Okay. Good morning. I'm Douglas Harned, Bernstein's Global Aerospace & Defense Analyst, and thrilled to have with us again, James Taiclet, Chairman and CEO of Lockheed Martin, also Evan Scott, CFO. To start off with, I think, Evan, you've got a few words you're going to say, right?
Yes, please. Statements made today that are not historical fact are considered forward-looking statements that are made pursuant to the safe harbor provision of federal security laws. Actual results may differ materially from those projected in the forward-looking statements. Please see Lockheed Martin's SEC filing for a description of some of the factors that may cause actual results to differ materially from those in the forward-looking statements. Thank you.
Okay, great. To start off with, obviously there's a lot going on in the world right now that's relevant to defense sector. Maybe Jim, you could talk about what you're looking at right now as kind of the opportunities and challenges for Lockheed Martin.
Sure, Douglas Harned, good morning everyone. Look, the opportunity set for us is significant, and I think the most important development over the last couple of years has been that our original strategy that we started in 2020, what we call 21st Century Security, is actually being proven the right strategy from world events that have been occurring and also the U.S. government policy that's now in place with the administration. As a reminder, the three kind of tenets of our strategy are, first of all, to build resilience and scalability into the production system, which we're being asked to do again, and we're ready to do it. The second piece is driving 21st Century digital and physical technologies into mission sets that emphasize our core platforms.
The kind of platforms like F-35 or Patriot missile or Aegis Combat System, which is widely deployed by U.S. and allied militaries already, can have the payload range and survivability to fight in a modern warfare at theater scale and drive new technologies into those platforms and come up with new platforms and connectivity to augment those. Some of those are, for example, the Black Hawk helicopter, again, fully autonomous now. The Army's purchased two of those to figure out how to use them in combat operations. That will extend, we think, the life of the Black Hawk into the future, for example. The third big tenet of our strategy is to diversify our operations, especially for sustainment globally, so that we can operate and manufacture or repair in the theaters of operations where our U.S. forces are deployed and where our allies live.
That also encourages more allied procurement of our systems if they have a part in producing those systems or maintaining them. Those three tenets of our strategy give me a lot of optimism because we've been getting ready for this game for five years, and we are ready. That's the optimistic part. The challenges are, with such a vast and complex operation, maintaining and driving operational discipline and operational excellence through this vast company, with a lot of leading-edge technology that's never been done before, and then operationalizing that at scale. I wanted to grab this list from my office because I can't memorize it, so I'm going to have to go over it real quick.
Okay.
These are the places that I have been, the operational locations in the last 12 months, and the purpose of these visits is not just me necessarily. Often, it's our whole executive team. We will go to the factories and the engineering centers to drive that operational discipline, and excellence and emphasize it, and try to spread best practices across our various divisions and sites. The list includes Littleton, Colorado, Amendola Air Base, Italy, Fort Worth, Texas four times, Camden, Arkansas twice, Marietta, Georgia, Palmdale, California twice, Orlando, Florida once, Sunnyvale, California, Weeze, Germany, it's a joint venture we have with Rheinmetall, Ramstein Air Base, where we have four deployed teams, Riviera Beach, Florida, where we do undersea, Valley Forge, P.A., where we do classified work for our space business, and Troy, Alabama. We are very focused, and our executive team and even our board, on operational execution.
That's the challenge, is how are we going to get all this done, triple PAC-3 production, quadruple THAAD production, increase the mission capable rate of the F-35 to where we all want it. We're going to have to have outstanding operations, and that is largely what our team is focused on.
One of the things in a backdrop of all of this has been the president's budget proposal of $1.5 trillion. We have a long way to go to see exactly how all that plays out. There's a lot in that that benefits Lockheed Martin, but how do you think about this in terms of the things that are beneficial to you, but also how this process is going to evolve and when we can get to something that can lead to contractual certainty?
Yeah. On one hand, we have no ability to affect the political process and the budgeting process. The reality of our situation is everything that's going through our factories today is from a prior budget. That's where the funding has come from. There's really hardly any 2027 budget requirements for what's going on this year, let's call it. Current production rates, current financial forecasts aren't affected.
Yeah
whether these budget issues get delayed or implemented on time or et cetera. The second thing is our international business is 30% of the company, whole different schedule. That's going to continue to come through. Then, we also have our ability to sort of keep things going with our own funds. We're doing a lot of forward investments so that when budgets do get approved, we can strike quickly. We're ready to go. We can then book the revenue. Those three elements, Douglas Harned, give me confidence that whether the budget's delayed, there's a CR, they split the $1.5 into two or three pieces.
We, because of the demand for our systems, their proven ability in combat operations and the scale that is required, we are going to have plenty of upside, if you will, based on the direction of the U.S. government, irrespective in a way of the actual schedule and process of the budget.
Yeah. I wonder also related to this, with the war in Iran and also the war in Ukraine where we've seen heavy usage of tactical missiles, interceptors, as well as sort of high op tempo for F-35s. How has this most recent conflict impacted Lockheed?
It may have contributed to but didn't cause the interest in the U.S. government, Department of Defense that's currently in place, the leadership, to try to move towards more commercial contracting models. The goal is that we both share, and this is something we've been advocating for, I think, for like the last five years pretty heavily, is if we run the defense enterprise more like a commercial business where we have long-term contracts that we can have assurance that we can invest up front, the performance is better, the scalability's faster, we can get the capital markets involved in constructive ways, and we can actually be higher performing industry, not just company, but industry with our whole supply chain, that will be a better outcome.
Some of these recent conflicts and the fact that the usage of certain munitions, for example, has been higher than some of the war gaming in the past would lead you to project, that's motivating the U.S. government leadership now to say, "Let's really look hard at these commercial business models." These framework agreements that we initiated with the Department and then RTX was to follow with some of their systems, that is opening the door wide open to a new way of doing business with the government that I think will make us more effective. I think that is the outcome of what's going on in the world, so to speak, is it's re-motivating both the administration and even Congress to look at multi-year commercial type procurement activities from the Department to industry, broadly speaking.
Related to the policies of this administration, one question that I get a lot, and I am sure you do as well, is when you look at a lot of changes, asymmetric warfare, low-cost drones, counter-UAS, all of these new things and new entrants pursuing those as well.
How do you think about that in the context of where you're headed?
The context we always use, and we have used since I came to the company, was in terms of mission sets, right? If you think of the tech industry or the telecom industry, which is where I spent the 20 years before this role was, we have a service. One would be, I use Google Maps as an example, a mapping service that will go on a cell phone, right? Every three to six weeks, we hope to do it every three to six months. Some input to that service is better. Either the handset's better, the Apple iPhone, whatever. The software's better because Google increases the accuracy of its algorithm. The firmware that the companies put out to improve the interface between the hardware and the software that they use.
These are always happening constantly, and if we look at a mission or a service for the Department of Defense, when I was in the Air Force, one of the missions was air superiority, meaning our service is shooting down other airplanes without getting shot down ourselves. That's our service. That's what we're trying to make better all the time. How do we use software, firmware, and hardware improvements to make that service better and better? That falls right into deterrence theory, where if our Air Force and our Navy and our Army and Marines and our Space Force is increasingly effective, that's a deterrent to armed conflict because potential adversaries really can't understand how good we'll be in those missions. That's how we frame everything in our company.
We have 13 of these missions that we are looking for software, firmware, and hardware improvements constantly using digital and physical technology. That's how we frame these kinds of things. When it comes to, let's say, a mission of ground warfare, right? Small drones are very effective for that. They are not effective for air superiority. They are not effective necessarily for deep precision strike beyond a certain range. We need to figure out how to use the small first-person view drone or the wire drones within a mission context. The other piece that we're going to use is F-35s, right? F-35 can actually feed data into a command and control system for small drones. That's the kill chain or the linkage that we want to create.
How do we have the major platforms that can operate with superior capability feed into these less capable devices that are doing mission sets that are adjacent to what we normally do. That's part of what we're doing. We have a command and control system that our teams are developing called Sanctum. That takes inputs from all kinds of sensors, including space, aerial, to ground, et cetera, cyber, fusing them, then controlling drones of open architecture, any type, anybody can make them, including us. That command and control system will incorporate and fuse the data from the current systems so that those new drones can be more effective. That's one example of how do we play in an arena where we may not make the $20,000, $1,500 first-person drone, but we can make that drone way more effective in a mission.
I want to jump to your highest growth business right now, Missiles and Fire Control.
As you commented with the war in Iran, Golden Dome, we've seen a whole number of things that have all led to increases in demand here. You talked about, you mentioned the frameworks that you're working on for THAAD, for PAC-3. Can you talk about sort of where that stands today, and a little about how that's evolved? Those frameworks were discussed well before we even got into this Iran conflict.
How are you looking at that growth now?
I'll turn it over to Evan for a second on kind of the financial projection piece of it. We do have to get this right the first time, and Patriot is one of the first out of the gate, THAAD is another, a couple of RTX programs. We have to go from kind of a term sheet, and it's a very thorough term sheet, like 12, 13-page term sheet. We have to go from that to something called an undefinitized contract action with the government, which enables us to start actually spending money legally in a way that will be committed to by the government. The undefinitized contract, or UCA, in the terminology that The Pentagon folks use, that launches the fleet, so to speak. We can tell our suppliers, "Here, I got a seven-year contract on a UCA.
I can novate that to you," and now they can start spending as well and have confidence to do that. There's a definitized contract that comes at the end of this process, where there are specific commitments quarter by quarter, month by month, very complex, multi-dozen or not hundred-page agreements. That's to come. Where are we at on Patriot? January, we signed the framework agreement with the Department. About a month or so ago, or a couple of weeks ago, everybody signed off on this UCA, undefinitized contract. That's where you saw, I think it was $4.5 billion, right, Evan, of award. That award is for the early part of the seven-year program. Appropriations are required to go through Congress to get the full contract.
Yeah.
Hopefully, again, depending on this budget schedule, that full-up contract for seven years could be in place as early as the next two or three months.
Yeah, to add to that, I agree with how Jim talked about it here. The UCA is a great example of our customer partnering with us. To your point about the increased rhythm that we need to have, given the events of the world, the UCA shows that the customer wants to be able to make it available for us to keep making progress on scaling this production, even ahead of the multi-year procurement. Between that UCA and our own sizable investment we're making, we're ensuring that we're not losing pace to the scaling that's going to be required, not just on Patriot, but also THAAD and others.
PrSM too, right?
Certainly PrSM. I think when we talk about multi-year procurements, our profile assumes a PAC-3 Patriot and THAAD awards this year and a PrSM award next year. All three have framework agreements that give us confidence that these are going to be future multi-year procurements.
if I think about this in terms of how we've historically seen appropriations done-
Which annual process, how do you get confidence that, say, five years from now, geopolitics may have changed, the administration will have changed? How would you imagine the contractual arrangements supporting high volumes five years from now?
We asked for three or four provisions in the framework agreements that are actually very similar to telecom development, network development arrangements with wireless carriers, which is what we did in my last company. One was, and it came from the government side first, an annual escalator based on an index for the industry over the 7 years on the fixed price. The fixed price isn't just a number. It escalates every year based on some kind of inflation index, a relevant inflation index. That was one thing that we all agreed to, government and industry. The second thing was that for the major suppliers, they would also agree to a similar framework, and that they would then fund their own non-recurring expense, as we will do.
That was also agreed to by Government, and Government's helping negotiate those framework agreements and then subcontracts literally with our major suppliers. When it comes to medium and small suppliers, we're going to work with each of them to help them scale up, and we're also going to, and have been, connecting those medium and smaller suppliers with the Office of Strategic Capital and The Pentagon, which will help finance them. We're also sending lists of the top 20 medium and small suppliers for PAC-3 and THAAD to other financial market players to say, "Look, these suppliers are going to have, we think, a seven-year agreement with us to the U.S. Government." Very financeable now. When they were a medium-sized company in Des Moines, Iowa, you never heard of, they had one-year contracts, maybe not so financeable. We're trying to get the capital markets involved, both Government and non-Government.
We got that provision. The third piece was a reach-back clause, which said, let's say, and we all hope this is true, that our deterrence is more effective, all the conflicts resolve, and perhaps someday there's less demand for some of these products, and politically, the government wants to change the terms of these contracts. Whatever industry invested expecting seven years, if it's only five, there's a reach-back provision.
Okay
for what we invested. If the government decides, "Hey, I was going to order 2,000 Patriots a year. I only need 1,000 now," same provision applies. Whatever changes in terms down the road affect the initial investment thesis that we all use to make our investments, there's a recovery provision for that. We got those three provisions through, and that made the closure. There's one more that I think Evan wants to talk about. One more that we asked for on top of the three, is that our cash flow projection as a company, needed to be protected for our investors. While we may invest more upfront in CapEx and non-recurring engineering and things like that the government would need to help us by scheduling their payments for the actual missiles to coincide with our upfront investments. In other words, just pre-pay.
They're going to buy all these missiles anyway. Prepay some of that cost to them, revenue to us in alignment with our own original cash flow projections, so that our investors would not be degraded by us agreeing to these long-term agreements.
Okay.
Yeah. Just one last thing I'll add is when you look at Patriot specifically, we see enough international demand where we have strong conviction that we're going to sell the number of PAC-3s that we produce in any given year. Of course, when the government buys from us, they are able to pull the international demand with their own demand to make sure that they're sufficient to meet their demand requirements that are going to be based in this framework agreement. I wouldn't think that either us or the government would see this as a risk of changed priorities, partly due to that reason.
Right. Yeah. There's a huge line of international customers for especially the PAC-3 and THAAD, that will be happy to move up in the line of the next-
Yeah
yeah.
You've talked about, I think, mid-teens top line growth if you look at the next five years for Missiles and Fire Control. Is that all tied into your assumptions on these frameworks all getting completed as we kind of understand them today? Is that correct?
That's correct. I think the mid-teens has some opportunity to grow a little bit just based on the timing of when these procurements, the multi-year procurement contracts are signed. Also, if there happens to be other contracts or platforms that could get the same kind of treatment. Just based on, I think, what we've talked about today in terms of framework agreements, that gives us confidence to that mid-teens with a little bit of upward pressure based on the timing of those agreements being signed.
As you look at this growth, as I said earlier, these frameworks were constructed before this war took off. I would suggest that there's even a higher level of demand today than there was back in February, say, or beginning of February. If that's the case, is it possible to go still higher? What constrains you? When we look at this, you kind of say, "This demand is huge." Can you take in the next three years rate up or is this really more an extension of backlog?
Yeah, I think that's the right question to ask. The way we're thinking about it is we've been partnering with the government to increase PAC-3 production by 3x. Our goal right now is to get everything in place to make that happen.
Yeah.
At that point, once we've got a conviction between ourselves and our government and our supply chain that we can get there, and we are very close to that point here in the process, then it might be an opportunity to look at is there additional scaling that makes sense based on the demand function. I think right now our goal is to match the current framework agreement that's in place while we look at potential further scaling.
Okay, great. If we go to aeronautics now. F-35, still the biggest program in the company. I think still around 30% of revenues. How do you look at the growth for F-35 now, given that you're going to be staying at this 156 rate for a while, but you've got sustainment, upgrades. How should we think about that growth rate?
From an F-35 production, low single digit growth rate probably makes sense as we go through, and I agree with the expectation of a stable production rate.
Yeah.
There could be some changes in that just based on the timing of when we sign the lots and the pricing contained in those lots. Additional capability that gets developed, then pushed to platforms. It can vary a little bit. Development also probably in the low single digits. Sustainment really is the growth driver in F-35. Think of high single digits with maybe a little bit of opportunity above that in the near term. Part of the reason that you see that is a recognition that sustainment has probably been underfunded historically. The government realizes that's a key element of air power is to increase the availability of the jets that they have, in addition to buying additional jets. We'll see sustainment growth increase as they've funded additional sustainment.
We've also made our own investment in sustainment to expedite the path to higher availability levels for the F-35. That's a big growth area for us.
Yeah, in the session right before this, John Plant talked about F-35 from an aftermarket standpoint for them and said that that aftermarket growth is higher than one would expect simply from the fleet size.
That's right.
Is that what you see as well as actually doing the service work?
That's exactly the way to think about it. To the point, each delivered jet will need to be sustained, but there's also probably some work for the existing fleet just to get a higher spare part availability level. That's a big investment focus for us and a big budget priority for the customer.
One of the things that has been challenging, and we've talked about this multiple times, has been the Tech Refresh 3 that you've worked through, and then heading into Block 4, which has been pushed out in time. Can you talk about these upgrades, how Tech Refresh 3 has evolved, and the next step here?
TR-3 or Technology Refresh 3 for the F-35, it's a new server. Heavily upgraded core processor, we call it in this industry, but it's basically the server for the airplane. There's a pilot image generator for the cockpit screen, which comes along with this, and then a storage unit that allows you to store much more data on the aircraft. All of that hardware is completely finished with development. It's being scaled in production by L3Harris to meet the production rate of the airplane. From a hardware perspective, we're in really good shape. The firmware is stable now with the jet. That's the second piece is.
The actual software loads that integrate all the edge devices, so to speak, into the aircraft's brain, that software's being kind of upgraded as we go and will always be upgraded because there'll be new subsystems, and then they're going to have to do another software drop, just like if you have a Tesla, you get a software drop every couple of weeks or whatever. That's going to continue. TR-3, to us, from a hardware, firmware perspective, is complete and in production. The software upgrades are in process. How that relates to Block 4 is that if you want to have more systems on the aircraft in terms of what kind of air-to-air and air-to-ground weapons can you support, you needed that bigger brain and the cockpit systems driver and more storage to actually add more types of missiles, et cetera.
Well, ultimately engine too, right?
Yeah. Potentially, right? That's where the Block 4 comes in. What is the schedule of adding additional missiles to the airplane, we'll call it? What is the schedule of adding better sensors to the airplane? The most critical sensor is the radar in the nose of the airplane. All of those subsystems are made by other of our competitor/teammate companies, and we don't need to go through the list. Some of them are not on the original schedule, I'll say. One of them, which is a critical one, is a government-furnished equipment, just like the engine. Now there's a key sensor that's government-furnished equipment, and the government's managing that. Our other subsystems we're managing, and the engine is managed by RTX Pratt & Whitney.
When we build the airplane and deliver it or have it ready to accept the engine and the radar, that's when we're done, so to speak. What we're doing with the government in cooperation with our teammates on this program is we're saying, "Okay, where are we really at with each of these sensor upgrades? Where are we really at with engine production?" There happened to be a strike last year, I think, at Middletown, where there was a delay in some of the F-35 engine production. Now that's a little bit edgy. We've gotten together as a really integrated team with the government to really put that Block 4 schedule together. There is, and has been over the years, conversation about, is a new technology engine sensible for the F-35, affordable, et cetera? That's a different topic.
It's not in Block 4, but it's a separate line of discussion between us, RTX, and the government, which is not adjudicated yet. For Block 4, as it's been described, we are basically reprogramming with the government as much of that sensor technology as fast as we can and as many airplanes as we can. That's what we're doing now. I'd say that's very collaborative. It's not completed yet, but it doesn't necessarily affect our ability to generate revenue and cash flow with the F-35.
Would it be correct to say once Block 4 really comes in in full.
That should be a revenue benefit for you all, right?
Yes, because a lot of the subsystems are not GFE, and they come through our revenue line as well.
Yeah.
You got a more capable airplane. We have to deal with, again, inflation and other things that we negotiate with the government. The unit price, because it's a more capable airplane, will advance along with the inflationary issues that come with it.
You're going to some of the older programs, C-130J, F-16. You're continuing to see good international demand. There's more money for C-130s in the President's budget. You also had some issues in the first quarter on those programs. Can you talk about what happened there?
Yeah. I can talk about the design and manufacturing issues, and Evan can give you kind of the layout of the financial impact of that. When we went to Marietta with our full team, we learned about some obsolescence issues. Obsolescence in our industry means, I used to use this radio that was designed and built in the '90s. That radio is no longer going to be built anymore. We have to integrate a new radio into the entire aircraft system and connect it with all the existing subsystems and other systems that are outside the airplane. We underestimated the degree of difficulty of doing that, and radio is just an example. There's a lot going on here in the obsolescence space. That meant more rework in the factory and flight and discovery, and as we call it, in flight tests.
Okay, this didn't really connect to that other system, we got to make a change, that delayed the delivery of some of the C-130s. Right? When it came to F-16, it was more of a new configuration because for the aircraft that are being produced today, for the two customers that are out there, the government agreed with them to put some new subsystems on the F-16. The integrating those new subsystems, again, took longer and had more discovery issues. Discovery meaning based, we're going to flight test something or test it in a lab, we think it's going to work, let's just make sure, sometimes you have to do a software upgrade or the firmware doesn't match or whatever it is, you got to do some rework.
That was the issue in F-16, largely, is the new subsystems took a little bit longer to integrate than we thought. Evan can talk a little bit about the charges we took and where we think we're at.
I'll add obsolescence is something that we're talking about constantly, particularly for longstanding production programs. It's just part of maintaining those programs. We do it all the time internally. We don't talk about it as much externally because typically it just goes as planned. This is a case where that didn't happen on C-130. We took a charge on C-130. You can imagine a flight line with a lot of C-130s there waiting to be sold off. We've now resumed deliveries on C-130 and look to get that program back on track as we close out the year. On F-16, as Jim mentioned, the design issue that was caught in flight test, we've since resolved that issue. The rework that has to come without sequence work when there's a design issue caught in flight test drove that charge.
We've now completed that design work, and now we're going through the normal checkout process that comes with an F-16. We should resume deliveries, I would say, measured in weeks, not months at this point.
I have the memory back to when the Block 60s were sold to UAE and you had some similar kinds of problems. Those were much more extensive. You're saying you've pretty much resolved the issues and can begin delivering soon?
Yeah.
Yeah. Block 60 and 70 was a much more significant installation of new subsystems, new generation subsystems. This is a more modest turn of the same wheel, but I could tell you because I've flown the F-16 with the test pilots a few times, it's still world-class air-to-air fighter, and it does the air-to-ground mission, too. Those countries that are not necessarily releasable for the F-35 yet, F-16's still a lead-in, especially if they were countries that had legacy Russian platforms. Those pilots and those units need to go from a whole different cockpit setup, for example, and a whole different way of managing the jet and doing formations, et cetera, to the Western way. The F-16 is a much more sort of smooth way to go make that transition because, among other reasons, the F-35 is a single-seat aircraft. There are no two-seat trainers.
You have to be able to fly Western cockpit, Western tactics, Western formation flying before you step into an F-35, frankly. If you're pilot training and your prior experiences as a jet pilot is not in Western cockpit, you pretty much have to do this.
You got to do that, yeah. If we go over to space, clearly a very high priority, high growth area. It's true in this budget. It was true in several budgets. As I look at I can't see all of your portfolio there, but you've had this really the largest player in this arena. You have this mix of big legacy programs. Some of those are coming down, and then you've got strong role in the tracking layer.
The SDA program, so the new gen, how should we think about the revenue outlook given the blend of mature and new?
I'll give this to Evan to go through kind of the projections, but one of the things you mentioned was the tracking layer. This is small satellites that are in low Earth orbit that are proliferating. There's lots of them.
Yeah.
Let's say five years ago, everybody looked at Lockheed Martin. Oh, they make big satellites in geosynchronous orbit, they're out of this. We're one of the leaders in small sats now.
Yeah.
For military usage. That means the company can evolve and pivot when it needs to, when the mission changes or the technology is available, we can do that. That will apply in sort of the autonomous warfare space too. I'd love to spend about 15 or 20 minutes going through the kind of devices that we are inventing and developing now that are being tested in conjunction with actual real customers like SOCOM, et cetera, that will, I think, be important in that space as well. I just wanted to highlight the fact that you've touched on space and the tracking layer and all this of small sats. Five years ago, nobody thought this company could participate in that because of our legacy.
The legacy's helpful because then we've got that baseline experience, the scale, the production system, the customer confidence, the ability to integrate with other systems, that are benefits, not degraders to us being able to pivot.
When we won that first SDA transport layer, we did it as one of the only competitors, I guess the only competitor, that did not have an organic small sat capability, which we now have with Terran Orbital. To Jim's point, we've now evolved to be a leader in small satellite production. If you look at the broader space growth profile, the pacing item is what we call our strategic missile defense business at space. That includes the fleet Ballistic Missile Trident program, which is going through another recapitalization and a large growth curve right now. We've made a lot of investment to support that growth. You've also got the NGI, Next Generation Interceptor, very exciting program, going through development with a plan to produce and scale. Then that's also where we have our Navy and Army-based hypersonic programs, in that business.
That's the pacing growth item in space. The national strategic space, which includes a lot of the big satellite and small satellite programs, including a lot of the key classified work, which is a growth and performance driver for us. It's sort of mid-single digits. Commercial civil is an exciting area for us, but it's probably very low single-digit growth rate for us. All in all, space is a mid-single-digit growth and remains our second fastest growing business area overall.
What is the timeline now for NGI?
We're continuing to go through development. I would say through much of this decade, that there's some potential timing opportunities depending on how we want to partner with our customer to accelerate some capabilities. We're working through that with them, and that will be at their discretion in terms of the actual fielding date.
Just related to that, but also going back to the Missiles and Fire Control discussion, which is when you look at solid rocket motors as a critical element here, I know that had been problematic for you and for others if we go back a couple of years ago. You're working through a JV with GD-
to produce your own, I think, for a PAC-3.
Right.
Can you talk a little bit about where the solid rocket motor universe stands today to enable what you're doing across all of these programs?
Aerojet Rocketdyne is a significant position, as does Northrop Grumman. One other example is Northrop Grumman is qualifying to be a PAC-3 solid rocket motor provider. That's a second source for us there. If we can get General Dynamics through GMLRS as the more simple motor and then advance them to PAC-3, then we'd have three sources for solid rocket.
That's what you would prefer?
We would prefer two to three-
Yeah
for every major component. We can't get there with every major component. Even some very sophisticated, either we will start building ourselves with our own R&D or we will find another partner willing to do it. The General Dynamics arrangement that we have is a really good example, which is we don't have the production facility for solid rocket motors, which is very bespoke, I'll call it, okay? We can design and integrate the design into our systems. We did the design. GD's going to do the production, and we're matching up our skill sets, which is great. We want to do that more and more. That could be with startups, it could be with mid-size companies, et cetera.
We are open to really partnering with any level of industry to make our mission capability better, whether it's supply chain resilience or it's adding digital technology or it's doing something international to give us a diversity of sources, for example. We're way more open to that, I think, than the company's ever been, and we're actually executing on a lot of that.
Going over to RMS. Sikorsky, how should we view growth there as Black Hawk is still out there and it's going to be a while for MV-22, how should we think about the growth profile first for Sikorsky?
The pacing item there is going to be the CH-53K Heavy Lift helicopter, which is going to double production probably this year and next year as our pace. That's going to continue to scale revenue, really through the end of the decade, and continue to deliver through that based on the large multi-year procurement contract that we just signed. Black Hawk will be a growth driver this year. That revenue growth will continue. It will start to stable out probably next year and then come off maybe slightly in the out years, depending on the future state of multi-year production possibilities there as we're continuing to partner with the customer. In the meantime, we're encouraged to see budget prioritization for Black Hawk modernization, as there's some really exciting capabilities that are potential for the Black Hawk platform.
Then we see some other platforms for Sikorsky that also become very relevant, like the MH-60 Romeo and Sierra. That's sort of the pacing item for Sikorsky this year. I think if you look at the non-Sikorsky parts of RMS that are interesting to watch, the ground-based radar is one of the most exciting parts there, particularly with the Golden Dome mission becoming online. We're very well positioned with our ground-based radars with a variety of capabilities, including those that are transportable. Maybe most relevant to a Golden Dome mission to protect the home front. Then you also see that is our center of excellence for our C2 capabilities.
I was going to ask, yeah.
James Taiclet mentioned before about the low-cost tradable drones, which isn't our natural kind of capability there, but the ability to sort of network all those drones together and then make them work collaboratively with our platforms is a capability we bring, and that's important coming out of RMS.
Yeah. There's a very good example of this is Sanctum command and control system I mentioned earlier, to do drone command and control. That's out of the RMS business we have. The effectors for this now today are Everybody's kind of making the point, shooting down a $25,000 Shahed drone with a multimillion-dollar missile. That's a bad match. We shouldn't be doing that. We're not just sitting here waiting and saying, "Well, that's a bad economic match." What we did is we said, "Okay, what is a relatively cheap, highly scaled existing product or system that we could use to shoot down a $25,000 or $30,000 drone with a pretty good, almost even financial economic trade-off?" That is the HELLFIRE missile. The HELLFIRE missile is in the tens of thousands of production in storage and use by the United States Army and its allies.
It's generally an air-to-ground. In fact, it's designed as an air-to-ground missile, generally off of helicopters. We got creative in the company and said, "Okay, how can we use the cheapest guided missile we have that's big enough to shoot a Shahed drone down and get this economic trade-off fixed?" What we did was we used digital technology to change the guidance system for the HELLFIRE missile from air-to-ground to ground-to-air. Our team invented It's a four-pack. Think of a six-pack of beer that you would carry around.
It's a four-pack of these HELLFIRE JAGM missiles they're called now, that are relatively easy produced, quite cheap compared to, say, a Patriot missile. We can put this four-pack and the command and control system on the deck of a ship. We could put it on the back of a truck. We could put it at the edge of an airbase, or we could put it next to a THAAD radar. Voila, you've got four shots, relatively very cheap, that you can now shoot these Shahed drones by. We've got some other systems we're developing too, that are meant to match the economics of these drones in a counter UAS system.
Which is the RMS brain will control the MFC-
Yeah
missile that's already deployed and used and familiar with militaries all over the world. They don't have to learn something new, train 1,000 people, get a supply chain, a logistics chain for this new thing. These are HELLFIREs. They're everywhere. Instead of tacking them onto under the wing of a Boeing Apache aircraft, we're putting it in the four-pack and using it for a different mission. That's 21st Century Security. That's the concept, is how do you match the scalability, the usability, and the new technology in a way that you're solving these mission problems and not just selling stuff to the government?
Yeah. Just to add to that, because I think it is really key, when we talked about the MFC growth profile, this would be a potential accelerant to that, the HELLFIRE, the JAGM missile. To Jim's point, that's Joint Air-to-Ground Missile. That's the way it's been designed. The idea of innovating it for a completely different mission, and very notably, these are one of the few munitions at MFC that have excess capacity today. We could very quickly ramp up there. Also has potential pertinent with the Saildrone acquisition we did as a potential platform as well.
Right. That's, again, being an innovative thinker, there's a startup called Saildrone. They make autonomous ships. We don't do that. They do it already. They're pretty good at it, and they don't want any weapons. We put a MK 41 launcher integrated into the ship, which then integrates into the whole command and control system of the U.S. Navy, and now they can use it to actually deter adversaries instead of just maybe a sensor or a mine layer or something like that. This is the way this company's thinking now. It's taken a couple of years to get it embedded everywhere, but that's why we do these trips to the different factories together.
That way we can see, first of all, help the operation that's existing there, and also learn from it to scale and team up with, whether it's Skunk Works and RMS or whatever, to do these mission solutions that will be efficient and effective. If we put all this together and we look at this year, so you're guiding to $6.5 billion-$6.8 billion in free cash flow.
Okay.
Down a little bit from last year. What factors could take that higher or lower this year?
A couple of things could drive it. One of the headwinds is both years, last year and this year, benefit from tax law changes. Last year, based on our current profile, a little bit more than this year. As we work through the very latest changes we saw specifically to the CAMT, that has the potential to push our cash flow to the higher end of our range, and we'll continue to evaluate that, and we'll use the next earnings call as an opportunity to potentially relook at that if it's appropriate. The timing of these multi-year procurements of when they get signed and the Lot 20 F-35 are all drivers that could help us potentially increase cash as we look through it.
Well, I guess to wrap up, Jim, when you look at this year, where are you going to focus your time? In trying to continue to integrate the very best of U.S. and allied technology into the missions that we're doing. We have high level discussions with the Nvidias of the world, their leadership, OpenAI, Google. We're figuring out with Rheinmetall how to build hardware in Germany, for example. We're going to find more European partners because guess what? Europe has realized that they need to have more of industrial base themselves. We already have the designs. We already have the manufacturing know-how. We can team up with companies in Europe, for example, or Japan is another. Australia is another. It's really like building out an ecosystem where the Lockheed Martin legacy of intellectual property can be scaled on a global basis to deter war.
That's one of my primary areas. The other one, as I said, is just being on top of the operational execution all the time and being at the sites and learning from the people on the floor, learning from the local management. Where I first saw this GRIZZLY four-pack of HELLFIRE missiles was that we went to an MFC factory, and they were making it on the side in the garage somewhere. They go, "Isn't this cool." I'm like, "Yeah, let's make 1,000 of them." Right?
Yeah.
Let's just get on with this. We'll figure out the appropriations process someday, but we need to be fast, and we need to scale up quickly, and we need to give the military services things they know how to use and already have that can do much, much more effective mission capability at a reasonable cost. Between operations and innovation, that's where I'm spending my time.
Well, great. Well, thank you very much, Evan and Jim. This has been great. All right.
Thank you, Doug.
Thank you. All right.