in the United States, right? So we’re actually a really good lead platform for solving cybersecurity, redundant communications, resiliency at scale for autonomous commercial applications because we don’t have as many nodes and points of failure and we have a pretty controlled environment compared to commercial industry.

So there’s a really good two-way street learning going both ways. But you’re right. When it comes to tying things together outside of our traditional systems and programs, we really welcome the help from some of our commercial colleagues.

THOMPSON: I feel almost morally obligated to try to switch the subject to the—whatever the hardest part of your business is when anybody says Lockheed Martin’s business is easy. So let’s try to—let’s see if we can find that.

Foreign military sales—I was just reading your SEC filings—a huge part of your business. Seemed, like, roughly a quarter of net revenue, an area you want to grow, but also complicated, right? You sell a lot of military hardware, F-35s to Saudi Arabia. For a while it looked like the Biden administration would put a kibosh on that. Clearly, limitations on—who knows what’s going to happen in Russia and Ukraine? Who knows exactly what the limitations will be on what you can sell Poland, which has orders for F-35s, or what you can sell Ukraine?

Explain to me how you do contingency planning in your foreign military sales.

TAICLET: So we follow the lead of the U.S. State Department of the U.S. government, who sets the policy parameters of what systems, technologies, weapons, frankly, can be sold to which country. So we work within those policy parameters and then we work with the Department of Defense to actually execute on those allowable sales.

So, first of all, we got to compete. So just because the U.S. government said, hey, Finland and Switzerland are on the F-35 go list now doesn’t mean we’re going to just start selling and producing them for those countries.

We’ve had to compete last year in both of those situations against Eurofighter and others. We ended up winning both of them, so we’re two for two in 2021. We hope there will be more countries this year.

But we have to compete. So FMS—foreign military sales—is, again, regulated but from a policy level by the State Department and from an implementation and execution level by the Department of Defense. So we’re following their lead.

However, we think and we experience, and I experienced it as a young Air Force pilot, when we are able to successfully have an allied country share the same equipment that we are using in the U.S. military, there are long-standing benefits that come with that ally.

First of all, there’s interoperability, meaning, if I’m in NATO and I took off from Italy but I had to land in Poland with my F-35, I can get a spare part to put in that plane that I need to do my next mission. So interoperability.

Also, efficiency. If we’re all using the same supply chain and there’s fourteen countries or something in the program, all the parts are cheaper. So there’s efficiency. There’s scale benefits. There’s interoperability.

But one of the other things that I saw, again, personally, was in our jet school class we had foreign students, and that was a few years ago. So some of those foreign students are generals and admirals now in those other allied militaries, and so you have this human bond because you flew the same jet or you did training in—you know, at Luke Air Force Base in Phoenix and those kinds of things.

So FMS is worth the effort. It is complex by design. It should be, because we do want to control the exports that we do as a country and so we just follow along with that. But the benefits are great. It’s worth the effort.

THOMPSON: It can’t just be that you—I mean, yes, of course, you have to follow what the State Department says, and they say you can sell to A but you can’t sell to B you got to follow the orders, right? But, you know, the State Department is going to have different people in it in four years. There’s been some major changes, if I have it correct, from Trump to Biden. You must also have really interesting scenario planning. You must have a lot of people trying to understand, OK, what is going to happen in the war in Yemen and how will that affect our ability to sell weapons systems to Saudi Arabia. You know, obviously, you can’t explain exactly what you think is going to happen to all conflicts in the world, but tell me a little bit more about how you map out future scenarios and plan for future FMS deals.

TAICLET: Well, we hope to shine a light on what the possibilities are, too. So we’re not just standing by the phone waiting for an order to be called in. You know, there are situations, and I can give you a couple of them.

One is in Australia. Australia is actually moving out on a program they call AIR6500, which is more than, I think, perhaps, anyplace in the free world a fully integrated air and missile defense system that ties into—it’s not 5G.mil, so to speak, yet but the idea is there to really tie as much as you can together—lots of redundancy in command and control, sensors providing data to other vehicles and things like that. It’s quite a comprehensive concept they have.

Now, what we’re trying to do is link what the Australians are asking for with what we think the U.S. might end up doing someday, which is what we’re proposing here, and how would we interface those over time. And so we are not just, again, standing back and hoping something positive happens for orders.

But we’re actually trying to guide what is the best answer for this, and one of the amazing capabilities the company has at Lockheed Martin that I’ve rediscovered is its own wargaming capability, right? We call it the innocent term operational analysis, which, basically, means we will wargame what we think will happen in the South China Sea or in Eastern Europe and make recommendations to the Department of Defense and the services as to how we might be able to get ahead of those potential problems.

So we’re active in this. The contingency planning is constantly happening, and we’re using that operational analysis capability to demonstrate to customers what we think might be a good solution.

THOMPSON: That makes lots and lots of sense. So let me shift. We’ve talked a little bit about complicated areas like the South China Sea. Let’s talk about maybe the most complicated area on earth, which is California.

So explain—when I was preparing for this interview one of the most surprising things was to learn that you guys are considering/getting into the firefighting business. What exactly are you doing, and how and why?

TAICLET: Sure. So we’re going to have to take some steps to get there but I’ll give you my end vision, Nick, would be that there’d be a U.S. national firefighting service, kind of a SWAT team, if you will, and that SWAT team would connect to the NOAA satellites that are overseen by the Commerce Department that do weather sensing and other satellites that we would put into place to be able to do more specific firefight—fire and heat sensing in the—predominately, the Western United States, at least, to start with.

So you link those satellites using AI, the NVIDIA engine that we’re working on, in partnership, to predict—well, first of all, sense when the conditions are right for a wildfire to begin, start moving assets in that direction, you know, whether it’s Northern California or New Mexico or whatever, before it even starts, right?

The second function that this system would have would be then once that data confirms there is an active wildfire we would use the AI engine to figure out where it’s going to spread, what kind of fuel is in the pathway, and how fast we need to get what kind of assets in place and, again, get them moving quickly—assets meaning helicopters, aircraft that can drop water, firefighters who need to get transported somewhere, et cetera.

The third benefit of doing this in an integrated way is you would speed everything up. You’re going to find this, I hope, unbelievable, because I did. From the sensor data that the U.S. government uses today to feed to the firefighting system—which is very fragmented, by the way—it takes about twenty-four hours for that data to get there as to where the fire is at right now. Well, a day later that doesn’t really help you much, right?

So we think we can bring that twenty-four hours down to an hour or so, and that’s before we do anything with structure—organizational structure of firefighting, which is not strong right now.

So what we want to, ultimately, do is have the same kind of joint all-domain operation, as the military calls it, against wildfires. They’re the enemy. So we want to sense things quickly, we want to communicate redundantly and effectively, we want to make smart decisions using AI, and then we want to deploy assets really quickly.

And then in deploying those assets, you know, we think that—you know, we got to build a business case, frankly, Nick—but that Lockheed Martin could own those FIREHAWK helicopters, could own those C-130s, and the government wouldn’t have to make a giant capital expenditure right up front. We would actually create this as a service, as a SAS. You’ve heard of software as a service. This will be firefighting as a service.

So that’s the concept. We’re actually moving out on developing that. We have partners. We’re talking to the U.S. government at fairly high—very high levels, I would say. This is something I really want to get done.

THOMPSON: Well, it seems quite clear that there will be demand. Whether you actually give the supply, the way climate is changing it appears that there will be demand for that product.

All right. One last quick question before I move to questions from the members. What is the craziest technology that you are building on—you’re building right now? You came into this job a couple years ago. What was the thing that you can talk about where you said, oh, my God?

TAICLET: Well, I think that the thing on top of mind and leading edge that we didn’t get a chance to talk about earlier today, Nick, is hypersonics.

THOMPSON: Yeah.

TAICLET: The science that goes into effectively designing, building, and then fielding those kinds of weapons is beyond leading edge, and the value of these operationally is, unlike a ballistic missile, which actually travels faster speed wise, a ballistic missile travels in an arc. It’s a predictable arc. We’ve got anti-ballistic missile systems that are tactical and strategic because that math is knowable.

However, when you get into what the hypersonic missile can do, it can maneuver towards the target. In other words, it’s an unpredictable trajectory, which makes it a very dramatic threat. China and Russia very publicly have demonstrated hypersonic missile capabilities, and we are endeavoring to stay ahead of them in that.

So I would say as far as putting the science and the importance together, it would be the hypersonic enterprise that we’re very involved in.

THOMPSON: Fascinating. Well, all right. It’s now 2:30 so at this time I would like to invite members to join our conversation with their questions. I do want to remind you this meeting is on the record, and the operator will remind you how to join the question queue.

OPERATOR: (Gives queuing instructions.)

We’ll take the first question from Kimberly Reed.

Q: Hello. I’m Kimberly Reed, former chairman of the Export-Import Bank of the United States and I just finished my term about one year ago, and I had the great honor of leading towards the longest reauthorization in Ex-Im’s history.

And as part of that 2019 reauthorization Congress gave Ex-Im a special tool and that’s called the program on China in transformational exports. Congress said that Ex-Im now has the capability of matching the rates, terms, and conditions the People’s Republic of China may be offering a foreign purchaser so that the world picks America.

Also with that they emphasized ten transformational export sectors, and you’ve underlined a lot of them today, including AI and 5G. Ex-Im’s charter bans Ex-Im currently from supporting defense sales except for counternarcotics. But the most recent Ex-Im Competitiveness Report contains a proposal from the Ex-Im Advisory Committee recommending that Congress eliminates that prohibition.

And so that’s just a long way of saying you have Congress backing of Ex-Im’s $135 billion financing capability, at least 27 billion (dollars) on where you’re headed and what you’re doing. And so I’d just love to know a little bit more about China in your competition when you look at foreign purchasers. What’s China doing as far as debt trap diplomacy or just really making a hard deal so that we’re losing out, and just wanted to flag this new capability of Ex-Im for you.

TAICLET: So I think that the real risk for our industry is the increasing utilization of China of some of these tools for gaining investment and making sales inbound to other countries in the areas of raw materials and other substances and products that we need to actually make our defense products in the United States. So that’s actually a curveball of the way China’s operating right now, is trying to, in a way, monopsonize rare earth metals and some other key products using some of these tactics that will potentially give them control over those markets or large levels of control.

It’s actually our closer cohorts and allies, such as France, the U.K., Germany, et cetera, who we compete with on export deals—and, of course, Russia. Many countries—and very few of them, I should say, buy arms from China, but a lot of them buy arms from Russia and France and the U.K. and others.

So we are always at a disadvantage as U.S. companies, and I mean the whole U.S. defense industrial base, when it comes to competing anywhere outside the U.S. because pretty much you’re going to know that some of those aforementioned partners of ours, or the Russians, are going to show up and they will have that financing.

So I really applaud where Congress is going. I think it’s important that we can compete because it’s not so much China that’s, you know, kind of getting in front of us on arms sales. It’s also Russia, and the latest example of that is them proposing to sell the UAE a stealth fighter plane that doesn’t exist yet but, nonetheless, offering to sell it with really favorable terms.

So I’ll stop there, Kimberly. It’s a really great point, and I appreciate your time at Ex-Im and we hope we can work closer with the organization as time goes on.

OPERATOR: We’ll take the next question from Matt Spence.

Q: Hi. Thanks for—thanks, Nick, for—(inaudible)—this great session, and thank you, James. My name is Matt Spence. I’m the managing director at Guggenheim Partners.

Before that, I was deputy assistant secretary of defense for Middle East policy and then I was at Andreessen Horowitz, and what you said really resonated. When we were in the Middle East doing a lot of our contingency planning, we made the point very much that continuing to have U.S. military equipment was just deeply in our national interest—increased inoperability and all the issues you talked about.

One trend I started seeing at the end of my time at the Pentagon was how much the emergence of technology and defense just really started coming together. And I was wondering, what is your view of companies like Anduril, Rebellion Defense, ShieldUP! AI, Myra Labs, others of these that sort of view themselves as tech companies who work in defense, have gotten a lot of backing from venture capital investors. They’re, obviously, in much smaller scale than where Lockheed Martin is right now, but do you see them as competitors? Have you thought of ways to work with them? And what’s your overall view about where you see that side of things going?

TAICLET: Yeah. I would say, Matt, that we welcome new entrants into our space. You know, you want competition. You want fresh ideas, whether internal or external. So we welcome those newer companies to come in.

We’ve endeavored to work with a few of them that you mentioned and a couple that are out there that you haven’t. Sometimes it makes sense. But in a few instances, you know, there was less substance than we were hoping for from these companies at the stages that they’re at.

Again, I encourage them to proceed and to make the effort and shake things up in our space and talk to our customers because they need to hear from beyond, you know, Northrop Grumman and Boeing and our company that things need to change in government to take advantage of some of those technologies. So we’re glad that they’re in on that conversation.

But when it comes to scaling and integration in this—in the currently operating systems, which is going to be 95 percent of the answer for the next few years, the big defense primes, really, are the only ones capable of driving that scaling in a meaningful way in these mission profiles that we’re trying to develop because, again, 95 percent-plus of the hardware is already out there that we’re going to be using in the next, say, five years, and if you don’t have access to that hardware and ability to engineer solutions into it, your elegant software will, potentially, have limited uses.

So we want to work with these companies, frankly, because we bring that sort of heavy iron capability and the access to the platforms and they bring the new ideas and maybe some software, again, that we don’t have, haven’t invested in, don’t have the people for. We want to find those matchmaking opportunities and make it happen.

Q: Great. Thanks very much.

OPERATOR: We’ll take the next question from Stephen Myrow.

Q: Yeah. Hi, James. Stephen Myrow from Beacon Policy Advisors.

In light of the FTC decision yesterday regarding Aerojet, how do you see and, should I say, that’s kind of emblematic of where it’s anticipated the increased scrutiny on acquisition, M&A activity, regulation from the Biden administration, particularly moving towards vertical mergers—how do you see that impacting your acquisition and growth strategy?

TAICLET: Sure. The acquisition that we had announced with Aerojet Rocketdyne was, really, designed to make more efficient and more timely the development of hypersonic missiles, some space vehicles that we work on, and other types of missile technology.

The benefit of putting the companies together in a vertical integration, as you mentioned, is that we would bring our engineering power to the propulsion side of those products. We would be able to integrate them faster, test more quickly, take cost out, actually, and we made all those cases to both the Department of Defense and the FTC. And the announcement came out yesterday, as you pointed out, which stated the FTC is bringing litigation against the deal.

So now that it’s in litigation, I can’t say much more about process or outcomes. But the motivations, I think, in our industry are among the prime contractors. You know, we’re going to try to pick and choose places where we can deliver a better product at a more efficient cost in a faster amount of time, and that’s where we’re going to make our acquisition plays.

We’ll just see how the rest of the opportunities turn out over the next few years. But the FTC, you know, as you said, made a statement on this particular deal that we’re going to have to take into consideration as we look ahead.

Q: Thank you.

OPERATOR: We’ll take the next question from John Negroponte.

Q: Good afternoon. I’m John Negroponte. I’m vice chairman of McLarty Associates and a former State Department official.

This is a little bit of an obscure question because I doubt it’s a money-making part of your business at this particular stage. But have you had a chance to look into the deep seabed mining issue and the potential for that? I know that you do have some capabilities in that area.

TAICLET: Yes, that’s right, John. And, you know, I have personally taken an interest in this issue. It’s a balancing issue, frankly. There are rare earth metals and other essential minerals that we need for national defense on the seabed, in certain parts of the Pacific, predominantly, very deep water. The technology to get to those right now may need more review as to the environmental impact of those methods. And so, you know, we are kind of holding fire a bit until we understand those environmental impacts better. We don’t want to jump ahead with one foot and then create an environmental problem at the same time on the other foot. So we have some licenses, John. We’ve done a lot of research. The minerals are there. It’s a matter of the cost-benefit of using this method to mine those minerals from the deep sea floor versus the possible environmental impact. We don’t know the answer yet, but we do think it needs more study.

Q: Thank you.

OPERATOR: We’ll take the next question from Harrison Koh.

Q: Hi, my name is Harrison Koh. I’m a finance manager at Marvin Engineering Company. We have been a long partner of Lockheed Martin supporting the F-35 program. So, first of all, thank you, Nick, for presiding over the discussion. And thank you, James, for this wonderful discussion.

Earlier in your remarks and during the discussion you mentioned the need for innovation in defense procurement in order to meet current and future challenges—I mean traditionally and historically. When it comes to defense government contracting, the procurement process has been, you know, very procedure- and process-heavy. So I would like to know if there is sort of a—more of a tangible plan for Lockheed as well as the entire industrial base to work towards moving faster and bringing more of an innovative defense procurement process and if there’s a way for a supplier, a small business like us to partner with big companies like Lockheed to make that happen. So I would like to—it would be wonderful to get your thoughts.

TAICLET: Sure. Well, I think the biggest challenge for our government customer in the way it’s been structured over the years to do procurement is that it’s—you’ve got a tried and true and very effective method of buying hardware or single-point-of-use systems. There’s a —as you would know, Harrison—(laughs)—usually very lengthy requirements documents that emerge from, you know, a military service or the DOD, or one of the agencies like Missile Defense Agency in advance of that, you know, request for proposal with very detailed requirements. There are requests for information from industry. You know, each of these steps takes a year or two—(laughs)—to go through. So requests for information come out, a number of companies respond, an RFP is written. Again, that takes another couple years. Now you’re two, three years into the endeavor. You’ve got a great set of requirements but then you’re going to have competition. And we should be in competition for almost all of these scenarios so that you’ve got two or three competing bidders, you’ve got to assess the bids; it takes a year to do that. And then maybe somebody challenges; the loser doesn’t think it was fair; then you’ve got a protest. Now you’re in another yearlong cycle. You know, it could take three to five years just to go from “I need a capability” to wow, I’ve got somebody on contract and now they’re going to start building this system or this airplane. We don’t advocate, necessarily, you know, turning that entire system upside down or throwing it away and starting new, but what I would advocate for is another swim lane, frankly, when it’s not that kind of end product, where it’s more of a mission-capability improvement. If there’s another swim lane that’s got dedicated funds, maybe doesn’t have to go through all the congressional approvals, and can be applied to mission-improvement solutions over a six- to twelve-month period, as I’ve kind of talked about before, I think that’s a really great first step.

Now, the Department of Defense gets credit and its administration has identified and at least named a RDER fund, it’s called, and so it’s rapid development funding that will be run out of Deputy Secretary Hicks’ office to try to do some of this. And so what we’ll do as industry—and Harrison, I’m sure you want to be part of this too—is we’ll find out what kind of areas that the RDER fund is meant to apply to and we’ll try to come up with some pathfinder projects to get the thing moving. So we’re already in conversation with the team that’s standing up the RDER group. Hopefully, it gets to enough size and scale where we can really make a difference.

OPERATOR: We’ll take the next question from Kevin Baron.

Q: Hello. Thank you. My question on hypersonics is simply: What’s your grade of how fast that the U.S. or others have been able to roll out new hypersonics? And what do you think differently needs to happen to help facilitate that, to help speed it up—other than more money?

TAICLET: Again, to credit our customers at the Department of Defense, Army, Navy, and Air Force, all three of them, and DARPA, are recognizing the need for speed, if you will, and they are moving faster than, quote, “normal.” We have more rapid requirements definition of evolutionary phase. We got started as industry—some of the contracts were competed quickly. (Laughs.) Winners were chosen and moved out. Lockheed Martin, before I joined, happened to prepare itself ahead of time with some engineering work and some facilitization, because our chief engineer, Rod Makoske, and others saw this need coming because of their operational analysis and wargaming. And we’ve had a head start, so to speak.

We’ve already also invested ahead of need, as we call it, and kind of partly on our own risk, in a new facility in Alabama to build at rate hypersonic missiles for the three services, Army, Navy, and Air Force. We just formally opened that about a month ago. I was there for the ceremony. State of the art, you know, digital factory and will be able to produce quickly when we get, eventually, the orders, we hope.

So I think that hypersonics is maybe the leading example of how traditional DOD procurement is speeding up, and then I think alongside that, if we can keep the momentum going on the traditional side and use the hypersonics example, and then we create this other swim lane through RDER fund and other things that will be similar, we could actually make a meaningful improvement here.

OPERATOR: We’ll take the next question from Melissa Terlaje.

Q: Hi. Thank you to you both. Nice to meet you. My name is Melissa Terlaje. I’m an engineer at the Johns Hopkins University Applied Physics Laboratory.

And I wanted to talk about what Lockheed Martin is doing for revolutionary change. You talked about swim lanes for quick development and that’s for kind of changes today or getting tech out to the warfighter today, and how the platforms that we have today are going to be in force for a long time and we can send software out to do evolutionary changes again. But how is Lockheed Martin thinking about, you know, changing the game? We know China and some of our adversaries have the long game, you know, in how they’re thinking, so can you talk about some of the ways that you’re approaching revolutionary change or some big changes? Thank you.

TAICLET: Sure, Melissa. I mean, I’d say three areas come to mind immediately. One is we need to move this factory of the future notion all across Lockheed Martin. The typical buzzword for that is called digital transformation. But you can actually—when you go to, like, our factory where we make helicopters in Connecticut—it’s in Stratford, Connecticut—they’re actually doing this and have done it, and we’ve done it a few other places, too, in the company. It needs to be everywhere. But if you walk the floor, the production floor, where the helicopters are literally being built in Connecticut, you’ll find there’s no more paper drawings around. Everything’s on screens. It’s 3-D. We’ve got line workers in manufacturing wearing holographic glasses and putting parts together, using those with instructions right on the glasses. So this is sort of, you know, very advanced manufacturing technology and engineering technology based on something called a digital thread. And I might get too deep into this and I’ll stop in a second, but it goes all the way down to putting a rivet in. Right now our techs can take the rivet, put it in a rivet gun; that rivet gun’s connected to the brain of the factory and he only—he or she only puts the rivet gun on the rivet; the machine turns it to the proper torque, releases the rivet, and all that data’s in the factory, all automatically. So just extrapolate that into an entire factory like the F-35. It’s a mile long. It’s one of the largest buildings in the world. We’ve got a couple hundred airplanes in queue there. (Laughs.) And that’s what we’re talking about when we say digital transformation—just changing the whole infrastructure of the defense industrial base, starting, you know, again, internally with our company, to the factory of the future. So that’s one dimension.

Another dimension is we, frankly, had to work better together as a company, so there are four business units in Lockheed Martin. We have a one-Lockheed Martin approach now where we are going to find the very best of every technology that I talked about, the fourteen technologies I mentioned earlier, no matter where they are in this company, and we’re going to make sure that that best practice and that technology is available everywhere. Sounds easy; it sounds like something automatically should have been done, but like most big companies, it’s been built over time with acquisition and structure and, you know, we just needed to get more agile internally. So I’d say that’s the second thing.

And then I think the third piece of it is reaching out to these commercial partners. You know, we’re very good in the defense industry about teaming up with each other. You know, so Boeing, for example, and Lockheed Martin run ULA or own ULA, which is the United Launch Alliance. Boeing and Lockheed Martin are working together on a next-generation helicopter for the Army. So we’re good at teaming internally with ourselves across the defense industrial base, not so good with reaching out to, again, telecom operators, cloud computing providers, you know, AI leaders and software. We need to get better at that and we’re evolving in that direction. So, you know, factory of the future, reaching out to commercial, and getting internally more integrated, those are the things we’ve got to do.

OPERATOR: We’ll take the next question from Sarah Leah Whitson.

Q: Hi there. Sarah Leah Whitson from Democracy for the Arab World Now.

My question is, separate and apart from the permissions that you rely on from the State Department for foreign military sales, what due diligence do you do to comply with your own business and human rights responsibilities under the U.N. Guiding Principles to ensure that your military sales are not contributing to human rights abuses, particularly, for example, like the Lockheed bomb that was used to massacre fifty children in a school bus in Yemen, to just give one recent example, or yesterday’s approval of $2 billion of your Hercules aircraft to Egypt, where we know that, just to name one abuse, torture is systematic and widespread? Are you concerned about lawsuits like the one the Mexican government has filed against gunmakers in America for the proliferation of guns in their weapons that you might face a similar lawsuit for the proliferation of deadly weapons in deadly hands?

TAICLET: So as I spoke about earlier on export controls, we follow the guidance of the U.S. government on what we can provide to whom. Once it’s in the hands of the end customer, we don’t have any control operationally over how that product is used. So the goal of our company is to basically provide deterrence, and deterrence means freedom from war and freedom from pain. Sometimes the products or devices will be used by the end customer in ways that either they didn’t intend and have a consequence that was not desired, or in ways we wouldn't have approved if we were making those decisions ourself. Having said all that, we do have our own human rights compliance process in the company and those sales go through our own internal process, and if we felt that the conditions on the ground were not recognized by the U.S. government sufficiently, we would maybe make a different decision. But by and large, you know, we follow their lead.

OPERATOR: We’ll take the next question from John Norton Moore.

Q: Good afternoon. John Norton Moore, and I would like to follow up on the question from Ambassador Negroponte.

As a former United States ambassador for the Law of the Sea treaty, I thank you for the support Lockheed has given over the years for Senate advice and consent to that treaty. As you know, Lockheed is holding the last two U.S. seabed sites from the treaty negotiations, USA-1 and USA-4, each roughly the size of the state of Rhode Island, and each holding about a quarter of a trillion dollars in value of critical deposits of strategic minerals for the United States. Have you considered meetings with individual senators to inform them of the risk of loss of these last two sites for the United States unless the Senate moves on the treaty and you can obtain valid international licenses under the treaty?

At this time, the United States has zero licenses while China already has exclusive licenses to four of these strategic mineral sites, covering 85,000 square miles of the Pacific Ocean floor. The Russian Federation has three licensing (sic; licenses) covering 57,000 square miles. Many of our NATO allies have two such sites each. The U.S. is going to be at a severe disadvantage in access to strategic minerals and rare earths if we lose those remaining two sites. I certainly understand your care in making certain that we move forward properly with the environmental issues. But if we lose those two licenses, we will have no options whatsoever remaining in relation to these only two remaining of our four initial negotiated United States deep seabed mine sites. Thank you.

TAICLET: Yeah. Well, John, you identify, you know, the important U.S. government policy position regarding the Treaty on the Law of the Sea. We can raise awareness as to the complications it would create for the licenses, but again, that’s going to be a policy matter, you know, at the White House level as to how that’s pursued. I can assure you that our team has informed staff, if you will, that, you know, these licenses are at risk, but, you know, we tend to step back once we’ve made the point and allow the U.S. government to do its job and make decisions on treaties and such. But yes, we’ve illuminated the issue, John, and it’s a real concern.

THOMPSON: Well, we have two minutes left so I’m going to ask one question about CEO management. I’ve been in my role as a CEO for eleven months. I’m trying to figure out how the heck to do it. I’m curious if you’ll give me one rule for how you were a CEO that you’ve carried over from being CEO of a telecom executive to being CEO of Lockheed Martin, and one thing that you have to do differently, since you’re now running a very different org. Let’s end it on that note.

TAICLET: Yeah, sure, Nick. I would say the one thing that carries over and probably applies anywhere is this sort of notion of asking yourself and then ultimately your direct report team individually, do you have the best team you’ve ever had in your career working with you? If not, why not? And what are you going to do about it? Because you can’t do your job as a CEO unless every one of your direct reports, first of all, can manage their portfolio, if you will, and the only way they can do that is if they have a really great team helping them. So that’s the carryover.

The difference between being at American Tower in the telecom industry and involved in national defense is, you know, look, if your cell phone has to reboot or you lose signal, it’s an inconvenience but, you know, you’ll get by. If we have a failure on one of our products, whether it works or it doesn’t—on one hand, if it doesn’t work; the other hand, it works when it wasn’t supposed to—you know, the consequences are stupendous in this case. So the gravitas of a role like this is something that is different and, you know, I can say I’ve got the best team I’ve ever had to help me with that responsibility.

THOMPSON: All right. Well, thank you very much. I had the best moderator I’ve ever had so thank you to the Council on Foreign Relations. Thank you everybody for joining today’s virtual meetings. Thank you to Jim.

Please everybody note that the video and transcript of today’s meeting will be posted on the CFR’s website.

Jim, that was a fabulous conversation. I learned from every answer. I enjoyed it all.

Thank you to all the questions from the audience and thank you to the CFR.

(END)

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