Why The U.S. Government Pays Lockheed Martin Billions


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.




Comments
  1. One thing that makes liberals and conservatives agree on, the Government spends a lot of money, too much money on these corporations!

  2. Because the US government needs to buy numerous fighter jets to invade other countries.
    That's why the US government pay them a lot of money.

  3. U.S. needs to nationalize these companies but I guess we have the reserve currency for now so debt is not a problem.

  4. Private companies run the gov't not the other way around.
    911= Hegelian dialectic
    Next CNBC expose…
    Water is Wet…

  5. *no other country has such "business success" stories, now or ever before
    **the Russians would like you to think the Soviet Union "collapsed"
    ***any mention of benefits such as secure, free trade? Something that is not guaranteed in Chinese seas or airspace for example?
    ****considering political climates I think this video is reckless, and I know you know why.. .

  6. Lockheed Martin also influence other countries to buy overpriced equipment's through politicians. Everyone get a cut. 🤷🤷. US has to spend too much money on military because most of the enemies are very far from North America. Eg. Look at the number of aircraft carrier USA has it all cost money. I wish taxpayers money could have been used for education and healthcare. Look at the past most of the forigne policies are failure for the state and beneficial for the private contractor's. I am not saying stop military expansion but proportional amount should be allocated for healthcare and education. I am an Indian I have seen the same thing in Afghanistan and Middle East.

  7. It's like this :
    You pay 100 bucks for piece that costs 60
    Extra 10 goes into politicians pocket
    Extra 10 goes to illegal funds for campaigns
    Extra 20 for extra profit
    Everybodys happy ( except people 😊)

  8. CNBC just trying to downplay this military-industrial Congressional complex and make it seem as if this is normal par for the course make it seem as if this is good for the citizens sweep it under the rug routine as usual don't be alarmed. the citizen should be alarmed when weapons defense contracts get sent to private companies who waste a lot of taxpayer money on weapons in order to further their endless war on terror and create more enemies abroad. All about protecting our country because we have so many enemies that we created, but to what end??? Education infrastructure healthcare focus on what really matters. we would have no enemies if we would stop call going after regime changes in countries that don't want us there.

  9. Watching S05e12 of madam secretary all over again.
    They have also showed this kinda corruption amongst band of bandits ( Congress)

  10. What if Elon Musk started his own military defense industry instead of SpaceX?
    I rather see him in a IronMan suit than seeing people on Mars lol.

  11. Its been a great holding in my portfolio, probably always will as long as the US keep spending big tax dollars on the military.

  12. 700B / year in defense? Wow… If we do a basic calculation to divide 700B by 140 million (US tax payers) it equals 5000 USD / year per tax payers (obviously some pay more than others).
    700B is what they spend in education too (no comment)

  13. Public companies have a mandate to continually increase profits. This condition applied to weapons manufacturers basically guarantees perpetual war. If the US defeats all their enemies, they would conveniently find new ones.

  14. Lockheed senior managers always keep in their back pocket, a card with list of senators/congressmen for each state that has billions in lucrative contracts.

  15. Air Force bought the MX kiss me system even when it was proven to not work.
    Military War support has always been the biggest money maker.

  16. US spending billions on defense, buying jet fighters and new defense systems that they most likely won’t ever use, rather than focusing on ending Student Debt, Poverty, or even its own 13 Trillion dollar debt.

  17. U. S government can't make money in national healthcare like war does for it … It=U.S GOVERNMENT. IT'S an entity of it's own.

  18. In 1961 the American government was warned about this. And did nothing about it. It's going on 2020. You people can keep believing in this government if you want. It's about time to break it and rebuild it

  19. I sometimes think all these terrorism and hatred and war is all funded and encouraged by these warmonger leaders to keep making on people's fear

  20. Military industrial complex that trump has given more to than any other president. 750 billion per year is spent on weapons and an army fighting other peoples wars……. if trump wins again he will raise it to 1 trillion a year budget….

  21. This is why I’m voting for Andrew Yang. End the forever wars and bring us back to a time when 99% of the US’ budget wasn’t given to a private company for what they call “our protection”

  22. Lockheed should purchase Raytheon and Boeing. I coined it first. Skunkworks will control the world and they should scarf up DARPA along the way, completes Supremacy.

  23. CNBC don't act like you get paid millions for promoting war in third world countries, you're already halfway up the US government's bowel.

  24. They should use that money to better the people the citizens that run the country they should throw a couple billions to healthcare etc

  25. What sucks about businesses having exclusive contracts to the government is they don't have to worry about competition, so they easily up charge their products.

    Thus is why a roll of toilet paper can cost $.25 for civilians but will be sold to the government for $10.

  26. Create wars, sanction, overnight turning elected, blood baths, terrorist,lies, cheating, stealing, what is good you zionpigs do,

  27. Money… that's what all politics is about….sadly most people cannot get it….and look what Trump is doing… since 2016 he going around the world asking money for NATO and weapon companies….he has been an awful president….

  28. In the debate between capitalism and socialism, it is often said in favor of capitalism that governments do not and should not interfere in private companies and markets but this is clearly not the case especially when it comes to weapons manufacturing companies and bailing out multi-billion financial corporations like Lehman Brothers and Goldman Sachs for instance. And when the same argument is made in favor of socialism which is why doesn't the government come to the rescue of employees and working class Americans it suddenly becomes a radically dangerous idea.

  29. This is my favourite info channel.

    Are there any more similar channels which provide short entertaining video like The Big short story etc ?

    Please comment names 👇👇👇

  30. That's the system …and system is called capitalism…and still most people around the world cannot see the truth…

  31. By putting corporate leaders in political positions of power, to funnel the US budget into their corporation. Its basically legalized theft.

  32. 00:33 “When of the top priorities of all administrations is the protection and safety of all American people.”

    What a [email protected]&king joke that is. Are these the same administration that have weapons to Iran through the Contras? Are these the same administrations hat gave Al Qaeda and the Taliban weapons during the 80’s? Are these the same administrations that attack Iraq which made us LESS safe? In fact, it has been proven that the U.S government armed, funded, and supported terrorist groups like Isis which is then used as a pretext to invade and enrich Lockheed Martin and other military industrial complex co.

    You’re not fooling us with your BS propaganda MSNBC.

  33. This is the craziest case of self fulfilling prophecy i have ever seen. So peace equals smaller less profitable companies and war equals massive profitable companies……whats to stop these companies from saber rattling and promoting proxy wars to ensure they stay in business and remain extremely profitable…… ….wow.

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