Why The U.S. Government Pays Lockheed Martin Billions
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Why The U.S. Government Pays Lockheed Martin Billions

December 8, 2019

Lockheed Martin is the top grossing defense
firm in the world, and the U.S. government supports that business to
the tune of over $37.7 billion. It surpasses its closest
competitors, Boeing and Raytheon, by nearly $20 billion in arms sales. These funds are granted by Congress
to provide equipment that enables the U.S. military to protect the
country at home and abroad. So why is Lockheed the
defense darling of the U.S. government? And how did it
beat out its competitors? One of the top priorities of
all administrations is the protection and safety of the American people. To ensure that, politicians work
with defense contractors to provide equipment to the military. This partnership provides a unique
opportunity for private corporations to execute the will of the government
and requires a delicate balance. President Eisenhower, in his farewell
address, coined the term military-industrial complex. And what he was talking about
was the close connection and collaboration between arms contractors
and uniformed military. In the councils of government, we
must guard against the acquisition of unwarranted influence, whether sought
or unsought, by the military-industrial complex. The political incentives of the U.S. Congress and the Department of Defense tended
to work together in a way that created enormous incentives
to increase military spending. For example, when there’s a major
weapons program like, say, the F-35, which is the current Air Force
combat aircraft, is being purchased, members of Congress might have questions
about this plane like is it performing well? Are we getting a good
deal for our money and so forth. They are reluctant to vote against it
because it means going up against potential jobs in their states. The Congress people in whose district
those companies are located and the Defense Department that then gets to
use the equipment that is purchased in this way. And Eisenhower believed
that that complex of the military, the industry and the government, the
Congress in particular, created a tendency for the United States
to overspend on national security. For most of the defense industry, their
biggest source of business is the Department of Defense. So they kind of
live and die with the defense budget as it increases, the revenue
increases, as it decreases, the revenue decreases. Waging an actual war is
a very expensive project. The 9/11 attacks in 2001 were a shock
to the American psyche, led to a substantial ramping up of U.S. military spending in the years after
2001, partly because of the immediate issue of terrorism and partly because
of the closely related but second order problems of the wars that
the counterterrorist program led to in Afghanistan and Iraq. The price tag gets huge. And so American defense spending has
grown radically since 2001 and remains very high. And Lockheed Martin is the
top-contracted company by the U.S. government. In 2018 alone,
the company sold $37.7 billion worth of contracts
to the U.S. government, making up 70%
of their net sales. The other 28% came from foreign military
sales and 2% came from commercial and other customers. Lockheed’s total revenue in 2018
was about $53 billion. By contrast, Lockheed’s next biggest
competitor, Boeing, was awarded about $23 billion from government
contracts the same year. So even though Boeing is a much
larger company with $101 billion in total revenue in 2018, only a small portion
of its business relies on defense contracts. Boeing might be a prominent example
where they do get a lot of revenue from the commercial business falling,
in fact, it’s about two thirds of its revenue from commercial
aviation, about a third from its defense business. Boeing mostly makes
planes for commercial airlines, but it also has a robust business
making military aircraft and other weapons. The next largest
competitor is Raytheon. Raytheon is a prominent defense firm
that offers services in everything from cybersecurity to
missile defense. 68% of Raytheon’s net sales
came from the U.S. government in 2018, which
means about $18.4 billion. They list
their principal U.S. government customer as the U.S. Department of Defense, as
does Lockheed Martin. However, before Lockheed Martin got
this very crucial customer, it struggled to define its identity. Glenn L. Martin opened his aviation
company on August 16th, 1912. The company went on to become one
of the earliest suppliers of the U.S. military, making aircraft for both
the army and the navy. They went on from success to success
through the twenties and the thirties pioneering all sorts of new
aircrafts, but particularly military airplanes. In 1961, the
second Glenn L. Martin Company merged with
the American Marietta Corporation. It was renamed the
Martin Marietta Corporation. The same year, Glenn Martin
launched his aviation business, the Lockheed brothers launched their
aviation business, the Alco Hydro Aeroplane Company, which was later
named Lockheed Aircraft Company. Lockheed, L-o-u-g-h-e-a-d, is
pronounced like Lockheed. People had a hard time pronouncing it
that led to the brothers legally changing the spelling of
their surname to Lockheed. Malcolm went on to start a
successful car hydraulic brake company, and Alan resigned after the company
was bought by Detroit Aircraft Corporation. But the company didn’t last
long and fell into receivership under the Title Insurance and Trust
Company of Los Angeles, officially killing Lockheed Aircraft Corp., which was a subsidiary. Its assets were sold off to Robert
Gross and other investors who went on to form a new Lockheed
Aircraft Corporation of Delaware. Lockheed Aircraft Corporation changed its
name in 1977 to Lockheed Corporation to demonstrate they offer
other services besides aviation. Those two companies, the Martin
Marietta Corporation and Lockheed Corporation, were two prominent competitors
in the defense marketplace. However, that marketplace has never
been completely independent of the government’s actions, just as President
Eisenhower had warned when he spoke of the
military-industrial complex. Military procurement had declined around 52%
from 1985 to 1997 in current dollar terms. Before 2001,
many people believed that national security had become a lot easier with
the end of the Cold War and that the United States could take what
was referred to at the time, a peace dividend. The much larger defensive
efforts that the United States had made during the Cold War when
we had to fight Soviet Union weren’t necessary anymore when the Soviet Union
collapsed and the Cold War ended. So defense budgets tended to decline. Leadership at the Department of Defense
inferred that the defense industry would have to shrink around 40% in
order to save the industry from collapsing amid declining demand
from the department. Officials encouraged companies to consolidate in
an effort to save each other. At the end of the Cold
War, there were concerns about whether the Pentagon budget, which was going to come down
about 10 to 25 percent or so was projected in real terms. Could that smaller budget sustain
the same number of contractors? And William Perry, the secretary of
defense, in the administration felt the answer was no. In fact, in
1993, the government asked specifically for less competition among
defense contractors. Look to your left.
Look to your right. One of your companies is not going to
be here in a couple of years. And then you also had
the infamous Last Supper. We think there are too many companies
in this business and we want to merge and combine with one another at
reduced costs to us, overhead costs at the corporate level. Norm Augustine
kind of engineered the whole series of mergers. Infamously or famously, Norm Augustine
who at the time was the head of Martin Marietta was at the
table with a bunch of other industry haters. And he was one of
the most aggressive executives taking that guidance and running with it. And he became CEO of the
combined Lockheed Martin and also consolidated and purchased lot of other
companies. Lockheed Martin absorbed large companies like Ford Aerospace
and Loral Corporation. Basically the big winner and that
consolidation after the Last Supper was Lockheed Martin. It was after that
that Lockheed aircraft and Martin Mary had emerged. In 1958, Lockheed Martin
proposed to Northrop Grumman and the government actually told them
not to do that. They cancelled that transaction. They said they wouldn’t approve it
and the idea was dropped. So that was that’s kind of, if
you will, the sort of the generally accepted end of the the
Last Supper consolidation era. By 2000, the industry had consolidated
into the marketplace we know today with Lockheed on top. So the way
the industry is structured now, the barriers to enter are huge. Unless they
brought up some of the existing companies, you’re only going to have
a couple of competitors for most things you might want to
do. Lockheed Martin now stretches into four business segments:
Aeronautics, Missiles and Fire Control, Rotary and Mission
Systems and space. It’s a company that has combined with
other companies over time to gain its current market position as the
largest company in the world. In 2019, Raytheon and United Technologies
announced intention to merge to have a better edge
on the defense industry. To protect their profits, companies like
Lockheed Martin also sell their aircraft to American allies when
cleared by the State Department. When the defense budget in the U.S. started to fall, a lot of companies
really amped up their work to sell products overseas. So depending on the company, that’s probably
now like 25 to 30 percent of their revenue may come
from international sales. That’s one way the government
controls the defense marketplace. Another way is through direct
negotiations with industry CEOs. In the 2017 fiscal year, the
then president, Barack Obama, proposed a budget of $582.7 billion for the
Department of Defense. The following year in 2018, President
Trump proposed a budget of $639.1 billion. For the fiscal year 2019,Trump
proposed a budget of $716 billion for national security, with $686
billion for the Department of Defense. And looking to the future,
Trump proposed a budget of $750 billion with $718.3 billion going to the Department of
Defense for the fiscal year 2020. The company was well positioned in the
Obama years as well because, you know, he actually spent significant money
in this decade, which includes most of the Obama two terms. We’ve spent a trillion more on the
Pentagon than in the prior decade, which was at the peak of
the Iraq and Afghan wars. President Barack Obama appointed Lockheed
CEO Marillyn Hewson to the president’s export council in
September of 2013. Marillyn Hewson from Lockheed Martin. Obviously, one of our greatest innovators
and one of those innovations is the F-35 fighter jet. It is the most advanced
fighter in the world. It’s stealth. You cannot see it. Is that correct? That’s correct. Better be correct. Right? A single F-35
can cost over $80 million and the government hasn’t always been happy with
the F-35’s performance and price. Then President-elect Donald Trump thought
the F-35’s program delays and high costs were bad for business. This one from the president-elect based
on the tremendous cost and cost overruns of the Lockheed Martin F-35, I’ve
asked Boeing to price out a comparable F-18 Super Hornet. This caused Lockheed Martin shares to
fall around 2% and sent Boeing shares up 0.5%. In January 2017, Trump commented on
the tension of his negotiation with Lockheed Martin. Look at
what’s happening with Lockheed. Number one, we’re cutting the price of
their planes by a lot, but they’re also expanding. And that’s going
to be a good thing. Ultimately, they’re going to
be better off. Hewson is actually in this very
interesting sweet spot where the defense budgets never been bigger
under any presidency. So that gives her company a lot of
leeway to snatch up a lot of those contracts. I don’t see any realistic
chance that there’s another company that’s going to exceed Lockheed Martin
in the next five years. Lockheed Martin will be delivering 478
F-35 aircraft to the U.S. government under their biggest deal yet,
a $34 billion contract with the Pentagon. In 2019, the U.S. government also approved the sale of 32
F-35 jets to Poland for around $6.5 billion so the company is poised
to be successful among allies as well. When you look at Lockheed’s diverse
portfolio and you pair that with a defense budget at a tune of
$700 billion, of course Lockheed is prime suited to pick up more government contracts
and to ride even more of a successful wave.

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  1. Lol…US doesnt need a lockheed martin it needs a better police force. Its people are gun fodder on streets and die everyday

  2. It's because literally everyone in congress is heavily invested in Lockheed stocks. It's literally in their best interests to go to war once in a while to boost their stock portfolios.

  3. Solution, you need to reform your political system. But can you? Dont think so. Its the entire political system. Guess you have to wait for the collapse of your economy, and then do something about it. Wish you luck.

  4. Lockheed Martin is doing a very good work to establish global peace. If you want peace always prepare for war. My support , best wishes for Lockheed Martin. My only regret is my inability to invest in this outstanding company dedicated to human welfare & global peace establishment. May Lockheed Martin exists for another 1000 years. God bless Lockheed Martin.

  5. Because they, together, are worse than Satan. Suicidal are getting only the Soldiers on the Battlefield, they see what War is, not this Cowards . Shame on the U.S. Voters, you the People.

  6. Did yall know that eisenhower helped pass a law that every 15 miles on the new interstate system we were building at the time (dont quote me on the actual mileage lol) had to be straight so we could land jets in time of war.

  7. Overpriced stuff
    With 1/10th of this budget (even 1/20th), countries like Russia / France / Sweden can make similar jets and it was proven to be pretty much the same level of technology during the several duel contests through decades and until today. Those contractors are like leeches, all they want is draining americans' money as much as possible, and the gov does agree cuz there's no other option.

  8. When Ike made that speech, defense procurement was 4% of the GDP. Today it is 1%. His concern his was unfounded.
    Another of his fears has become a serious problem, however: "Yet, in holding scientific research and discovery in respect, as we should, we must also be alert to the equal and opposite danger that public policy could itself become the captive of a scientific-technological elite."
    That scientific-technological elite has come to fruition as a tool of the left and created the lie of a climate crisis. They must be stopped by any means necessary.

  9. Its plain and simple. Greed and evil. They would rather profit off of the death of innocents in the middle east over giving free health care to their citizens.

  10. Evil minds that plot destruction,

    Sorcerer of death's construction

    In the fields the bodies burning,

    As the war machine keeps turning

    Death and hatred to mankind,

    Poisoning their brainwashed minds

  11. They answerd it in the first minutes. "Defending abroad" yeah, defend America from a villager in afghanistan, who cant read and has never seen a globe.

  12. US military is not used to protect civilians, it is just a corporation that is run by evil corporations and organizations and they recruit their puppets on the name of fake patriotism

  13. It's as if someone watched Simon Whistler because he did a video on this a couple days ago. A much better video I might add.

  14. Lockheed: I want my WOMD to be sold in a profit, will you help us create wars and attacks ?
    USA: Sure, and i will have your back.
    Israel, KSA, UK: Metoo, Metoo wanna be involved.

  15. Your videos never really answer the question stated in the title. This only explains what the company is and what its history was. Where does it say Why the government pays so much ? All your other videos are similar.

  16. “Protection and safety of the American people” that’s why there is no gun control legislation that has been signed into law and thousands of Americans die as a result

  17. When military budgets around the world especially US reduces to a reasonable amount, wars will decrease, or end, and tax payers money will be better spent on education, healthcare, housing, infrastructure, job creation, valuable research, etc. as long as the government is not corrupt and be made accountable for it's policies and activities.

  18. I kinda hate that I have to invest in the military industrial complex in order to regain my tax money being spent on it from the dividends.

  19. It's almost like Lockheed knew a war was coming soon after they bought up all those smaller defense companies at the end of the 90's…

  20. Hang on the USA has NEVER been invaded so why does it need protection at home. And aren't the Americans buying guns and killing one another? There is something VERY tragic about the American mentality.

  21. y it pays…its the responsibility of a government to pay ppl working fr it!!!…idiots?..world thinks that companies run US…no its US government that runs the world!!?..god bless USA.. more than anyone. its wht u haters deserve.."partiality"?

  22. Private defense contractors outsource more & more U.S. jobs and offshore their profits so they don't even have to pay for soldiers coffins– they are BANKRUPTING this country. Trillions on defense & multi billions in profits each year and they don't even want to help pay for the coffins. F them.

  23. If the current trend continues the department of defense might have a budget of $1 Trillion by 2025, especially when you consider the new cold war with China.

  24. I knew it was bad but seeing the numbers these companies make in profits via the revolving door between the military industrial complex and the government is absolutely disgusting.

  25. To protect the country at home: never invaded in homeland
    and abroad: a country abroad doesn’t protect himself. It protect his interests

  26. Imagine what that $100billion wasted on defence could do for America, how much healthcare could that for? It's literally insane how much the US spends on defence

  27. Same reason why it pays billions of dollars to other corporations, because the US is a de facto corporatotracy/plutocracy/kleptocracy.

  28. Lockeed might be the most successful company in the world, they do not have to show their real accounting (because they sell weapons of war),some projects are top secrets and cannot be revealed on their 10k etc… eventho it is a public company. Amazing ??

  29. I actually work for a company whose main customer is lockhead Martin, they give us obnoxious money for a few proof of concepts, some become products and many are binned, but the money given each time is lotts.

  30. Government subsidising private corporation? Isn't this…. socialism. Ah….!
    War is expensive Lockheed Martin and other military contractor should do civilian services and products so they don't have to relying on the government like those mythical welfare queens. Oh!
    This is our tax money we should decide what is best on how to use it

  31. Meanwhile, American are getting poor and homeless but there is money for war…?

    Well, printer and ink is what it takes to print the worthless paper called the DOLLAR

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