- The Washington Times - Thursday, May 5, 2005

Since it was formed in a 1995 merger, Lockheed Martin Corp. has been led mostly by engineers — men who helped build the jet fighters and missiles that made Lockheed the nation’s largest defense contractor.

But Lockheed took a different course with its latest chief executive, Robert J. Stevens, who also became Lockheed’s board chairman last week. He is a manager, more experienced at steering projects than drawing up jet fighters.

“I probably wouldn’t want to fly in an airplane where he designed the turbine,” said Norman Augustine, who led Lockheed in the 1990s. “But I would be happy flying in an airplane where he was responsible for overseeing the design of the turbine.”

Those management skills will be tested in the next few years. With increases forecast in the federal deficit, major Lockheed programs could be vulnerable as lawmakers look for ways to trim defense programs to save money. Some — like the F/A-22 jet and the C-130J transport plane — already are slated for deep reductions in defense budget proposals.

Lockheed profits have risen steadily, with defense budgets growing after the September 11 attacks, including the 27 percent increase in the first quarter of 2005. Lockheed also said it expects the rest of the year to be strong based mostly on expected increases in its space business and income from recent mergers.

But analysts say that if the ers.

But analysts say that if the appetite in Washington for expensive weapons programs wanes with bigger federal deficits, Lockheed’s profits likely will flatten. It’s a trend that Mr. Stevens, who became chief executive officer in August, may not be able to control.

“He should be able to do the job,” said Richard Aboulafia of the Teal Group, an aerospace and defense consulting firm. “But he’s not a man on a white horse.”

A veteran of several defense contractors, Mr. Stevens is credited by many investors for righting Lockheed after the company reorganized in 1999. Saddled with heavy debt, Mr. Stevens, then the chief financial officer, centralized Lockheed’s operations and trimmed 2,800 jobs, saving about $200 million.

Paul Nisbet, a defense analyst with the investment firm JSA Research, credits Mr. Stevens with helping to eliminate an old-boy network at Lockheed, where financial decisions were spread among the company’s different business units with limited central control.

Under Mr. Stevens, “it was much tighter control over the company’s finances then had ever been the case before,” he said.

Investors applauded the greater discipline, and Lockheed’s debt dwindled from a high of $12.6 billion to $5.1 billion last year. Lockheed’s stock grew from about $20 per share in late 1999 to its current level of about $60.

A former Marine, Mr. Stevens, 53, still has the lean body of a recruit. His hair is cut short and a shadow of a thin mustache hugs his top lip. His polished style is considered by many to be more forceful than that of his predecessor, Vance Coffman. He stays on the corporate message when he talks, sprinkling his speech with phrases like “delivering value to the customer.”

In Lockheed’s case, the customer is usually the federal government. Lockheed had $35 billion in sales last year, about 80 percent of which came from defense contracts and other federal agencies.

The company has boosted its homeland security business, training airport screeners and outfitting ships for the Coast Guard. Lockheed builds satellites and rockets for NASA and helps the Social Security Administration cut checks. The U.S. Postal Service uses Lockheed systems to sort mail, and the company created an air-traffic-control system for the Department of Transportation.

Mr. Stevens attributes much of Lockheed’s success, such as its contract to build the next helicopter to carry the president, to an intimate knowledge of the needs of the government.

“We understand our customers’ mission as carefully and as well as is humanly possible,” he said in an interview. “There is a special relationship here.”

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