Lockheed braces for cuts in space programs

By Andrea Shalal-Esa Updated at 2012-04-18 01:51:27 +0000

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COLORADO SPRINGS, Colorado (Reuters) - The U.S. Defense Department is unlikely to kill major military satellite programs even if it is forced to double $487 billion in spending cuts already planned for the next decade, but cuts and delays are a sure bet, a senior Lockheed Martin Corp executive said.

"There'll be cuts and slips, and it'll be painful and it'll be disruptive to the supply chain and it'll ultimately cost the government more," Joanne Maguire, executive vice-president of Lockheed Martin Space Systems, told Reuters in an interview at a space conference in Colorado.

Maguire said military space programs were so essential to national security needs that they would likely survive the $500 billion in cuts, if Congress is unable to find alternate deficit-reducing measures.

She said it was clear that those cuts would affect mainly procurement and development programs, but there was no "quick fix" that would minimize their impact.

Lockheed and other major U.S. defense contractors are scrambling to shore up their weapons programs and find alternate sources of revenue given an expected decline in defense spending after a decade of sharp growth.

Industry executives and top U.S. military officials have warned that hundreds of thousands of jobs and many critical national security needs are in jeopardy if sequestration - automated cuts to defense programs - is not averted.

Companies are feeling the pinch of cuts already being implemented, but Maguire said the Pentagon's move to make block buys of larger numbers of satellites, and intense cost-cutting measures by companies were starting to pay off.

She also welcomed the Air Force's new plan to procure launches of its big satellites using a block-buy approach. Lockheed is in a joint venture with Boeing Co to provide those launch capabilities.

She said Lockheed had a stake in nearly every corner of the national security space market, as well as programs in human and robotic space exploration, commercial remote sensing, and commercial communications satellites.

"The good news is that gives us a pretty solid foundation. The bad news is that means that they're all being scrutinized and so there's stress across the waterfront," she said.

Maguire said she was worried that the Pentagon was investing too much in programs such as hosted payloads - which send government sensors into orbit on commercial satellites - and not enough in upgrades to existing major satellite programs.

"I'd love to see them leaning forward a bit more ... on evolution of these platforms," she told Reuters. "I don't think we should have any illusions that there's are any magic bullets out there."

She warned that cost-cutting efforts could lead to short-sighted decisions, especially at NASA, which has retired its space shuttles and is now counting on Space Exploration Technologies, known as SpaceX, and Orbital Sciences Corp , to keep the International Space Station stocked with supplies and science experiments.

"They've gotten themselves into a place where they're really overextended," Maguire said, noting that NASA was relying on commercial launches while trying to continue funding human exploration of space and cutting-edge scientific work.

Lockheed's satellite programs - which run the gamut from missile warning, advanced communications, weather and global positioning systems - had largely passed the "critical crossroads to success", she said.

Maguire acknowledged that Lockheed had lost $70 million in incentive fees on the Global Positioning System III satellite program because of cost increases of 18 percent, but said the company was focused on containing cost growth and earning other fees still available on the program.

She said cost growth on the program was largely due to the unexpected cost of tougher parts-testing rules, but it was better to hit those "speed bumps early" and manage them instead of allowing them to cascade into major program delays.

In addition to its focus on cutting program costs, Lockheed was also seeking additional foreign orders and hoped to bid for more commercial satellite communications orders, after passing up bids in the past, Maguire said.

"We're trying to think more strategically about keeping that product line robust," she said.

(Reporting By Andrea Shalal-Esa; Editing by Chris Lewis)

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