Welcome to the 2021 Virtual Lockheed Martin Investor event. To open today's event, please welcome Greg Gardner, Vice President of Investor Relations for Lockheed Martin. Good morning, everyone, and welcome to our virtual 2021 investor event. I'm joined today by Jim Taiclet, our Chairman, President and Chief Executive Officer, who is joining us virtually just like all of you and John Mahlerd, our acting Chief Financial Officer, who is here with me in our Bethesda headquarters. We're excited to present this event to you in a virtual format To bring you access to facilities and our leadership in a manner we never really could before.
Before we begin though, I'll take care of a bit of housekeeping. On the screen, you'll see our Safe Harbor statement. As you know, today we may be making some forward looking statements and projections, And the actual results may differ from those statements. We refer you to our 10 ks and 10 Q filings so that you can see the further descriptions of the risks that we see. With that complete, let me hand it over to Jim for some opening remarks.
Jim?
Good morning and thank you for joining us for our event today. Over the next 2 hours or so, we look forward to sharing with you the strategy, vision and several areas where we have focused our investments For growth and value in the 21st century. To begin though, I would like to introduce John Mueller, our Vice President and Treasurer And now our acting Chief Financial Officer. John is stepping into the role after Ken Possumute informed me earlier this week To his decision to retire for personal reasons. I want to thank Ken for his years of service and wish him well in retirement.
John has been with the company for over 35 years and has a tremendous background that's perfectly suited for this role. At this time, I'd like to turn it over to him to introduce himself, and I'll be back to join all of you for some closing remarks And for our final Q and A session. John?
Thanks, Jim. I'm excited about this opportunity. And most importantly, I'm looking forward to building relationships With all of you, starting with today's event. As Jim mentioned, I've been with Lockheed Martin since 1983, which may sound like a long time ago, But it seems like just yesterday to me. I spent my first 15 years in operating units where I learned what it takes to successfully deliver on program commitments.
And I spent the next 20 plus years here at Corporate Headquarters where I led our Financial Planning and Analysis team until taking over this Treasurer role In 2016. In both of these roles, I've been very involved in developing our strategies regarding cash generation and cash deployment. And I'm sure we'll talk more about these topics during the Q and A session. Once again, I'm looking forward to working with all of you and I'll hand it back to Greg to get our
first session started. Great. Thanks, John. I'll remind everyone that we have a full agenda that you can see on our web page and we'll be covering the 16 CH-fifty 3 ks and we'll have a hypersonics panel discussion today as well. But first, we're going to start with Bridget Lauderdale, Vice President of our F-thirty 5 program.
Many of you will remember Bridget from our Investor Day in Fort Worth a few years ago. However, before Bridget gets started, let's take a look at a short video showcasing our 5th
The F-thirty five Lightning II, chosen by 15 nations, It delivers the most advanced, connected capabilities required for 21st century warfare, and it's accomplishing critical missions today, deterring And when necessary, defeating advanced threats. That's the story we all know best. Of more than 425,000 flight hours, 6 70 deliveries operating from more than 20 bases around the world. But what about what we are doing to invest in the future? Here's one example of how we're putting investment to work.
We've invested around $9,000,000 in Automated drilling technology to increase F-thirty five production speed and aerodynamic quality. Across all three variants, countersink robots are enabled by the digital thread to use a smart drill that measures and cuts more than 4,500 cone shaped holes. The holes used to be drilled manually, but the robots do the work more efficiently and consistently. Each hole is cut to a uniform size and shape to hold These robots are used on 45 different panels, and that number is expected to grow, making tomorrow's production line In the field, the F-thirty five team has invested approximately $500,000,000 in sustainment improvements, Including digital tools, parts availability and process efficiencies, we're investing and working together across industry and government to reduce F-thirty five
Good morning. I'm Bridget Lauderdale, Vice President and General Manager of the F-thirty five program. I appreciate the opportunity to speak with you today. Across our aeronautics sites, we have resumed mandatory masking and social distancing requirements. Of today's presentations, we will not be wearing masks, but we will continue to social distance.
Marty Stanislav, Vice President of Finance and Business Operations for Aeronautics and I will be answering your questions shortly. But first, I wanted to provide a few program highlights. The F-thirty five production factory has evolved since 2014, which is the last time that many of you were at the facility for an Investors Day. We have significantly ramped up production. In fact, we're set to deliver between 133 139 aircraft this year, And we've made great strides in innovation enabled by a digital thread.
We will continue seeking opportunities to incorporate Digital transformation into our processes to increase efficiencies while driving down costs. The F-thirty 5 is combat proven and an example of Lockheed Martin's 21st century warfare vision. It's the cornerstone of AirPower Solutions and the central node enabling joint all domain operations across platforms. As the threat advances, we will ensure the F-thirty 5 stays ahead of our adversaries by continuously enhancing its capability. One example of this is what we call Tech Refresh 3, which will offer a significant leap in computing power.
Delivering on its promise, F-thirty five interoperability enables mission capability well beyond its original strike mission. Today, it transforms how coalitions train, fight and win. With more than 670 jets delivered And over 425,000 flight hours, the F-thirty 5 is mature and delivering combat capability today. The feedback from the war fighting community has been very positive as fixed services have employed the aircraft in combat operations for NATO missions. Today, the U.
S. Marine Corps is afloat on Her Majesty's Queen Elizabeth as a part of the U. K. Carrier Strike Group, demonstrating Coalition's airpower. And earlier this week, the F-35C had its first operational deployment set a sail aboard the USS Carl Simpson.
This marks a new era in naval air power. Last year, the U. S. Air Force deployed 42 35 to the Middle East for 18 consecutive months. During the deployment, they flew over 1340s And the jets achieved over 70% mission capable rates.
Our customers' confidence is reflected in the FY22 defense budget, Which included over $12,000,000,000 for F-thirty 5. The F-thirty 5 is well supported on the Hill as well. And we remain laser focused on performing and ensuring our customers' needs are met. As the F-thirty 5 is proving itself in operations, We continue to see international interest expand. The F-thirty 5 was recently selected as Switzerland's next Generation air fighter after demonstrating a marked advantage over the competition.
The Swiss Federal Council noted that the F-thirty 5 had The highest overall benefit at the lowest overall cost. We are in active competitions in Finland and Canada, Both of which are currently looking to make decisions later this year. We've also seen interest from Spain, from Greece and the Czech Republic and others. And our established customer base continues to pursue follow on buys to add to their current fleets. And of course, as the fleet expands, so does Lockheed Martin sustain an opportunity.
We will soon have over 1,000 F-35s in the fleet, All of which require sustainment. Today, we have a strong foundation of delivering sustainment and it's reflected in the data. The reliability rates of the F-thirty 5 are 2 times that of a 4th generation fighter, and we are meeting our customers' goals for maintenance hours For flying hour. Regarding affordability, we continue to apply the full weight of our talent and ingenuity to lower F-thirty five costs In the last 5 years, we've invested to aggressively drive down costs and increase aircraft readiness, All while scaling the fleet. Our program actuals demonstrate success in reducing our contribution of the cost per flying hour by 44%.
As we look into the future, we forecast another 40% reduction in Lockheed Martin cost of flying hour. We are committed to addressing affordability as an integrated F-thirty 5 enterprise in partnership with our customers. In closing, the F-thirty 5 is delivering capability, availability and affordability for all of our customers. US Air Force leadership has continued to emphasize support for the F-thirty 5, calling it the cornerstone of the Air Force's tactical capability. And last week, U.
S. Defense Secretary Austin noted the critical role the F-thirty five plays in alliance based deterrents. But none of this would be possible without the world's greatest aerospace workforce. The F-thirty five creates 254,000 direct Indirect Jobs supports 1800 suppliers, a1000 of which are small businesses and contributes $49,000,000,000 In economic impact across 48 states in Puerto Rico. The program truly is an economic engine for our nation.
We see a strong future for the program, including international growth and opportunities for expanded sustainment and enhanced capabilities To help our customers address increasingly complex global security challenges. At this time, we're happy to take your questions. I'll turn it back to Greg.
Great. Thanks for that overview, Bridget. I think it's fantastic to remind everybody how much progress comes from Rob Stallard from Vertical Research. Rob, go ahead.
Thanks so much, Greg, and good morning, Evan. I actually got a couple for you, Bridget. First of all, on sustainment, there's obviously been a lot of coverage of the discussions with the DoD. But I was wondering if these discussions differ When you're talking with some of your export customers, and is there a difference in the sort of return you could get from these non U. S.
Customers because there's less use of military support depots. And then secondly, in relation to the video you showed at the start of your presentation, I think you mentioned exponential efficiency savings. I was wondering if you could put a number around what the exponential number is and how this could be shared with the customer going forward. Thank you.
Sure. So, I'll take your first question. I believe you were asking about the dialogue internationally versus maybe in the domestic. What I would offer is that there is a collective focus across the U. S.
Domestic customer and our international base on driving out costs. So the focus of the team is absolutely the same in terms of driving at an affordable solution over time. The F-thirty 5 is a global enterprise. And I would say that as we have invested over the last couple of years in really driving Costs down in the program, as I said, 44% reduction in cost. Those the tools that bring that, the capabilities that we've been investing in We'll benefit the full range of our customer community, both the U.
S. And the domestic. And the second question, I'm trying to recall, I believe was around the exponential cost reduction.
Yes, I think you've covered that with the 44% reduction that we've achieved from a sustainment perspective in terms of our portion of the costs since 2017. I
Maybe just to follow-up on
that one. The video seems to suggest this is more of a saving on the OEM side Rather than the sustainment side, is that
different? Well, no, I would say absolutely the savings that are generated across the program, Lot after lot, year after year are benefiting the customer community as a whole as opposed to just Lockheed Martin. And frankly, as we focus On driving efficiencies and driving out costs, it enables our customers to afford to expand their fleets, to afford to expand their sustainment services, And to further invest in capabilities that are available for the F-thirty five going forward. So I would say it's a win win. Being more affordable allows the expansion of both increased Chairman of the Platform as well as Capabilities and Sustainment Services.
Okay. Thank you very much.
Thanks, Rob. Our next question comes from David Strauss from Barclays. David, go ahead.
Thanks, Greg. Good morning, Bridget.
Good morning.
On the last earnings call, there was some discussion about rebaselining The F-thirty five production plan, I think previously we have been talking about going up to 160, 170 a year. Can you discuss Kind of where we are today in terms of rebaselining that plan and getting the tech refresh for introduced into the production line. Thanks.
Certainly. So as we all experienced COVID, certainly in 2020, The team delivered over delivered around 120 aircraft last year, which was less than the plan. So we are in Discussions with our customer as we speak to really drive a stable production flow in front of us to drive an efficient delivery and recovery On the COVID actions, we are still in the midst of those discussions and we expect shortly to be able to share that For our customer to share that, the details of that coming forward. But what I would tell you is, I would view that as a near term stabilization and plateau. As we look to the future, the demand remains very strong from our international partners and from our domestic partners.
And again, as we continue our focus on affordability, driving out the cost of sustainment, ensuring that we can modernize We're continuing to modernize the capability. We see opportunity for growth as we go forward in the production arena following the stabilization of production.
Thanks very much.
Thanks, David. Thank you, Bridget. All right, well, on to our next question, Andrew Golen from Berenberg. Andrew, welcome. All right, Andrew.
We'll come back to you. Sorry about that. Sorry.
I was
just I was going to offer the
volume outlet, but that's just been asked, I believe.
No problem. Thanks for joining today. We'll move on to the next question, which will come from Peter Arment From Baird, Peter?
Yes. Thanks, Greg. Good morning, Bridget. Maybe Bridget, just to follow on your sustainment comments, If you could maybe just talk about maybe what are some of the key things that you think regarding the 40% you mentioned going forward that's bringing Lockheed Martin's costs Down on the sustainment, I know Jim has mentioned it before about a kind of a bigger group effort in reducing sustainment costs, but I'd like to hear your perspective. Thank you.
Sure. So as we have been focused in the last couple of years and I shared made some fairly significant investments largely In areas such as automation, the F-thirty 5 is an absolutely amazing platform and there's a tremendous amount of data and information That's exercised and utilized in combat and sharing, but also in capturing the prognostics health maintenance data and information, And just the health of that jet and as it relates to the rest of the fleet. So we have invested in automating to better understand Supply positions much more real time, and being able to use that information to drive efficiency and how the fleet is supported across the globe. And as well as arrangements with our supply base, performance based logistics arrangements with our suppliers, giving them an opportunity To invest in the program over a longer period of time besides an annual sustainment period, Things of that nature that allow us to give the greatest flexibility to utilize the advantage from an F-thirty 5 and the tremendous wealth of information in the Autonomic Logistics Those would be a couple of examples.
Thank you. I would just add that the sustainment transformation that you talked about Really is being leveraged across the entire aeronautics portfolio. And at this time, sustainment represents about 25% of our total sales
Thanks, Peter. Thanks, Marty and Bridget. All right. We'll move to our next question comes from Noah Poponak from Goldman Sachs. Noah?
Hi. Thanks, Greg, and good morning, everybody, and thanks for the time today. This is a little bit of a bigger Picture a question in a way and maybe moves outside of the program and the segment in a way. But I have to ask it because By far, the biggest and most frequent pushback we hear from investors in the marketplace With regard to total Lockheed Martin is that the F-thirty 5 program is near a peak. And just mathematically because it's become such a large percentage of the company that if that's the case, it just becomes hard for the company to grow.
And so I wondered, as the heads of the program and people in the division, how you think about that? I think how far into the future do you have to look before you see total F-thirty five programs Actually declining, can you see that? Maybe answer that specifically to the new build as well since you covered some of the new customer opportunities here. I know it's a bigger picture question. I appreciate the exposure here, but I have to ask that because that's just the question we get all the time from investors.
I'll take
a first stab from the program perspective. I've been in the job for about 4 months now and have had previous experience with it. But the one thing I can tell you, as I go out into the customer community, both domestic and international, The feedback is resoundingly positive on this F-thirty five capability. And in fact, I think it is really opening people's eyes as They have been expanding their combat use of it, their coalition training, the power and the strength of the fundamentals of the F-thirty 5 Are really opening up people's eyes, designed to be a strike aircraft. But as you see the F-thirty 5 and experiencing it operating, The advanced sensor suites, the connectivity and connecting the entire when I say joint all domain joint operations, I really mean connecting data across the battle space.
And I think as our customers are recognizing the power and the strength of that, They are looking forward to how else can we exercise and utilize this capability. So when we talk about the interest in front of us On the international front, I think that the options are expanding as we speak. We've heard a lot of interest That I believe will mature over time into and translating into production orders. Frankly, the capability is selling itself at this point in time. And I think one of the focus areas is making sure that the data And the story is being communicated and people are consuming it and really getting appreciation for the strength and the power of this weapon system.
Margie, I would just add that, I think we've talked about this or this has been discussed on prior earnings calls that Our sustainment with the significant increase in the number of fielded aircraft, our sustainment, I'll call it longer term growth rate It's in the mid to high single digit range. We also continue to see, although there were some funding pressures this year on the development side, There's a push for additional capability insertion that drives low to mid single digit opportunities in that area. And then with the F-sixteen ramp rate, we're seeing double digit growth there along with that our Skunk Works business. So those would be the Primary drivers of growth across the Aeronautics portfolio.
Can you comfortably say that you have a decade plus of Visible growth in total F-thirty five revenues?
It's difficult for me to say a decade's worth. Our planning horizon is typically 3 to 5 years. And so we're in the midst of our planning process right now. And as we've done in, I think, a very disciplined way For the last, you know, 10, 20 years, we're going to review those plans up with, John Mahler to Jim Taiclet In the August September timeframe, ultimately that will be shared with the Board and then our 2022 outlook and directional vectoring will be provided On the Q3 as a result of the Q3 earnings call. So the decade out into the future, I'm hesitant to give any color at this time.
Okay. I appreciate it. Thank you.
And I think that's about all the questions we can handle right now. I would like to thank Bridget and Marty, and I'd like to thank the Dan, this is for the questions. I think, Noah, that was an excellent question. And I think we'll get into that more at the end when we talk about 21st century warfare and Bridget's Commentary about how that concept should drive additional interest in the platform from a number of areas. So thank you everybody.
At this time, I think we're going to move to the F-sixteen and we'll introduce Donya Trent, our Vice President of the F-sixteen program. Dania is located in our new F-sixteen production facility in Greenville, South Carolina, Brands Banking new facility. So Thank you for joining us today, Dania, and over to you.
The F-sixteen has been a proven platform for more than 40 years, serving a critical role around the world and is a key enabler of air dominance at home. We are proud to continue that legacy for the war fighter with total life support. From production of the newest and most advanced F 16 to upgrades providing advanced capabilities and delivering integrated The statement capabilities that ensure our customers' aircraft are mission ready anytime and anywhere. The F16 is a critical piece of the 21st century warfare network. With more than 3,000 F16s operating today In 25 countries and even more growth and opportunities worldwide, we are focused on helping our customers seamlessly and securely Connect all assets in the joint battlespace.
One way we're doing this is focusing on common communication systems for International fleets and common connectivity of 4th generation fighters. We are also making Across the production line with advanced technologies and automation to reduce cost, decrease span time and improve product quality. Keith Martin has a clear vision for the future of software development. 1 in which a software factory uses people, processes, and tools to turn ideas requirements into high quality products. The F 16 program recently took steps to bring this vision to life, the ability to deliver software faster across the F-sixteen platform and Lockheed Martin.
In the field, our Our team has been right in front of sustaining the F-sixteen across its 19,500,000 flight hours and 13,000,000 sorties. And now with a new contract from US Air Force to set up the 1st contractor depot in the US, we are bringing together and proven legacy of the F 16, we are transforming 4th generation capability for the next generation. Lockheed Martin,
Good morning. I'm Donya Trent, Vice President of F-sixteen Programs. I appreciate the opportunity to Speak with you all today from our F-sixteen production line here in Greenville, South Carolina. Marty and I will be answering your questions in a few moments. But first, I want to reiterate what you just saw in that great video that the F-sixteen program is strong.
We're poised for additional growth, And it remains a critical component of Lockheed Martin's AirPower solutions. The F-sixteen has been proving its valued for decades and continues to remain the best value among 4th generation jets for its high-tech capabilities, NATO Connections and Affordable Lifecycle Costs. In 2017, we announced the relocation of the F-sixteen production line from Fort Worth to Greenville. Since then, we've grown a backlog of new production aircraft from 16 to 128. Our Current new production customers include Bahrain, Slovakia, Bulgaria and Taiwan.
Beyond that backlog, We see potential for approximately 400 new production aircraft to be produced, and that's based on international interest that we see In Africa, Europe, Asia and South America. One example is the Philippines, where the U. S. Government is now moving forward with a proposed sale of 12 new production F-16s. We've also made significant investments in our F-sixteen manufacturing processes To improve efficiency, cost competitiveness and our ability to continue to expand the market demand for the aircraft.
Major initiatives here include reverse engineering and digital twin advancements, hole drilling and fastener automation And smart tools for improved metrology capabilities. Today, we have 11 jets in work and the first F-16s will come off the line in late 2022 And began flight testing by the U. S. Government. We're also seeing growth and opportunities in our F-sixteen sustainment business.
Multiple operators are implementing or considering M65 upgrades and also RV upgrades. The M65 5 upgrade provides additional weapons integration along with hardware and software system upgrades. The F-16V is the latest, Most advanced F-sixteen upgrade configuration ever offered. It includes the APG-eighty three active electronically scanned array or AESA radar, Upgraded modular mission computer, avionics architecture, new cockpit displays and improved controls. Additionally, the Air Force recently awarded Lockheed Martin a contract to provide sustainment support services for their And that's also being done here in our Greenville facility.
This is the first F-sixteen contractor depot of its kind in the continental U. S. And we inducted our 1st aircraft into this program in March, and we now have 6 aircraft in work here at the facility. As you can see, we're bringing together development, production and sustainment to optimize the F-sixteen fleet with our expertise To ensure mission readiness and strengthen the global industrial base. When you're part of the SAC network, you're not just getting an aircraft, You're also building a decades long strategic relationship with the United States and its allies.
This means potential military cooperation opportunities and partnerships with the U. S. Air It means pilot training, on the ground training, joint exercises with the U. S. And greater regional partnerships and interoperability And partnerships across our platforms.
Our operators have specific missions that they must support, and they're also synchronizing capabilities to foster Our vision is to help our customers leverage the emerging technologies to seamlessly connect assets in the joint battlespace. Delivering that capability leverages and exercises the full capacity of the international F-sixteen fleet to increase the strength of our U. S. Air Force fleets as well. I'll now welcome Marty to join me in Fort Worth and turn it back over to Greg for questions.
Thank you, Dania. Welcome back, Marty. It's just amazing to hear the story of the F-sixteen really with the modernization activities keeping it relevant Over 30 years from the time we delivered our first one, I think we delivered over 4,600. And as Dania said, we have another 400 hopefully to go. So with that, we'll open the lines up again for your questions.
The first one comes from Mike Maggiari from Wolfe Research. Mike, please go ahead.
Morning, everyone. Thanks, Greg. So a couple
of related questions here, probably for Marty. I think F-sixteen was about 3% of Total 2020 revenue, where do you expect that to go as production spools back up toward I think 3.5 per month? And how do you expect the margin profile of that program to change that production spooling back up? Sure. In terms of the F-sixteen production activity, as I said earlier, we do see an opportunity for double digit growth Out into the near to medium term.
So as we work off that 128 aircraft backlog, we do expect that growth to continue. And as Donya mentioned, we have opportunities for another 300 to 400 aircraft thereafter. From a margin Effective, the F-sixteen has always been a solid double digit return for our business. But as always, those returns are achieved as we retire risks. So we start the booking rates on our programs Based on the risk profile that we see, as we reduce those risks and overcome those risks, we would typically that's when we would make those step ups.
But From top side, I think of the F-sixteen as solid double digit throughout the planned period.
Great. Thank you.
Great. Thanks, Mike. All right. Our next question comes from Myles Walton from UBS Equities. Over to you, Myles.
Great. Thanks, Craig. I was wondering if you could comment on the to the DS-sixteen has received the $62,000,000,000 over 10 years and how that facilitates sales to customers, how Much easier that might make the process on a go forward basis. And then also how much tailoring of prices there are within the scope of that IDIQ?
Certainly, I can speak to that. So the IDIQ was awarded for, as you mentioned, the 10 year time period with the ceiling at $62,000,000,000 And we have we're operating under the first pricing period of the IDIQ right now. And that's with 2 countries Currently underway and 3rd with an option. And we're also in current discussions with the U. S.
Air Force on the second pricing period for the IDIQ. And this contracting vehicle is really designed to make things more efficient And to make the overall process much easier to navigate for both ourselves with the U. S. Government and then also for the international Customers as well. So there'll be a ready vehicle in place in order to authorize contracts in a much quicker than normal A manner in an FMS environment.
And so with that, we'll have baseline pricing established in each of the pricing periods that we'll be able to Tailored based on the quantities for each specific customer and then each customer will also have an associated Non recurring proposal that will accompany the baseline aircraft proposal.
And just a follow-up, Does this IDIQ effectively limit your DCS opportunities such that we should just assume everything is FMS
Sure. It doesn't limit our DCS opportunities by nature of the contracting vehicle and Where we're working with the government right now is the ability everything currently Block 7,072 is going through the FMS process right now.
Thank you, Myles.
Fantastic. All right. We'll move to our next question, which comes from Pete Skibitski from Alembic Global. Pete?
Hey, Good morning, everyone. I want to ask more about F-sixteen aftermarket. I think that's kind of the majority of the revenue in the program right now. And certainly, you can see the ramp in OE that's coming. But aftermarket wise, can you give us a sense directionally of how you're expecting Trends to go there, up, down, flat, because obviously, you probably have a lot of older programs that will run off, but and you mentioned the new Air Force program.
So I'm just interested in how it nets out in terms of the outlook for aftermarket for F-sixteen.
Sure. I'll start with that and then Marty might want to weigh in there as well. We have a number of opportunities in our upgrade So we do still have 3,000 F-16s operating around the world and that those F-16s require various different Levels, our customers require various different upgrades. So we have a couple of different upgrade packages, if you will, with the M65 5 programs and then also the V upgrade programs. And then, of course, we have some lower level sustainment opportunities as well that we do on an annual basis.
So from my perspective, the growth opportunity in the upgrades and sustainment business is very, very strong for our F-sixteen community. And then we'll continue to grow as we continue to build new production F-16s. Those will also require sustainment well into the future. Marty, did you have anything you would like to add there?
Dania, I think you hit it very well. There can be some variability a little bit more so In that piece of the business, but the opportunities are certainly there and we see continued growth in that arena.
Our next question comes from Rob Spingarn from Credit Suisse. Rob?
Hi, good morning.
Good morning.
I wanted to ask you, of the roughly 3,000 F-16s that are operational, How many are out there in the international fleet and what's the average age? Because I'm thinking about replacement demand here and then maybe how that breaks out Between F-sixteen, F-thirty five and other platforms. Thank you.
Sure. So roughly, think about it, 2 thirds are in the international market and 1 third of still USAS Operating. And with regard to, I think the question was The breakout in the international market and then
How old they are and the replacement opportunity, yes.
Yes. Thank you for that refresher there. So the age is going to vary. So we're actually upgrading some jets From the mid-90s right now. So the operational age, it averages anywhere from mid-90s to the last ones that were delivered And you know, came off of the 14 sorry, the Fort Worth line in the 2017 timeframe.
So We've got some that are just a few years old, ranging to in the 20, 25 year range that are operational right now. And so the demand for new and replacements is very strong. I think that's why we're seeing a significant resurgence For recurring customers, as is the case with Taiwan, and then we're also seeing demand for 4th gen aircraft And new customers that are not currently part of the F-sixteen family as well. And so there is a strong replacement demand out there and not just for F-sixteen Customers, but for operators of other aircraft as well who are interested now in transitioning over to the F-sixteen family.
Is there any way to quantify or have you done a study to say, okay, there are 2,000 international aircraft out there, maybe 500 need to be replaced in the next decade, that kind of thing?
Yes, actually, we have. That's a great question. We have done some pretty Substantial market studies, we refreshed that one earlier this year to get a sense of what the overall global market looks like for the 4th gen Capability requirements and that market is very strong. And so then you look at the F-sixteen and where that fits From a capability standpoint in the marketplace, and I think we're very well positioned to capture a significant portion of that market, which is You know why we are saying in our earlier remarks in the 300 to 400 range of additional aircraft opportunity sales
Our next question comes from George Shapiro from Shapiro Research. George, welcome. Your question, you're up.
Yes, good morning. My question is, You say there's a big replacement demand, but it would seem to me that for countries that can afford to buy the F-thirty 5, if we would let them. Why wouldn't they buy the F-thirty 5? I can see some limited market here yet for countries that really can't afford The F-thirty 5 or we don't let them. So if you just comment on that?
Yes, certainly, George, and great question. If a country Has the capacity and the ability to buy the F-thirty 5, then from our standpoint, absolutely buy the F-thirty 5. That's where we want to see them. There is that strong market though for the 4th gen demand that still exists in the international community. And so that's where we see having factored in All of those variables of what capability a country needs and where they are on the And where they are on the releasability scale as well.
And so that's where we have factored those into both a replacement and Countries that are first time into the fighter debt market as well. And so we factor those things into the variables to come up with the 300 to 400 That we see as the realistic market opportunity for F-sixteen.
And could you compare the Price of an F-thirty five now with the price of a F-sixteen and also the sustainment cost, I mean, the flight hour cost per hour for each of the planes As to where we are today.
Yes. As Bridget and Marty mentioned, there's been significant work done To lower the cost of the F-thirty five and that's been a very strong journey and the F-thirty five is very well positioned from an affordability standpoint there. On the S-sixteen side, all of our cases do go through the 4 military sales channels. And so each country has unique requirements. They have a number of other factors that go into their case.
So whether they need to build a base, other infrastructure requirements, they might have more Substantial training requirements if they're a first time user. So all of those variables are factored into what ultimately goes into a price to a customer. So It's a bit difficult to compare apples to apples on an F-thirty five versus an F-sixteen given all of the different variables that are And if you might repeat the second part of your question for me.
Yes. What's the current flight hour cost For an F-sixteen versus the F-thirty five.
So from a there's a step Level difference, I'll say, in the 4th to 5th gen. Flight hour cost from a 4th gen perspective, the F-sixteen It's typically the lowest cost per flight hour in the market. And so that's where we have a very strong competitive advantage in Our low operational costs on the F-sixteen side.
Could you give a specific ballpark of what we're talking about?
And again, this will vary by what the fleet has and how they're operating. The labor costs are a big factor in there as well. So we have different pricing models that we use based on the country and based on what their Specific requirements are from a cost provider or maintenance.
Okay. I guess I'm not going to get a specific answer. Thanks.
All right, George. Thanks as always. Very tough question from George, but that's okay. I think, Dania, did a great job. We are ready for our next segment.
We're going to move to our rotary emission systems business area and meet Paul Lemo, President of Sikorsky. Paul's located our Sikorsky facility in Stratford, Connecticut, which many of you visited at our last investor event in 2018. But to start, we have a CH-fifty 3 ks video, and then Paul will give us some color on the program.
Welcome to Sikorsky Aircraft's final assembly, where design and manufacturing technology meet to I'm Doctor. Mike Twarack, Vice President of Marine Corps Systems. Over the last 10 years, we've digitally transformed our facility to efficiently and affordably build aircraft to meet the ever more demanding needs of our customers. As you can see, that Transformation is on display today. The CH-fifty three ks production line is mature, well established with 5 U.
S. Marine Corps 53 ks aircraft on the line right now, but we won't stop there. We will continue to implement emerging Technologies to continuously improve. Sikorsky's commitment to build the best, most reliable, affordable, Safe aircraft has never changed, but how we build those aircraft has. And the video you're about to We'll give you a glimpse into our transformation.
Someday, we hope to be able to show you all this in person. But today, we'll be You on a virtual tour. You'll see how the investments we are making today to build the CH-fifty 3 ks will result in improved production
The CH-fifty three ks, the world's most advanced heavy lift helicopter enables the United States Marine Corps and international allies To move troops and equipment from ship to shore in higher altitude terrains more quickly and effectively than ever before. Building off a 50 year legacy fleet, this aircraft is born in an all digital environment. Digital Speed and affordability across the product lifecycle. The company has augmented this low risk manufacturing capability With an additional $600,000,000 investment in digital thread and advanced manufacturing technology, Advanced and predictive diagnostic systems facilitate performance based logistics and condition based maintenance, Lowering life cycle cost and increasing mission availability rates. Igor Sikorsky's passion for designing Innovative aircraft that bring people home everywhere, every time, lives on today in those who design and build The CH-fifty 3 ks.
This is one of my favorite spots at Sikorsky. When I As a young engineer, I used to come here to feel connected. It's everything that Sikorsky stands for. It's history in establishing the helicopter industry And the production of so many iconic aircraft for almost 100 years. When I look out Now, I'm pleased to see the changes that'll sustain that legacy and provide such a strong, solid future for Sikorsky and Lockheed In the next phase, the 53 ks will expand to cover the entire final assembly area to meet the demands of our US Marine Corps and International customers.
After that, well, you'll have to come back in a couple of years to find out. So thank you for joining me today in my Special spot and for allowing me to share with you this quick look into our production digital transformation.
Welcome to Sikorsky, everyone. Thanks for joining us today. I'm Paul Lemo, President of Sikorsky, Lockheed Martin Company. I started here in January taking over for Dan Schultz. And I'm super proud to be leading this iconic company to deliver Some of the most infamous aircraft, rotary wing aircraft in the history of our country.
Before I start though, I'd like to share that we recently increased our masking and social And as we follow CDC guidelines to keep our employees and community safe and healthy, I'm not wearing a mask today, but those around me and supporting me are and we're making sure that we're socially distant. Today, I'm standing in front of our RADAR Systems Integration Lab here in Stratford, Connecticut. And behind me, you can see our flight simulator. This is supporting our entry into the future attack and reconnaissance aircraft program for the U. S.
Army. And as you can imagine, we have a similar system integration lab for Defiant, which supports our entry into the future long range assault aircraft, Part of the Future Vertical Lift Program. Since I've been here over the last 7 months, I've really seen how Sikorsky is a growth driver for Lockheed Martin. We are a portfolio in transition. We're in the process of negotiating the 10th multi year contract for the Blackhawk program.
While those numbers are coming down slightly from what we experienced in the most recent multi year contracts, That program will still be in production for the next 5 years. But more than compensating for those reduced quantities, We are seeing significant growth in the production of the combat rescue helicopter and of course the 53 ks. So the near term looks very strong for Sikorsky. Longer term, of course, the future vertical lift will play an important part of our future. And as you know, we're competing on both parts of the Future Vertical Lift program.
So a bright future for Sikorsky. As we move on to the next chart, I'll talk a little bit about our digital transformation. As you saw in the video, Mike Torok highlighted the transformation that Sikorsky has been going through for some time. In fact, the 53 ks and the CRH We're both born in a digital environment. They both have a digital model that drives everything we do from design to production To sustainment of those aircrafts.
And as you can see in the picture on the chart, our production line for the 53 ks It is very much automated these days. It has no paperwork. So if you walk down the production line, you won't see any drawings or paperwork. It's It's all on the computer, on tablets. Each of our employees and technicians carries those around.
They can access the drawings to do their job On a daily basis, and those drawings are much more manipulative, if you will, than the paper drawings, so that they can Strip away layers, see what they're doing and really complete their job in a much more efficient and productive way. In fact, we're seeing that through the digital transformation on the factory floor, we're actually achieving the cost Of the 100th unit by the time we produce the 20th unit. And both the CRH and the 53 ks Programs have completely different learning curves from our traditional programs like the Blackhawk. They're much more accelerated. And as I said, that is a result of what we're doing in design, production and sustainment.
And in production, just to highlight a few more things, If you walk down the factory production line, you'll see a lot of automated tools as well. You'll see our factory workers having Automated torque wrenches, for example, that not only tell them if they've applied the correct torque, it tells them if they went in the correct sequence of torquing down all the bolts, It tells them if they've missed anything. So not only are we getting more efficient, but we're eliminating any errors in the production phase as well. All these processes enabled by our investment are going to apply to the Future Vertical Lift program. So we feel that we're very well positioned As we move forward in FVL, with having the proper investments in our processes.
And I'd like to say that while many of our competitors talk about digital transformation, I believe we're the only U. S. Competitor that is actually implementing it On our production programs today on the 53 ks and the CRH. As we turn To the 53 ks program and more specifics, I can tell you the program is well supported by the Marine Corps. We have A stable and ramping production outlook.
In fact, we're getting ready to begin the initial operational test and evaluation here in August, And we're going to deliver our 1st production LRIP aircraft in September. All of our deliveries are on track for this year and next year, And we're performing well on the aircraft that we have under contract. Of course, you would have seen recently that we were just awarded Lot 5 Production for 9 aircraft with an option for Lot 6 and an additional 9 aircraft. And in fact, that Lot 6 Has an option to grow by an additional 2 aircrafts, where we can if there are additional congressional plus ups Or if we bring in the Israeli contract in time to add them to Lot 6, we can add 2 aircraft there. So We're well positioned.
We're already working on the proposal for the Lot 7 and 8 Block Buy and looking forward to a multiyear contract beyond that for the 53 ks. As I said, we're ramping up to produce the 200 U. S. Aircraft and capitalizing to also support many international sales as well. Another aspect of the 53 ks program that I'd like to talk about is sustainment.
Sustainment is about a third of Sikorsky's business across all of our platforms. And the CH-fifty 3 ks program We'll be no exception. We're actually building off of the current performance based logistics contract that we have for the 53 Echo program And we are slowly transitioning parts on the 53 ks into that PBL program that we have on the 53 echo. So that eventually that PBL will become fully a 53 ks PBL. And through the performance based logistics contract, We're able to perform condition based maintenance, basically assessing the status of the aircraft constantly And reacting to that and doing the maintenance as needed, when it's needed, not just on a scheduled basis.
That increases The reliability, it certainly improves readiness and the material availability for our Marine Corps customer. We are taking advantage of All the analytics that we use on our commercial aircraft that have proven to save our operators significant money, we're applying that to our Military aircraft, specifically the 53 ks, which was designed to be more supportable and to have all the sensors on board To enable that analytics. Overall, this is going to be a low lifecycle cost for our customer. In fact, I like to say that we're going to provide them twice the capability with the $53,000 at the same life cycle cost as any of our competitors in the heavy lift business. So sustainment is a critical part of our future.
And then finally, we're going to leverage Our program performance and our advocacy to expand the 53 ks internationally. You would have seen recently that we were selected by Israel for their heavy lift program To replace the CH-53D aircraft that they've had in service for many decades. And in fact, very recently, the State Department Approved the sale of the helicopters to Israel. So we're in the process of working with the Israeli Air Force to negotiate that contract and hoping to be under contract Early next year and add those aircraft into our production base. We're also still in conversations With the German Air Force about their heavy lift program and we're seeing interest from other countries as well.
So we do think that the 53 ks That's a quick summary of the Sikorsky business and in particular our CH-fifty 3 ks program, Which we like to talk about. And at this time, I'd like to welcome Paul Regan, our Vice President of Finance and Business Operations for Rotary and Mission Systems. Paul is going to join me in answering your questions on the 53 ks program today, and we look forward to taking those. Greg, we're ready for our first question.
Great. Thanks, Paul, and welcome, Paul. Before I begin, I just want to say that manufacturing floor and the Facility videos and photos look fantastic. You can really see the positive impact that the capital investments we've made over the years have made in Stratford. So thanks for showing that.
Very good. Well, our questioning will start now to cover the Sikorsky Organization, 53 ks, and I'm sure there might be something about future vertical lift in here too. We'll start with Rich Safran from Seaport Research Partners. Rich, welcome. You can proceed.
So I do have a question. I know you've been talking about CH-fifty 3 ks, but I do have a question with a few parts on future vertical lift. And I also wanted to ask you to expand on your opening remarks. I generally think there's some perception out there based on press releases and trade publications That Textron appears to be out front on the program. So I wanted to get your view, thoughts on that program.
And in your response, could you discuss your entry in the competition? Do you think you might have an edge on either Farah or FLara? And what that edge might be? And lastly, could you talk about what the government is looking for and what your strengths are in that program? Thanks.
Sure. Yes, thanks Rich for the question. Look, I think we have an advantage on both programs and of course, You really have to break it down into both programs separately. So let me address FLARAA first, the future long range assault aircraft. If you look at what the Army has been saying, particularly recently about the requirements for that program And the need to be part of their 21st century war fighting concept, be connected in the battle space, be relevant in Indo Paycom.
It has to have speed and range, which our entry does, but it also has to be able to conduct the Assault mission and we can't forget about that. The assault mission is not just flying in like an airplane and delivering troops. You're actually going to be in a contested environment. That's where we think our platform makes a big difference because the Army, and you could read it, they've talked about it recently, They want this platform to fly below 100 feet. What better platform to fly below 100 feet than The compound coaxial rotorcraft that we're offering, which has the speed and the maneuverability to do that at low altitudes, And that maneuverability to get you into the landing zone.
It's not just how quickly you can fly straight level. It's about the amount of time it takes to conduct the mission. And while we may not have the fastest platform in a drag race, We believe we have the fastest platform to conduct a mission from total time, takeoff to landing in the LZ, Because getting into the LZ requires a lot of maneuvering in a contested environment. So I think I just told you what one of our real strengths is. As far as range and speed, we meet all those requirements.
We've got the capability to make the platform very survivable if the Army chooses to go down that path. And as I said before on the 53 ks with the investment that's been made in Sikorsky by Lockheed Martin and the digital transformation that we've been through, We think that we'll be able to very affordably produce this platform when we get to production. So, Feeling pretty strong about the future long range assault aircraft, given our experience in that mission over the last 4 decades with Blackhawk And how to design an aircraft to do that mission. In terms of FARA, we feel very strong there as well. Again, we're offering a derivative of our X2 technology.
And I think one of the advantages for the Army is that we can provide them With platforms that are very similar, obviously, the same technology. And while part for part, they may not be the same on each aircraft because they're different sizes, The technology is the same, the support structure will be the same, the training. So there's a real advantage to the Army In selecting us for both of those programs, and again in FARA, the capability of the aircraft applies the same there. You're conducting an attack and reconnaissance mission, which inherently is going to require speed and maneuverability, which we can provide Inherently, with our platform and its systems on board, rather than having to add things like wings on the helicopter, Which you don't see too many helicopters with those on them. So we feel strongly there.
I'll also note on FARA that we're bringing the full Weight of the corporation there as we are on Florida, but in Florida, there's actually a mission system that has sensors and weapons to conduct that mission. And so we're bringing in missiles and fire control and aeronautics to really help us put together that mission equipment package and ensure that it's the best for that mission. So I think, again, just to reiterate, we're well positioned on both of those platforms. So hopefully that answered your question, Rich.
It most surely did. Thanks very much.
Thank you.
Great. Thanks, Rich. Our next question, we will go to Sheila Kahyaoglu from Jefferies. Sheila, over to you.
Thanks so much, Greg. And thank you, Paul, for that answer on Future vertical lift. Maybe if we could talk about FLARA a little bit more. The CH-fifty 3 ks as you guys showed the videos is heavy lift and that's Clearly a strength of the Sikorsky franchise. So how does this jive into the FLORA competition, if at all?
And then you Also mentioned compound coaxial rotor fleet allows for more agility. How does it do it over a tiltrotor? If you could get into that for me a little bit. And then You mentioned servicing is 1 third of the portfolio for Sikorsky. How do we think about servicing costs of a compound rotor system?
Sure. Thanks, Sheila. I appreciate the question. So I had multiple questions there. Relative to the agility of the helicopter, so A compound coaxial rotorcraft is very simply, it has 2 main rotors that rotate in opposite directions.
And what that does is that, That gives you the full lift capability. A single main rotor gives you lift on one side of the aircraft as the blade is advancing. And then As it's retreating on the other side, you kind of lose lift. And so you're not getting the maximum lift capability out of a single main rotor. With the dual rotors, We're getting more lift than you would think of from a traditional single main rotor helicopter.
So your question about heavy lift, Our offering for Florida is going to be able to lift a significant amount of weight. I'm not going to put that out there because we're in the competition. But suffice it to say, it's going to be significantly more than a single main rotor helicopter and we think than a tiltrotor as well. The agility comes from, again, having those coaxial rotors rotating in the opposite direction, but it also comes From having the propeller in the rear of the aircraft that is providing thrust and it's a controllable pitch propeller, Which will allow us to both accelerate and slow down the aircraft. So one of the neat things about this aircraft compared to a traditional helicopter, A traditional helicopter typically always has its nose up or down depending upon what it's doing.
This aircraft can accelerate and decelerate level. So you can always have eyes on the target, which we think is a big differentiator to be able to provide weapons on target, You know, eyes on target, etcetera. So that comes about again because of the coaxial rotors as well as that propeller in the rear. Hopefully that answered that part of the question. The second piece she asked for was around services and how that might apply to a Compound coaxial helicopter.
So, the helicopter might look more complex, but I can tell you that the design work that we've done, This helicopter is not really going to be much more complex than a traditional helicopter. We've simplified things. You can, for example, remove A rotor blade from the rotor with a single bolt compared to multiple bolts on a Black Hawk today. So where we could, We've designed out complexity out of this helicopter. And so we think that for the Army to service this in the field It's not going to be any more difficult than it is to service a Blackhawk today and in many ways will be easier.
In addition, this helicopter is going to be loaded with sensors just like the And just like our commercial helicopters. So the amount of data coming off will be tremendous for the Army to access and be able to Implement their own service if they choose to go down that dimension.
So hopefully that answered your question. Yes,
it did. Thank you.
Thanks, Sheila. Very good. Well, our next question comes from Matt Akers from Wells Fargo. Matt, thank you.
Hi. Yes. Thanks, Greg. Thanks for the presentation, guys. I wonder if
you could talk about Sort of
the financial implications of some of these new programs ramping up at Sikorsky, pretty Impressive kind of margin performance over the last several years since you guys bought the company, but how much further is there to go as you move
Just a couple of comments and I'm going to turn it over to Paul Regan. But I would tell you that and much of this to Paul's credit helping to drive the Sikorsky team, we have made a lot of progress over the last 5 years at growing margins. And as I look forward as a new leader, I can tell you that there is still room to improve there. We have significant cost reduction efforts going So I'll leave you with that, but ask Paul to make a few comments there as well.
Sure. Absolutely. Thank you so much. And Matt, thank you for the question. We've had really a couple of focuses, Reg, you mentioned over the last few years, The expanding of the margins and also the investment required to achieve those returns has gotten a lot more efficient.
So With that kind of paradigm or model, we employ that going forward and the cost reduction initiatives apply within that. So, for example, we mentioned a lot on the K, I'll start there. We have significant capital investments we've put into the To the K, but each incremental dollar of earnings coming forward on that growth path is coming more efficiently, Meaning it's taking less investment dollars to get there. So we see continued expansion, not only in the Top line on the $53,000 which is significant, but also on the bottom line as well as the return on invested capital It is improving faster than the rate of just the margin on top of the sales. So I'm very pleased with our path and our path forward.
And as we think about 53 ks growing significantly, getting up to near Full rate production by 'twenty four, 'twenty five timeframe and nearly doubles in revenues. So think about it that way. And then we'll continue all the way through the full program of record, before we even get into the international market spaces Up to a total of just over 200 helicopters. So, significant growth there. And Paul mentioned the combat rescue helicopter, Same dialogue on that as well, where we see our margins expanding and we also see some significant growth And really a resurgence in growth on a program Paul didn't mention was our MH-60R, CHOP platforms.
You've been Able to sell mostly internationally growth driven. So this is really a growth engine for not only Sikorsky, But RMS in total. And so as we relate The FEL and the other future things as they continue on this progression through time as the growth happens on 53 ks to Romeos And then the CRH, you start to see the competitions kick in for which we'll begin. They will recognize Order of sales earnings and cash in for Florida in the 2022, 2023 timeframe and then for far out in the 2024 timeframe Per the current plan and those will begin to ramp as well. And so those will be competitive procurements and we'll have Risk profile, so there'll be definitely a ramp throughout the longer term on those margins.
So We see a very strong outlook for Sikorsky, and I'm particularly pleased with the return on our investments that we're making there. And for those of you who are on the investor meeting in 2018, that was a big point was the amount of investment That was on the balance sheet for the returns and we've taken both things to heart and the team has done a wonderful job here. So Net net significant growth, nearly doubling through 2025 from this year's expectation, Significant growth in both the CCRs and the CRH. We have a bit of a transition period in the interim, ongoing from Multi Tier IX to Multi Tier X Blackhawk, but we continue to work on enhancements to that platform as well. So Pretty positive growth outlook even prior to the full kick in of the FEL programs.
Great. That's very helpful. Yes, very much. Thank you.
Great. Thank you. I think that wrap we have one more question, which comes from Noah Poponak At Goldman Sachs, sneak another one in, Noah, over you.
Okay, thanks. I wondered with the 53,000, if you could just Walk us through what the biggest capability validations that are left or What you see as the biggest hurdles. I think there's some activity coming up related to the fly by wire, which if I understand correctly is a pretty big leap. And then separately on the unit costs, we could see that the reductions in the lots you've had so far, you mentioned the Achieving the 100th unit by the 20th unit. The program of record numbers, just simple division, don't Suggest that really goes much lower, but it sounds like you have opportunity for it to do so, if you could speak to where you intend to take that.
Yes. So I'll take the first part of that. So as I mentioned, we're going to be entering initial operational test and evaluation here in August. While we're starting that up, we are still finishing sort of our developmental test program. We've got Couple of handfuls of tests left to do here in August, but really a lot of the significant ones are behind us.
So Not exactly sure which test you're referring to there, but I can tell you that we feel very good about where we are. In fact, we just finished nighttime refueling, Which was a very challenging test that the aircraft passed with flying colors, so to speak. And So again, we're on our way to completing our test program here to get ready for that IoT and E over the next few weeks And on to IoT and E, we expect based on our pre review with our customer to get ready for IoT and E, we expect that to go well And do not have any major findings there that we don't already know about or aren't already working. So again, we feel pretty good about going into IoT and
Okay, Greg.
And then the second part of the question, Paul, I was going to see if you had any comments on that.
Sure. Absolutely. Thanks for the question. Yes, we are seeing significant reductions in our unit costs earlier than Our, I'll call legacy programs as Paul referred to earlier. And versus the program of record, Our aspiration goal and expectation is that we will be achieving those, which you yield a couple of things, right?
An opportunity for expanded purchases of the platform, proliferating the platform, not just domestically, but also Becoming more competitive in the international space and helping our prospects there, which down the road will then feed into the aftermarket and sustainment activities. So, we are in a and Paul won't let me mischaracterize this here, but A constant rhythm of cost reduction initiatives on top of the accelerated learning curve that we are achieving today. So we're hoping to increase either our pricing power or our total growth by Virtually the number of platforms sold and that's really the game plan going forward here. So hopefully that helped on your second question.
Okay. Yes. Thanks so much.
Great.
Thanks. I think we have time for one more. And this question comes from Christine Liwag From Morgan Stanley. Christine, over to
you. Thanks, Greg. Paul, on commentary from Lieutenant General Weiss last month, Sounds like the Marine Corps total CH-fifty 3 ks procurement could fall below 200 due to affordability. So with the unit cost of the CH-53K now at $97,000,000 in Lot 5, down from $130,000,000 At what unit cost do you anticipate you could entice additional orders? Also, is the Marine Corps' comment on affordability From a new purchase perspective or sustainment?
Christine, thanks for the question. I've had a lot of conversations with Marine Corps leadership about the total buy. And while I can't give you an exact number and by the way, They've been very clear with me anyway that the number today is not necessarily related to affordability. I know in the past, They made some reductions to the quantity, because of affordability. But going forward, It is not necessarily connected to affordability.
I think they're comfortable with the trajectory we're on in terms of reducing that unit price. That's what I've heard From our customer. Now, I would tell you that the Marine Corps Commandant has put out a new force design structure That reduces some of the force structure for the aviation debts And they are working through that right now. What I've been hearing is that, you know, the initial requirement was well over 200. In fact, it was closer to 220 And they had a very low attrition rate.
So as they reevaluate what they're going to need, which may be less, but they adjust Your attrition rate to be something perhaps more realistic, the number may still be around 200. Again, we don't have a final number. That's what we're planning for. We haven't been told to plan for anything different. And we're going to continue to drive down the cost For the aircraft to make it more affordable as we said.
Great. And if I could, I'll follow-up on your Comment earlier on international demand. You mentioned the Israel order. Can you speak to more detail on additional customers you're speaking to orders for the program and could you quantify the opportunity?
Sure. I'll tell you what I can. We are still in discussions with the German Air Force as we've talked before and that is a 40 to 50 aircraft opportunity. Beyond that, we're in the early stages with several other customers that I can't mention, but we view that target market as another, Let's say 25 to 50 aircraft. So I would say we're sizing the international market for up to about 100 aircraft In total, at least that we see over the next 5 years, but we'll continue to press with other customers out there that we know Need heavy lift capability.
Great. Thank you very much, Paul, and thanks, Greg.
Thanks, Christine. All right.
Thank you, Christine. All right, I think that kind of wraps up our Sikorsky and 53 ks segment. Thanks again to your questions on both The 53 ks and future vertical lift programs. At this time, we'll take a short scheduled break and we'll turn in about 10 minutes to start our next topic, A panel discussion and Q and A session on one of our most strategic areas of growth around the corporation, hypersonics. So stay tuned.
We'll be back in about 10 minutes. Thank you. Please welcome back to the virtual stage, Greg Gardner. Welcome back to our last segment for the 2021 investor event. We hope you enjoyed the insights from the first three programs And production areas we went over that are really some of our signature programs and growth drivers for the company.
Turning to another area of growth For the company, I'd like to introduce John Rambo, Vice President of Integrated Warfare Systems and Sensors in our rotary mission systems business area. John's going to pull double duty today. He's going to serve as a moderator on our panel and a contributor to this segment. So we're going to highlight some of the unique areas of capability that the company has In the area of strike and counter strike hypersonic weapons. So with that said, over to you, John.
All right.
Well, thanks, Greg, and thanks everyone for tuning in to hear a little bit about the exciting area of hypersonics. As Greg mentioned, this is a significant area of growth for the corporation And really represents tremendous opportunity, particularly in the strike area for 3 of our business areas for space, for aeronautics And for Missiles and Fire Control. So to help me walk around the horn here and touch on a little bit in each of those business areas, I have with me an executive representing each one of those business areas. With me today, John Paquette from Aeronautics, Eric Schurf from Space and John Varley from Missiles and Fire Control. So So what we'll do is we'll walk through today a panel discussion.
We have about 15 minutes of structured discussion that we've laid out for you all today. And then what we'll do for another 10 minutes post that discussion is we'll open it up for some audience Q and A and let you address your questions directly to the panel and Greg and I will moderate that session. So we'll go ahead and jump in with our first question for the panel. And for this first one, I'd like to have each of the panelists talk a little bit about the key programs And areas of current focus for each of your business areas in hypersonics. And Eric, on this one, I'm going to
go ahead and start with you.
All right. Well, good morning, John, and good morning, everyone. Pleasure to be here today. To begin with, across Lockheed Martin, we are partnering with The Air Force, the Army, the Navy and DARPA to develop, demonstrate and test capabilities across the entire Hypersonic strike domain intentionally complementary capabilities. And that domain includes air, Sea and land based, it includes both air breather and boost glide.
To enable this and to bring all of the strength and Focus of Lockheed Martin Hypersonic Strike, we've established a cross business area executive steering group. This executive steering group is comprised of Leaders from across all four business areas, technical leadership, subject matter expertise and government affairs, bringing a single cohesive group together To provide the enabling mechanisms to go fast, to develop exactly what our customers need and to deliver this capability urgently. It also provides decision making around where we want to focus our capabilities and where we want to focus our future strategies. Within space, we have 2 of these 6 programs. The first being the conventional prompt strike program for the U.
S. Navy And the second being the long range hypersonic weapon program for the U. S. Army. The thing to know about these two programs is that they are Incredibly interdependent.
To begin with, they share a single common missile design. From tip to tail, it is 1, the very same missile that provides the capability that both services need. Beyond that, we share common planning, We share common supply chain. We have a common ground test and flight test plan. And so this tremendous commonality It spans both of these programs brings incredible affordability, it brings schedule acceleration and it dramatically reduces risk in the execution of these programs.
Now in spite of that commonality, we also have the ability to deliver exactly what these two services need. No compromises have been made In developing this system, and each service gets exactly what they need for their domain. I also want to take a minute to just mention our heat organization within space, hypersonics engineering and accelerated technologies, A group of scientists, engineers and analysts who are working closely with all of our customers to focus on the science and technology That will continue to evolve this capability and in the future deliver exactly what our customers need. I'll throw it over to John Varley to talk about MFC's hypersonics programs.
Yes, good morning. And to build on Eric's comments, Lockheed Martin Missiles and Fire Control is leading 2 hypersonic strike programs. The first one is the Air Launch Rapid Response Weapon Known as ARRW Program for the U. S. Air Force.
We've been developing these capabilities over the last few years And look to reach early operational capability next year. MSC is also working with our DARPA customer on the OpsFire program. We're leveraging our ground launch technologies and experience, providing a mature hypersonic capability for ground vehicles. My colleague, John, your area has extensive experience with DARPA in this conference. What are your thoughts?
Thank you, John, and good morning, everyone. John just mentioned our DARPA customer for the Op Fires and our Skunk Works business has decades of experience Working with them and various other DoD organizations
such as the Air Force Research Laboratory and the Office of Naval Research to develop, Demonstrate and bring new technologies into production. We've been working both BoostGlide and AirBreathing hypersonic technologies for many, many years And through collaboration with our other business areas, we're bringing game changing capabilities to the Warfighter. Key programs currently being worked within Aeronautics and the Skunk Works in partnership with DARPA include the hypersonic air breathing weapon concept Often referred to as the HAWK program and tactical blue slide. We're also supporting the USAAF ARW program that John Varley referenced moments ago. Advancements and lessons learned on TBG have dovetailed into our work On ARW.
The Skunk Works also recently received a contract award from the Air Force Lifecycle Management Center For the future hypersonic program, which is a transition effort from the HAWK program. We are bringing the same prowess from HAWK To the efforts on the future hypersonic program development efforts as we go forward. John, back to you.
All right. Well, thank you, John, and thanks to all the panelists for covering some of our current programs and development activities. And what I'd like to do for the next question here to the panelists It has transitioned a little bit towards the future and specifically ask each of you to talk about the investments and preparations you are making to start to transition some of these So on this one, let's have John Varley lead off if we could.
Yes. Thank you, John. And as everybody heard today, Lockheed Martin is heavily invested in our digital transformation of our engineering tools, processes And Advanced Manufacturing. With the year to year year over year IRAD funding and investments To advance these emerging technologies to support our 21st century war fighting strategy. There are tremendous growth in this hypersonic portfolio.
We have multiple programs moving from development into production and there are more programs on the horizon. Our current focus is solving the technical challenges with hypersonic flight. We're developing innovative materials, Sensors and electronics to survive these extreme conditions. We're also designing subsystems to navigate, communicate and defeat advanced defense systems around the world. John, I know Skunk Works has made Tremendous investments over the years in these hypersonic programs.
So over to you. Thank you, John. Yes, you're correct. The Skunk Works has invested heavily over the last many, many years in these key hypersonic technologies. The corporation has also invested more than $100,000,000 To ensure existing employees are prepared for jobs of the future through education and training opportunities, we have invested in the academic arena as well, Where we've created consortiums with universities around the country to create testing facilities as well as providing Assistance in developing curriculum to inspire and produce the next generation of hypersonic experts needed across this industry.
Additionally, As been talked about before, we've been transforming the way we work by deploying digital tools and advanced manufacturing to speed solutions to our customers. And a quick example of this is with our hypersonic program effort, where we've leveraged the work accomplished within the Skunkworks StarDrive effort. On the future hypersonic program, we have implemented a digital engineering ecosystem and are using a model based systems engineering approach With one single source of truth and it's already showing tremendous benefits. Eric, can you talk a little bit about the space investments?
Absolutely, John. Thank you. So as John and John both talked about, we continue to invest in many areas, facilities, testing, Strategic R and D and in our supply chain. And we're doing this in partnership with our customers, making sure that as we invest, It aligns with how we want to evolve this capability and deliver these evolved capabilities at the speed of relevance.
I want
to focus a little bit on our investments in both our engineering and production capabilities. We are investing in those as we speak. And probably the thing to highlight the most here in this call is the investments we're making in Cortland, Alabama. We are continuing to expand our flagship hypersonic strike Production capability there through multiple years of investment. We're doing that in anticipation, not just in terms of today's Capacity demands, but also what our customers will need this decade and into the next decade.
And Cortland, Alabama is just One example of the kinds of investments that we are making. John Rambo, back to you.
All right. Well, thanks everyone again. And I think for the last question, we've talked a little bit about our ongoing investments in development We've talked a little bit about our focus as we transition to production. And for the last question to the panel here, we're going to look a little Further over the horizon, and I'm going to ask each of you to talk a little about a bit about your individual business area strategies for the long term In hypersonics and also maybe a little bit about how those connect to the overall Lockheed Martin corporate vision for long term hypersonic strategy. This one will go ahead and start off with John Paquette.
Thank you, John. Embracing a one Lockheed Martin approach Leverages the strengths of our entire corporation to collaborate and develop the most advanced platforms and systems available To provide the U. S. Military and its allies a distinct advantage. One of the ways we do this is through our cross business area hypersonics Operational analysis to help our customers measure the lethality and viability of these weapon systems during wargaming exercises.
This analysis informs our strategy and guides the future procurement of these hypersonic systems. Lockheed Martin is a leader In early stage technology development, maturing products and programs and taking approaches that reduce cost and increase value in these complex systems. For example, as I mentioned previously, we are incorporating digital tools to accelerate the fielding of solutions and partnering with over 60 universities To build talent through our Hypersonic's university engagement efforts. Demonstrating and delivering on our contracts will be key for the future. With budgetary limitations and growing demands, Lockheed Martin understands that delivering on our commitments is paramount To provide these important deterrent solutions.
Eric, can you talk a little bit about space and the strategy there?
You bet, John. Thank you. So let me first by start by saying, across all of our business areas, we have tremendous unmatched capabilities and unmatched expertise. I want to talk a minute about the rich history here within space in terms of the legacy of complex Critical programs that we've been working across this customer set. This rich history of capability is being leveraged Into what we're developing and demonstrating today, bringing some of the most incredible systems that the nation has today.
We're leveraging our subject matter expertise, that capability and that history. And as John mentioned, we're applying the digital transformation To not just development, but also to production, so that we are delivering to our customers at unprecedented Affordability and unprecedented pace. I'll throw it over to John Varley to talk about MFC.
Yeah. As you can see, collaboration with our U. S. Air Force, Army and Navy is key to the long term development Of this hypersonic portfolio. Producing the most capable, affordable and high quality combat systems, Staying on budget and staying on schedule will ensure growth of these new technologies.
This will require industrial cooperation, A sustainable and robust supply chain, as John mentioned, a talent workforce pipeline and key is an acquisition approach at the speed of relevancy. This 1LM approach my colleagues and I have often spoken to brings the strength of the entire corporation together To meet our customers' requirements and challenges. To help provide a boost glide and air breathing hypersonic capability, As well as the ability to target and defeat our adversary weapons. There's 3 Johns on this panel. So this question is going to be turned over to you, John Rambo.
I know we've talked a lot about hypersonic strike. And I know Lockheed Martin is equally committed To the challenging task of defending against hypersonic weapons being developed by our adversaries. So from your perspective, Where are we seeing opportunities for growth in this new area?
Thanks, John. I'd love to talk about that a little bit. I'm part of the rotary and mission systems business And I'm the one that is not as actively engaged in the offensive side of hypersonics, but we're very active in counter hypersonics And I think while you might not see large standalone programs dedicated to counter hypersonics, There's a lot of work going on in this area. We're making significant investments across the corporation. And what you'll likely see Going forward from a business perspective is you'll start to see some of the existing air and missile defense systems upgraded, enhanced and expanded to be able to address some These emerging threats because as much as we are investing in these capabilities from an offensive standpoint, we know that our adversaries are doing the same.
And we need to help our customers stay ahead of that. So when you think about what's going on in counter hypersonics, in some sense, the challenges are very similar to traditional Air and missile defense, where you're looking at ballistic missile threats. But there are some significant differences. And Simply, with ballistic missile defense, you're talking about a much slower moving threat that's moving in a very predictable parabolic Trajectory and with hypersonics, obviously, you have weapons that are moving at a much greater speed. And in many cases, we believe will be maneuverable.
So we have to be able to anticipate In a way that we haven't had to do before. So getting back to the fundamentals, though, if you talk to the Missile Defense Agency, they'll tell you that the missile defense and This is true for hypersonic defense is really about 3 things, detect, control and engage. And in all three of those areas, we have The programs today that go back decades with the Missile Defense Agency and other military services here in the U. S. And certainly as we go We're making investments in each of those segments to be able to bring new technologies to bear to deal with some of these emerging threats.
So from a detection perspective, A lot of the activity we see going on is in space with enhancements to our space based sensing layer, improving the bandwidth of the communications Across that space based network, from a terrestrial perspective, improved solid state radar technologies that will be able to see much further and provide much greater capability to better identify earlier what the threat is that we're addressing and how we want to intercept that threat. So when you think about programs like the long range discrimination radar that we're going to be turning over to the Missile Defense Agency up in Clear Alaska Later this calendar year, that's the kind of technology that we're investing in today to be able to address some of these advanced threats from a detection standpoint. In the control area, again, we have a 20 plus year legacy of providing command and control capability to the Missile Defense Agency with programs like The C2BMC program Command and Control Battle Management and Communications. We also provide the Aegis Combat System, which has decades of A proven performance in missile defense. And so looking at those existing programs, there will need to be continued investment in higher bandwidth You probably heard us talk a little bit about 5 gs.
Mil and bringing that 5 gs communications technology into a military environment. We'll need to drive Those technologies into these command and control systems and certainly there will be elements of artificial intelligence that will be required because you're talking about Potentially large numbers of very rapidly moving threats, not moving in a predictable trajectory, because they would be maneuverable. And so again, you want to have that artificial intelligence augmentation there to help very quickly identify, track and anticipate where these threats are going to be heading. And then finally, in the area of engage, we have our traditional interceptor missiles out of missiles and fire control, the THAAD system, The Patriot system are now the PAC-three MSC missile. We're continuing to make investments to make those missiles more capable And more prepared to be able to adjust some of these threats.
We're also looking at augmenting those traditional kinetic effectors with non kinetic effects. We're investing Substantially within RMS in directed energy technologies and starting to move some of those out of the lab and into the operational environment. We think things like directed energy, advanced radio frequency capabilities can really augment some of those traditional kinetic effectors. So I think you'll see continued investment by the corporation in some of these key technologies and starting to advance those in partnership with our customers to augment some of the existing Integrated air and missile defense capabilities as well as expand those systems for the future. So I hope that gives a little bit of A snapshot of what we're doing in counter hypersonics.
And I think that brings us to the end of our structured discussion for today. I think we have about 10 minutes or so left here for Q and A with the audience. And Greg, I'll turn it back over to you to moderate that.
Hey, thanks, John. As you everyone can tell, we really Taking advantage of expertise and talent from all four business areas to address both the Strike and Counter Strike hypersonics and it's really impressive. Thank you. Our first question comes from Seth Seifman from JPMorgan. Seth, go ahead.
Thanks very much, Greg, and good morning or afternoon, everyone, depending on where you are. And thanks for your time and for the insight. I was wondering, if we look at the kind of existing ex hypersonic strike missile portfolio in MFC, it looks like it's above 4, kind of approaching $5,000,000,000 type of portfolio. How do you think about it sounds like 5 years is kind of the company's planning period. If you think out to the end of that planning period, how does the offensive The opportunity for the offensive hypersonic revenue look across both MFC and Space Compared to that existing sort of portfolio for tactical missiles.
Okay. This is John from Missiles and Fire Control. You know, as we go through the, I'll say, aero hypersonic Development phase, we're going through that over the next year. And we just submitted our initial low rate Production proposal last month. And so we see award coming in the next year.
And we can see continued growth Over not only the LRP, but beyond the LRP for hypersonic strike. And again, I think This complements detectable missile programs we have here at MFC. So I don't see them competing. I see them complementing each other And leveraging the technologies as we go forward. Eric, from a space perspective?
Yeah. Thanks, John. Yes. Similarly, over the next 5 years, we see continued growth. As we look to take these prototype systems that we're working now, we deploy them.
And then both the Army and Navy will follow those up with enhancements, programs of record and then producing these missiles in quantities To then get the capability in numbers out to the warfighter. And as John said, similarly in space, we see that continuing to grow through the balance of the decade.
And then maybe just to follow-up quickly, how many if we look out to that sort of mid decade, 5 year period, How many hypersonic offensive missile programs do you think you might have in production at that point?
Well, I would say that when you look at the 6 programs that we're talking about today, they will culminate because TVG is a Prototype Pathfinder for both ARRW and off fires that What we will then have essentially once TPG completes its task is 5 programs Going into production for those respective services.
Great. Thank you very much.
You're welcome, Seth.
Thanks, Seth. And just to keep us on schedule, so we have enough time for Jim and John at the end, we're going to take one more question on hypersonics. And that's going to come from Doug Harned from Bernstein. Doug, go ahead.
Great. Thank you very much. In the industry, there's a lot of people involved in hypersonics, a lot of teaming across programs. As an example, you're the prime contractor On CBS, LRHW, but you're working with Northrop Grumman for propulsion On that, on those programs. Now at the same time, you're looking to acquire Aerojet Rocketdyne for leverage in hypersonics.
I'm trying to understand what it means. Is the teaming type arrangement with Northrop Grumman Suboptimal, is there something different that you hope to get From Aerojet Rocketdyne, I'm just trying to understand the strategy here.
Well, I would say I'll start with I would say that when you look specifically at the 2 programs you mentioned, As we stand here today, there is nothing suboptimal about our relationship with Northrop Grumman in developing and providing the rocket motors that support this missile. Our strategy to acquire Aerojet Rocketdyne is a larger strategy that is not uniquely focused on hypersonic strike. And that strategy involves providing a greater Supply base for Rocket Motors that benefit all programs. And so as we look forward, beyond the near term, We'll have to look at what the optimal solution is for these programs as they go forward. But today, there's I would say there's nothing necessarily suboptimal.
If I could follow on just to think of this in a broader context, from your discussion today and past discussions, It appears that Lockheed Martin certainly wants to play an integrator type role in this space. And there are a lot of Participants involved across vehicles, space, ground and so forth. From a customer standpoint, Where do you view the integrator role as providing higher leverage on capturing subsystem and product wins? And where do you see competitions being done more at arm's length in this new universe?
I think as the systems integrator, Lockheed Martin is uniquely capable of bringing these Systems, these technologies together into deployable systems and getting those to the warfighter. When we talk about the teams that we've built And the next tier of suppliers that we have in these programs, I think we've really pursued a best athlete kind of mentality To make sure that we've got the right work being done, but also Lockheed Martin being considered in that best athlete evaluation, bringing what we Have to bear on some of the subsystems and some of the technologies within these systems. I think as you look further down the supply chain and look at what the demand will be for these systems going forward, we'll be looking to expand Ultimately, the overall supply chain capacity. And so maybe not being focused exclusively on one second, third tier supplier, But growing that supply chain through multiple sources, providing a more robust supply chain and bringing affordability to our customers.
I think you make some good points there, Eric. And I would just underscore the integration capabilities that Lockheed Martin has Being a significant discriminator, we do take an enterprise view to everything we do in the company. We've certainly done that in hypersonics. And it's not just about bringing individual components together and stitching them together loosely. It's really about A thoughtful systems integration approach that optimizes the system.
And we do that across the corporation. We do that across our supply chain. And as we think about Some of these 21st century war fighting concepts that we've been talking a lot about here in our company, that's just a critical skill. I had one of our senior customers But you guys know how to do integration and you do it very effectively. So that really is a strong discriminator for us.
Thank you, John, and thank you, Hypersonics panel, and thank you, Seth and Doug, for your questions. In the interest of time, we're going to move ahead. At this time, to cap off the event, I think we're going I'd like to introduce reintroduce really our Chairman, President and Chief Executive Officer, Jim Taiclet. Over to you, Jim.
Hey, thanks, Greg. We really appreciate everyone being with us here today. Our theme is investing To deliver growth and value for the 21st century. And I'm hopeful that today's presentations at the plants help you better understand The actions of our company, how they're going to expand our margins, drive revenue growth and ultimately returns over the long term for you. We selected some of the programs you saw today because of their importance to the growth of our company, their alignment to the vision They've generated already through the application of innovative digital transformation.
Really our 21st century warfare concept, which is accelerating The newest technologies into the defense enterprise and our digital transformation are two sides of the same coin, which rely on the latest technologies to advance Both our cost base, our production capabilities and the ultimate capabilities we provide to our country and our allies. So first, let's just go back to the Joint Strike Fighter F-thirty 5. It's the central node in the network centric defense architecture of the future In addition to being an amazing aircraft, you heard from the team in Fort Worth. We've got the program's continued focus on progress on delivering here. It is a really complicated machine.
We've got a lot of suppliers in the supply chain. We had to get through COVID, I think successfully Managed by our team in Aeronautics to get that all done and say almost all on time on delivery last year and this year, Just scaling back a little bit, smoothing that production curve, as you heard Bridget talk about, so that we can be efficient as we recover from COVID. There's a lot of opportunities you heard about in sustainment and modernization. We're only about halfway, a little over halfway, the basis stood up so far that we're going to be Put in place around the world for the F-thirty 5. There's thousands of aircraft that are slated to receive technology upgrades over the next few years too.
So sustainment and modernization are going to continue to be growth elements of the F-thirty five program. The team is also making great strides in driving greater affordability. I am personally involved in this. Some of you've heard that I've That with all the service chiefs and the Chairman that demonstrate our commitment to doing this and also to ask them for the services and the joint program office direct involvement Really leadership on their part in crafting a sustainment strategy for the Department of Defense will weave in our international customers to that. But I do think we have as a team, as an integrated team with a customer base, significant additional opportunity in reducing costs.
You already heard that our company has invested about $500,000,000 to reduce costs that we can control. It's only about 40% of the total. We've got a goal of reducing it by another 40%, you heard over the next 5 years. That's going to continue to require investment on our part. But there's even more opportunity if we can get that integrated strategy put in place with our customers.
It's really interesting because there is a competition in Switzerland, which was, I'd like to call it a very fair fight, 4 aircraft, that were competing The Swiss Defense Forces new aircraft, fighter aircraft program. And the F-thirty 5 was chosen hands down and The selection committee known as the Swiss Federal Council said, and this is their quote, it had the highest overall benefit at the lowest overall cost. So this is a very objective kind of non emotional view of all the options and the Swiss chose the F-thirty 5 hands down. That win included sustainment and training services will go with it. It's got an initial value of over $5,000,000,000 for Lockheed Martin and a total of about $15,000,000,000 over the next 30 years or so.
The second presentation you saw was the F-sixteen production line in Greenville. Strong international sales of week 1, they've yielded a robust backlog, you've heard of about 128 airplanes. There are a number of other opportunities that are significant. And today, the F-sixteen has got thousands of aircraft still operating in 25 countries, Very well proven, huge supply chain, efficient sustainment operation. And so new customers coming into 4th generation Crafts such as the F-sixteen are going to be well served should they choose it.
The 3rd presentation you saw was from Stratford, Connecticut, Mainly focused on the CH-fifty 3 ks team. They're continuing to make progress in ramping up production again, a very complex, Highly, highly capable aircraft, significantly more capable than either our own offering of the past than the The Echo model and other offerings in heavy lift helicopters. To get there, we had to apply state of the art design and manufacturing technologies that Paul talked to you about. And what that's doing and I've been in the plant and seen this myself, greater efficiency and productivity among the workforce, even better health and safety metrics Because we're using all the technologies we can to make that factory the factory of the future. Well, earlier this year, I hosted the Commandant of the Marine Corps, General David Berger at the And he saw firsthand how we're weaving that digital thread through the entire lifecycle for the CH-fifty 3 ks And seeing how it's allowing us to drive the cost down and release the unit price to the customer.
So the Navy has already got A program of record, we've already talked about around 200 aircraft. We've got 33 orders to date. We're only just getting started on the program. A lot more airplanes to build and deliver in the coming years and the more efficient we get at doing that, the better the margin performance would be for that program. Finally, we heard about from a panel of our experts at Lockheed Martin on our 1LM efforts, as we call them, to deliver hypersonic capabilities to the customer.
This is a really important area. Some analysts might say that China and Russia might be ahead of the U. S. Or perceived to be ahead of the U. S.
In some of these areas. We're trying to make sure that doesn't happen. We do not want to be at a disadvantage as a nation or an allied set of countries. So in hypersonics, before my arrival, this Tiger team was put together across all the business areas, draws on all the resources of the entire company And it's working closely as you've heard it with customers to test and demonstrate what we can do. This is Mach 5 plus technology The heat generated by these bodies as they go through the atmosphere is tremendous.
The propulsion technology is critical And we need to move as fast as we can in this area and we're doing it with our customers. I think just from our panel, you can see The level of expertise and scientific excellence that is within this company that we're able to convert these programs into Revenue and ultimately margin generating programs for Lockheed Martin and for products that the country absolutely needs. So all the programs you saw today are featured. They're integral components of our vision, the wider vision to accelerate the delivery of 21st century capabilities Into the defense enterprise. And our vision is not based on just an interesting opportunity, it's based on the threat environment and meeting our customers' needs Across all domains and by that they mean land, air, sea, cyber, space, undersea, etcetera.
And the military itself has put together a joint warfare concept to try to organize itself to deliver these kind of integrated capabilities. We're starting to implement this vision already. And I'd just like to quote Defense Secretary Lloyd Austin. He recently said, And I'll quote again, the future of our nation's defense will be rooted in integrated deterrents, which is about using existing capabilities and building new ones, And then deploying them all in new and network ways in lockstep with our allies and partners. Now that's again not from the Lockheed Martin presentation, that is from We're trying to get out ahead of this requirement and use our own platforms to be the pathfinders for it.
In addition, Our leadership in the aerospace and defense sector gives us the credibility with our customers and also to build bridges to the commercial technology space. Accelerating the incorporation of these technologies in the defense enterprise is going to be essential to go back to the commercial And telecom technology, semiconductors, etcetera, to work with us. We want to work with our commercial partners and our defense and aerospace industry Partners to develop an open architecture. First of all, again, using Elon Platforms and Systems as pathfinders. Now, we can only do this if we join in the industry leaders in the commercial space is my view.
In areas again like semiconductor design manufacturing, cloud computing, 5 gs, artificial intelligence, because we can help bring the benefits of their massive commercial investments To help bolster our National Defense and again make Lockheed Martin the pathfinder platforms and systems that the customers are going to need to have To launch this effort. So we're going to tie together not only our own platforms, but also the platforms of other OEMs. And as we start to create the standards And the architecture for this, we'll be reaching out to our peer group to create a more powerful even network effect for our customers. We're also going to use and you heard a little bit about it today, but our operations analysis capabilities are really advanced. That operations analysis is essentially wargaming and formed with actual data.
So we use that operational analysis Understand our customers' missions and the threats against those. And then we provide integrated solutions to anticipate the challenges they're going to face in the future. Now I've asked the team and they're stepping up to it already. Let's combine the operational analysis with cost analysis so that we can show our customer a full picture of value To ensure that we get asset efficiency and utilization out of what we're designing, that we bring greater value in enhancing our product impact. And as we call it, give our customer an overall cost for effective advantage by integrating operational capabilities And cost analysis in a way that can demonstrate to them, they're getting the best use out of their budget when they're working under this concept.
So again, all 4 of our feature programs today, they're going to be an important part of the 21st century war fighting concept for us. Now the F-thirty 5, as I said, is at the center of the joint all domain battlefield of the future. It's essential now in international. And again, international is really important, It's creating a network of highly capable interconnected platforms and systems. Now, the F-thirty five has sensors and communication systems that can Connect instantly with other F-thirty five without modification.
Now, we're going to actually start and have started extending that to F-twenty two, Ultimately, F-sixteen, the future vertical lift, that multi node network will continue to increase, again, based on the introduction of these concepts into our The F-sixteen is a workhorse fighter aircraft. Again, operated by over 2 dozen militaries around the globe. It's the most advanced 4th generation fighter and it's going to allow us to extend that interoperability I just talked about. Now, I just flew the Block 70 F-sixteen a few months ago. It's a super high performing aircraft.
The avionics are excellent And it's still competitive in the space. And that's why you see a lot of the demand coming from countries that hadn't had the opportunity, maybe that resources before To CPF-sixteen, they're getting very interested as you heard the team describe. And then just back to the CH-fifty 3 ks, It will provide the U. S. And our allies such as Israel with capabilities that no other helicopter can give.
The Marine Corps is already testifying to the aircraft's Greater lift and endurance capabilities. The pilots are telling us that the fly by wire system reduces their burden on pilots and increases the safety of flight. And then we've got the digital interoperability with the rest of the fleet to go right along with it. So, lastly, the hypersonics program, we're combining our missile defense space, Advanced manufacturing capabilities to get out in front of this really urgent national security need. And I'll spend just a minute on this Aerojet Rocketdyne, it was a good question there earlier, Doug.
We think we're going to be able to strengthen the customer value of propulsion, not just in our own hypersonic programs, but for other hypersonic Program providers and for other space and missile defense providers as well as Lockheed Martin. We feel that Aerojet Rocketdyne has invested additional investment that Lockheed Martin can afford to bring to it. So The expertise that we can offer technically and from an engineering perspective, Aerojet Rocketdyne will only be a better supplier to everybody, including ourselves and our A peters in the industry as part of Lockheed Martin than standing alone. We are eager to prove and we've made commitments already to the Customers that we will reduce their costs, we'll speed up our development processes and timelines and we'll give them better products, Assuming we can achieve regulatory approval of the Aerojet Rocketdyne acquisition. So I firmly believe that as does our team And we're looking forward to completing the regulatory review process, we hope, this year.
We've got a lot more programs across our company. I know you all know that, But all of them are dedicated. 1st of all, meeting the customers' needs for the platform, the program, but also marching towards An integrated network effect ultimately that's going to make our deterrent capability even stronger. I tell my executive team, We are a Deterrence company and Deterrence may be the most valuable product that any company in America can deliver and we're very dedicated to being the best of that And leading the charge here. So I'll conclude by saying thanks again to everybody for participating today.
Lockheed Martin Investor Day, a couple of hours, but you got to go to 3 or 4 places and see Pretty interesting stuff without getting on an airplane. I hope you appreciated that. We really look forward to delivering on our vision of 21st Century Deterrence And to continue to create long term value for all of you and the shareholders out there. And now I'll ask our Chief Financial Officer, John Mueller to join me. We'll take some of your questions.
Great. Thanks, Jim. And it is time for Q and A for Jim and John. The first question comes from Ron Epstein from Bank of America Global Research. Ron, thanks for your question today.
Yes. Can you hear me okay?
Perfectly, Ron. Thank you.
Perfect. Cool. So maybe, Jim, a question for you. It's got a couple of parts. It's not different than what most people are doing today.
Can you speak to your M and A strategy? I think the investor community at large was kind of confused When you came on board, you talked about 5 gs connectivity. And then the first deal out of the box was Rocketdyne. And then could you add on to that, what are you thinking about size, multiple return hurdles When you do M and A, and then finally, Senator Warren's push for the FTC to look closer at defense M and A deals, specifically Rocketdyne. But Maybe more broadly, does that give you pause on deal making going forward?
So Ron, I mean, The M and A strategy is a subcomponent of our overall 21st century warfare concept. There are capabilities we've already got inside of Lockheed Martin, many of them you saw today actually. But there are capabilities that we could improve or expand on And those may be in, telecommunications skills, it may be in space. We've announced an agreement with OmniSpace recently to team up with them. I don't necessarily need to buy companies to work with them.
We are in the midst of, I'd say, a dozen Alliance or collaboration conversations with some of the most well known and most capable technology telecom In semiconductor companies in America right now, I doubt that we're going to be acquiring any of those 10 or 12 major corporations, but we're going to Strive to work with them to get the capabilities, the IP and the collaboration that will make us even better. So, yes, there are acquisitions. We did one last year with I3. It was a pretty small acquisition, but it filled in A really important capability for us in managing thermal engineering issues with hypersonic glide bodies, right. So We don't have a standard of it has to be $X,000,000,000 or above or below $1,000,000,000 as far as scale.
We are laying out our entire portfolio Capabilities and products and services and figuring out where we need to fill in or augment those to deliver on the overall strategy we have. So hopefully that gives you some context. Finally, we expected this administration to look carefully as most administrations The last one did have done at mergers and acquisitions and industry. And so we'll address all the Questions and concerns of our regulators and Congress people. And we think we have a great Story that will benefit the customer, the country and the investors of both sides of this deal.
So we're going to keep advocating for it.
Hey, Jim, if I could just add on, we do have ongoing robust set of pipeline reviews with potential M and A candidates and a Number of our relationship banks and others in the investment community are not shy at all about bringing forward Good ideas for our consideration. We're continuing to evaluate a wide variety of opportunities. And sort of in the stealth Investment category, we do have a venture investment fund that's been very successful in identifying key and emerging Players in in areas of critical technology, for us like artificial intelligence or or lidar and sensing, and I think we've done a terrific job of leveraging relatively small equity investments on our part, along with very large investments coming from, Say players in Automotive Industries and they've given us access to key technologies that I think will really leverage our platforms moving forward.
We'll move to our next question, which comes from George Shapiro George?
Yes. Good morning, Jim. You've been CEO for a little over a year and Lockheed has had like 2 Somewhat disappointing operating quarters in a row. The last time it happened was probably 20 years ago, and we also just had obviously the So is this just bad luck or is there any kind of change in strategy or focus that It may be causing it, if you could comment on that. And then obviously comment if we're going to see this change in the Q3.
And then one for John, if you could just provide the percentage of development contract sales that are currently fixed price And has that changed much over the past several years? Thanks a lot.
Yes, George. So Marilyn and I planned our transition, and it turned out to be in a time of turbulence that neither one
of us
expected. On one hand, we had the pandemic and on the other hand, we had a fairly contentious election that resulted in a change of administration A change of priorities as far as the overall U. S. Government budget, right. So We've been fighting our way through the COVID-nineteen pandemic.
I think the company performed, as I said, extremely well back all through 2020, given those circumstances and also through 2021. There has And also through 2021, there have been a couple of issues that have arisen within the business. The most recent one you point to is true. We underestimated the ultimate cost of a fixed price Classified Development Program. We're bolstering and have bolstered the review process on those across the whole company, Just to make sure that this is a one time event, and we wrote the did the write off recently as you said.
This is not something we expect to happen over and over again. So we did change leadership in the midst of 2 significant Exogenous sea changes, if you will, change in administration to a more domestically oriented budget direction. And then secondly, the pandemic, which of course we all know continues. So we'll be working And plowing our way through those two issues as we go forward. That's and the strategy hasn't changed much to be the absolute best Platform provider across all those domains into all our services and allies as the team has been describing, but also to Really take the whole one Lockheed Martin notion up a notch and introduce these 21st century Technologies in a way that we can achieve a network effect across all of our platforms.
I think this is Standing opportunity and it's a unique one for Lockheed Martin given the platform position.
And then maybe, John, if you could provide what Percentage of your development sales is fixed price now and whether that's changed much over the last several years?
Yeah, sure George. Before I get into that, I'd like to say from a personal perspective, if I had any concern that Ken's departure was at all related to the Financial performance over the past few quarters or a result of conflicts on strategy, financial or otherwise, Result of personality clashes, I would not be here today eagerly competing to become the next CFO of Lockheed Martin. So that said, the percentage of work we do today in aggregate, that's fixed Price and if you include fixed price incentive, which are F35 programs in large part fixed price incentive, We're 60% at a macro level, fixed price with including FBI. We have very limited Fixed price development activity going on. We try our best to stay away from fixed price development Activity in areas and market spaces where we see opportunity for long term value creation.
There have been occasions, they're few and far between where we have invested, and I'll call it invested. We've taken fixed Price development programs with an eye towards the long term value creation that we see coming out of these programs.
Thank you.
Thank you both. Very helpful. Thank you, George.
And our next question comes from Christine Liwag from Morgan Stanley.
Thanks, Greg. Jim, you've consistently messaged that 5 gs. Mil and 21st century warfare are core to the future of Akid, what actions have you taken internally to incentivize realizing the goals of these strategies? And ultimately, the question I get a lot from investors Is whether or not these initiatives would be enough to grow the company and offset a flattening or possibly declining F-thirty five revenues?
So the steps we've taken is essentially from our Board of Directors on down through the executive team and into management. We've aligned all the business areas and all the functions in our entire investment budget Toward this 21st century concept. And it simply is to network and connect the platforms we have today, certainly the ones we're developing Along the way and ultimately our competitive mix platforms into a more integrated system, Which will create network effects and increase the deterrence capability for our military. There's value there. We have to build it and demonstrate it.
But I'll give you just one really quick example of network effect and it's something when I was involved in my last company on the infrastructure side, the digital infrastructure side, Which was we were starting with partners, again, which is how you have to do these things, to create a network effect for autonomous Trucking in the United States on interstate highways. What's that have to do with anything here? What it has to do is it demonstrates That there's network effects that are broad can be very broad based on introducing these 21st century technologies into an existing industry. So interstate trucking is about as traditional an industry as you can think of, right? Driver gets in the truck, Drives it across the interstate, stops over when he has to and goes to a loading dock and unloads goods.
Well, the value of taking the driver out of that interstate highway leg of the trip It's massive to our actually to our economy, frankly. If we were able to do this at scale, you have 2x to 3x asset utilization on all the trucks in America, You have untold inventory management benefits for all the goods in the trucks and you have a huge labor cost reduction For the trucking companies and therefore the economy itself. And you do that because you can combine AI, 5 gs, Distributed computing and all the other kinds of notions that we've been talking about to take out cost, assets and inventory of that system. And by the way, you all certainly make it safer as you go because you take the human driver out of much of the trip. So These are what we mean by network effects.
And how they apply to national defense is, right now, when war games are conducted, or Hopefully never, but a real war is conducted. Platforms will go against platforms, ships will go against ships, planes will go against ships. We are going to get probably out built, if you will, by the PLA of China in all those platforms. The only way I think we can maintain a highly effective deterrent as a country and as an alliance is to create network effects On the platforms we do have in a way that creates a deterrent that is much greater because there's no real solid way that the other side Could figure out how to win that war game without huge risk. That's the value of actually Reorienting Lockheed Martin in this direction.
And we will get compensated for that value if we can deliver it over the next few years Or at least start demonstrating to deliver it, because it is the essential good for our society. So I'm very convinced of this. Will it offset the flattening of F-thirty five production? We're going to strive to make it so. That's what I said in the last earnings call.
We're going to strive for mid Single digit revenue growth on $80,000,000,000 something base. But we need to redirect this company And hopefully redirect the defense enterprise to create this more network centric deterrent that will be more effective and ultimately more
value to our shareholders, but we have
to start and move out of this But we have to start and move out in this direction.
And Jim, I'm following up on a few things that you've said there. On this network effect, can you discuss the size of this opportunity? Is it are you sizing this by the services, Air Force, Army, Navy? Are Are you looking at this on a platform basis? Is there anything that you could give us to help us track your progress and measure the importance Of these initiatives to your top line?
Yes. So we're designing this on a platform basis. So we have a technology roadmap, Which our Chief Engineer and our Chief Technology Officer are developing and Fortisafe is classified, so I can't talk too much about it. But the concept is to essentially in each mission area of our customers, and I think we have about 8 or 9 of them, We will select the platforms starting with Lockheed Martin Platforms and Systems because we can control access to those. We're going to build a technology roadmap in each mission area that starts connecting platforms to start creating this network effect.
And so The Air Force actually announced the first of these a few weeks ago, where during an exercise that was held by INDOPACOM, We're able to connect F-thirty five and F-twenty two data links through a U2 essentially Distributed computing that we had installed in a U2 that was flying around in the area. So these are the kinds of things I liken it to a railroad switching yard And the F-twenty two is one track and the F-thirty five is another track. We've merged those tracks. Now the F-sixteen maybe next and the F-eighteen maybe after that. But that's the kind of network effect technology roadmap we're building.
So where will we get compensated for this? One is, and I would think market share of the platforms that are enabled. And that's going to take time again to demonstrate to get the customer to understand the added value and then to shift share of wallet potentially towards those Towards those enabled platforms. That's one way. So again, economically or financially, look at it as a platform by platform Through modernization contracts, sustainment contracts or added production contracts.
There's also a service value We're providing 5 gs. Mil as a service, which is again the open architecture we're trying to design. We will be able to offer that someday, But I'm not sure that the DoD has a mechanism to pay for a subscription service type product yet. And we're going to have to work with them and our outside industry partners to figure out how to pull this all together. So there's a lot to do here, but I'm very convinced that there's going to be Revenue value, share of market value and cost reduction value to embarking on this program.
Now we have and I'll finish with this. We've put our investment emphasis where our strategy is. We've got a plan over a 3 year period to invest $400,000,000 plus of independent R and D into this initiative. And we've got the technology roadmap written in its first form. And we're actually doing these connections, Building these edge compute nodes, if you will, in real exercises with customers In the field.
So this is already we're already moving out on this and the financial benefits should come. I'm convinced they will. But to quantify them now is too early.
Thank you, Jim. Thank you for the color.
Sure.
We're a little over time today, but I think the discussion is outstanding. So we're going to go one more question. Our final question will come from Kai Van Rumer with Cowen and Company. Kai, thanks for your patience.
Yes. Thanks
so much. And Jim, excellent program. The one thing that's A little surprising to me is the one business you didn't really focus on is space. And if you take out AWE, That is probably your fastest growing business over the next couple of years. And secondly, if you look at what you do in space, You do great with the superb GEOSAT satellites, but you don't appear to be as Strong in terms of LEOs or put as much emphasis there.
And if you look at what SpaceX is doing, what Northrop Grumman is doing, The trend seems to be to low earth orbit satellites where they're a lot cheaper. You can put up a constellation. And because you can replace them every 3 or For years, it's much easier to keep up with any technology advances. So if you could answer those 2, that would be great.
Sure. Hi. It's Jim here. I am incredibly energized about our space business. It's one of the most attractive Reasons for me to join this company is management and come off the Board to do that.
The reason it's so energizing for me is that space It's basically the linchpin of the 21st century war fighting concept. We couldn't fit everything in today and keep it to a manageable time Frame for you all, we could probably do another day just like this regarding our space business. But let me give you a couple of Just highlights for this afternoon. One is, once we developed and built the roadmap For the 21st century concept, we quickly came to the conclusions that you've got to be not only in A high earth orbit with bespoke satellites that are quite complex. You've got to be in medium earth orbit and low earth orbit For a lot of reasons, because part of the deterrence factor is redundancy and survivability.
We've got to have 2 or 3 different ways in space To do all the missions or support all the missions that we have as a country. And so we are moving out Pretty quickly already, you may recall with some external partners to get the capacity to Build and design low earth orbit satellites more quickly because the commercial industry is already doing that using their investment dollars. What we're finding is that a lot of the buses aren't capable of handling national security requirements. So we're working with these partners To modify designs and to build dual use potentially commercial and military buses that we can then Take from that supply chain and integrate into our network as you've heard the integration skills of the company before. So there's a lot there.
And of course, when you talk about this 5 gs. Mil concept, which is essentially it's the 5 gs network of the defense Enterprise, right, meaning instead of autonomous cars and drones flying around delivering packages that we will have someday and autonomous cars that you won't have Drive yourself at scale a few decades down the road. We're building the Internet of Things for the defense enterprise. And so space is absolutely essential to that 5 gs. Mil architecture.
You have to have the space layer because we cannot go out and build Cell towers all over the world and on the surface of the ocean, where the threats might be, we have to use space A number of ways for both tactical edge compute nodes, backhaul, Redundancy and storage, data storage and transmission. So there's just a lot of elements that the space business at Lockheed Martin will bring to this architecture that are
Yeah. Hey, and Kai, if I could just add on. First of all, thanks for letting us know we achieved the objective of an event like this, which is to Leave the audience asking for more. So I've asked Greg to take a note to make sure we lead out with space in the next event. Secondarily, just in sort of layman's term, our Greg likes to use the term signature programs in space are based on an A2100 bus.
We're spending a lot of money now and a lot of money is of course relative, but developing an LM 400 base capability, which It's obviously smaller because 400 is lower than 2,100 as well as even like an LM50 capability To address those markets that you're talking about, we've got a recently opened facility in Denver I called our Gateway Center that the premise behind building that was to be able to achieve flow of an LM400 bus based A satellite in there, which we think will position us very well in not only primarily government Sort of operational mission environments, but potentially with crossover to commercial applications as well.
Well,
thank you very much, Kai. It looks like we've come to the end of our event today. So We'll need to wrap it up and close out. On behalf of Jim and John and all our presenters today, I'd like to thank everyone for taking Time out of the busy earning season to join us today. It is a busy time and we genuinely appreciate you taking a small piece of that to To visit with us and hear more about the 21st Century Warfare vision and our platforms and portfolios.
We look forward to speaking with you again in