Evan Davis
Right, well, very good evening to everybody, thank you for coming. It’s lovely to be back face-to-face for this series of corporate leaders’ speeches. It’s been a difficult few days in the UK, a very notable day in the US with the death of Colin Powell, and I’ve very pleased to have Jim Taiclet with us on this day. And Jim, actually, you – he was your Commander, ‘cause you fought in Desert Storm, the First Iraq War.
James D. Taiclet
That’s right, Evan, and the General is a personal hero of mine, I mean very personal, and I have been sharing this story with Evan a little bit earlier, that General Powell was in command when we launched Desert Shield. I was flying a Lockheed C-141 Starlifter at the time for the US Air Force, and we took the first cohort of 82nd Airborne Paratroopers into Dhahran, Saudi Arabia, the first night of Desert Shield. We were the only Allied forces outside of the Saudis in the country, and about 50 miles from the border, and in and out of the zone of operations for the next year or so, and General Powell and his team, and under his leadership, executed a campaign that saved lots and lots of young people at the time like me in the Allied force, and I’ll always respect him for that, and I got a chance to tell him that last year, so…
Evan Davis
Yeah, well, that’s particularly nice. Now, look, what’s going to happen tonight is, I’m going to have a conversation with Jim, we will then take questions. This is on the record, by the way. It’s being recorded. If you don’t want to be recorded, I’m not sure what you do. You’re very welcome to tweet, using the hashtag #CHEvents. Now, I’m just going to give the housekeeping instructions, okay. For those watching online, you can submit questions. Do not use the chat function or the raise hand function, use the Q&A function, the other ones are disabled. And what’ll happen is, I’ll see them on the screen here, and I may call you, and then you’ll come up and you can give your question, or you can just indicate you’d like me to ask it. So that’s if you’re online. In person attendees, lovely to have you in the room, very nice, and thank you for making the effort. Just stay in your chair if you want to ask a question, and a boom mic will be thrust over your head when you want to ask it, and you’re welcome to move your – remove your mask while talking.
But I am delighted to have Jim with us for the next 45 minutes. We speak in an interesting and perhaps insecure time, and an unpredictable one for those in the business of defence. Lockheed Martin has some fingers in some very big pies where a lot is going on. Defence generally, technology, AI, drones, hypersonics, space as well. Have you been tempted to take one of the rides up?
James D. Taiclet
I am talking to my team about that very topic right now, Evan, yes.
Evan Davis
And as you’ve heard, Jim, former Pilot and alumni of McKinsey’s as well in the 1990s through the Pratt & Whitney, Honeywell Aerospace and the American Tower Company, an infrastructure cell tower company, and has been in this role at Lockheed Martin since the middle of last year. So a relative newcomer at a very interesting time for doing business. What are you losing sleep over at the moment, Jim?
James D. Taiclet
Well, I’ve said to a few of our senior US customers that I’m concerned that if we don’t change how we operate our defence enterprise that we might not be able to maintain an effective deterrent in the next five to ten years vis-à-vis China and Russia and others. So, that’s what actually compelled me to accept the offer to come join Lockheed Martin executive management, because I think that we have an opportunity to, sort of, pathfind a way to maintain that effective deterrent.
Evan Davis
Okay, and so China, Russia, and is technology the front on which you think this is being fought? It’s not numbers, it’s the sophistication of the tech.
James D. Taiclet
It is technology and sophistication in that the defence industry and enterprise, meaning the military services, the civilian leadership, is traditionally very good at innovation in the physical world. You know, we’ve gone from, you know, propellor aircraft to jet aircraft to supersonic jet aircraft to stealth supersonic jet aircraft over, you know, a few decades. What we’re not as adept at yet is innovation in the digital world, which is largely based on software. Our commercial cohorts in semiconductors, distributed cloud computing, quantum physics and quantum computing thereby, and other 5G 21st Century digital technologies, are moving much faster than we are. And they can do that because software built upon itself can be more quickly developed in a faster cycle than physical objects can be, like aircraft and satellites, and ships, and submarines, which take years or decades to advance and develop, because of the physics. They are things that need to deal with metallurgy, electrical engineering and other kinds of issues, including astrophysics, that a software code writer doesn’t have to deal with. So what I would like to do is try to adopt those speed aspects of the digital world into the defence enterprise.
Evan Davis
I mean, what is amazing about what you’re saying is that the United States can be overtaken by cultures that have a much less – have nothing like Silicon Valley. I mean, they’re just less smart, sharp, they don’t have the gaming companies that the US generates. I mean, they just – if anywhere can produce software, surely it’s the United States?
James D. Taiclet
Surely it’s the United States, and what we are endeavouring to do at our company is to build that bridge between, first off, the US digital world leaders, you know, that the world would have heard of, and then internationally do the same, build that bridge to get the best of their technology that applies to our customers’ missions, so that we can increase our deterrent more effectively, so that we can prevent war. And if someone else decides that that is worth pursuing, that we can, sort of, prevail in that situation.
Evan Davis
So you’re talking to big household name companies in the United States?
James D. Taiclet
Yes, and I’m really encouraged so far in the last year, since the start of this journey, that, you know, I’d say the 12 to 14 leaders in some of those industries that I just mentioned, every single one of their CEOs has eagerly offered to participate. And so then what we’ve done, Evan, is, you know, the CEO will bring their Chief Engineer and Chief Technology Officer, I’ll bring mine, we’ll do a summit, most of them are by Zoom unfortunately, but yes, they’ve been by Zoom. And we figure out where the intersections of our needs, in raising our deterrent capabilities and the technologies they have that might accelerate that deployment and that advancement. So, we’re just getting started, it’s only a year into it, but I’m really encouraged about the interest and participation of our colleagues.
Evan Davis
And that – so that’s a culture change, you’re going to need contracts and find ways of interacting. ‘Cause in China they can just, perhaps, command rather than…
James D. Taiclet
Yeah.
Evan Davis
…incentivise people to behave in the ways they want, I don’t know, the…
James D. Taiclet
Well, that’s absolutely right. There’s a concept that’s – the coined term now is ‘civil-military fusion’, which is what’s imposed in China, Russia, similarly in North Korea and Iran, to essentially force all industries to contribute to the military complex that it has.
Evan Davis
As we would in wartime, for example, I guess.
James D. Taiclet
Exactly, and for World War Two kind of level…
Evan Davis
Yeah.
James D. Taiclet
…but that’s constant. We don’t want to impose that system of military-civil fusion. We don’t want the government directing our commercial enterprises on what technologies to develop and how to input those technologies into their military force. What we are going to try to do is simply maintain the ability of our tech sector, let’s call it, infotech sector, to keep advancing at the rate it advances unfettered, and collaborate and co-operate where it makes sense to, again, bridge those technologies over to us.
So there’s two things I think, for example, Lockheed Martin’s very good at. One is innovation in those physical world technologies that matter to our customers. So, undersea submarine management, sonar, those kinds of things, all the way up to – one of my favourite examples is our space division worked with NASA to intercept a flying meteor, asteroid rather, they landed a probe on it, scooped up some dirt and came back. This is hundreds of thousands of miles, speeds that you can’t imagine, that, you know, the asteroid was not very big and it landed on, kind of, a football field sized space where it could actually do this mission. We can do really amazing things in the physical world, and if we can just accelerate those…
Evan Davis
Damn, if you can’t get the word processor to work properly to…
James D. Taiclet
Yeah.
Evan Davis
That’s not very good.
James D. Taiclet
That’s right. So we’re trying to merge these. Now, there’s one other thing we’re really good at as an industry and as a company. We are very good at dealing with the government contracting system of the United States at least. So, one of the almost humorous points that was made by more than one CEO in these summits I was telling you about, was that they wanted nothing to do with the Federal Acquisition Regulation or the US Government Defence Department contracting system. We’re very good at that. We have a core competency in dealing with government contracting and audit systems and accounting. So we’re going to bridge that also for them. And you know, if you think about it, if you’re a technology company, and maybe two or 3% of your revenue is someday going to come from this, you’re not going to put that infrastructure in. You know, 90% of our revenue comes from that customer base, so we’re very good at it.
Evan Davis
Fascinatingly relevant to this conversation, which was on my list of things we should be talking about tonight, last week, is the Financial Times report. China has launched a hypersonic missile. We don’t quite know what they’ve done. Apparently, it’s July, the FT thought it was August. Talk me through that, because your own Lockheed Martin website has hypersonics as a, kind of, really quite key. And we should start – I mean, hypersonics is basically five times the speed of sound, and I think that’s the definition, yeah.
James D. Taiclet
That’s correct, or greater, yeah. Now, interestingly for Physicists and others, ballistic missiles travel even faster, but they travel in a predictable arc, based on gravity and calculations lots of people can do to figure out how they will perform. But these hypersonic missiles do not travel in a predictable path, meaning they are a greater threat because they’re hard to shoot down and it’s hard to deter someone from shooting one of those at you if you don’t have one to shoot back at them. So, the goal of what we are trying to do in hypersonics is dual. It is, first of all, building the kinds of products that can perform similarly, so that we can create a deterrence factor about – against anyone that thinks they can send one over to the US or the UK or Guam or Hawaii, and make a demonstration or worse, so at least we could do the same exact thing. And secondly, is counter hypersonics, where how can we prevent this…
Evan Davis
Yeah, shoot the thing down, going at 6,000 miles an hour.
James D. Taiclet
That’s right, and it’s manoeuvring, and it’s not in a predictable path and all these other things. So very, very difficult. So we’ve – prior to my arrival, the company invested significantly in the hypersonic area, fortunately, and then the US Government, kind of, emerged into the need, and we’ve landed a number of programmes to try to continue this work, and – but we need again to accelerate it, so that we can increase and maintain our deterrence factor against war and attack, at the same time be able to defend against it.
Evan Davis
Yeah, I mean, I suppose the question that this report of the Chinese test raises is whether your fear that deterrence is evaporating because they’re catching up or overtaking in certain fields, whether that is now already the case. ‘Cause it seems like they’re ahead of Lockheed Martin, who are the US pioneer in this area.
James D. Taiclet
So, not necessarily to speak to a single weapon system, ‘cause I really can’t talk about those comparisons, but in general, the US and Allied defence infrastructure is quite complicated and quite effective. It’s complicated and effective purposely, ‘cause if you have redundancy and ability to complicate the other side’s success equation, if you will, the probability that they think if they launch an attack of some sort, small, large, medium, land, sea, air, space, hypersonic or not, our goal – and my goal at Lockheed Martin is to make that success equation less confident for the other side, right? There’s been some publicly available studies that say Chinese leadership and the history of Chinese military operations has tended to be, unless it was forced upon them, not to attack, it’s Sun Tzu’s, sort of, philosophy, until you have, sort of, this 90/95% probability of success. My goal then is to move the goalposts.
Evan Davis
80%.
James D. Taiclet
Yeah, from – you know, and just keep it to be, hopefully, 90 plus, by introducing these 21st Century digital technologies in a defence space, because that’s the only way you can upgrade every six to 12 months and stay ahead of the other side, is doing that, while you’re still upgrading your physical products along the way, like the hypersonic missile.
So, the way to do this, to reduce the probability of success of the other, is to complicate the situation as much as you can, right? And the digital technologies are very valuable for that. So, let’s think about, gee, how we can make sure that if a hypersonic missile is launched, we have a higher probability of success to shoot it down. Well, the first thing it would be great to know is the satellite could see it being launched, start tracking it, feed calculations back through the web into the cloud, a secure web and cloud by the way, have an AI generator figure out what are the probable trajectories and targets of this missile, which is what you also want to do for ballistic missiles by the way, and then establish a calculation for different types of counter missiles or counter effects to stop this thing before it gets to its target. And that’s 5G telecommunications, it’s quantum, again, quantum computing that you’re going to need, AI to be able to run all those calculations in time. Because remember, this thing’s going Mach six, right? So you don’t have a lot of time, you’ve got to use all the best technologies from the digital world to be able to defend against something like this. And that’s why I feel that we need to bring these together quite rapidly, because of threats just like the one you just described.
Evan Davis
Yeah. A lot of these technologies, they seem incredibly vulnerable at the same time as very powerful, don’t they? I mean, one can imagine a GPS system being damaged, compromised, knocked out.
James D. Taiclet
Sure.
Evan Davis
And as quickly as people are creating these systems, as you’re doing or as the other side are doing it, there is a vulnerability to all of this.
James D. Taiclet
Right, and therefore, again, you’d have both a deterrence factor and a defence factor. Take a GPS satellite, so there’s 31 flying at any one time. Lockheed Martin’s got about 40% of those. We’re building the newest generation, and that’s great. But they are vulnerable. They’re in the middle earth orbit, medium earth orbit, they’re in fairly predictable routes around the globe. They’re a fairly large size, so not something small to hit, so it’s pretty big, it’s like, you know, the size of a, you know, a minivan or something, and publicly, they’re not allowed defensive systems around them, prior models, let’s say. So what could we do?
We can, first of all, can improve the jamming, anti-jamming capabilities, so even if you don’t try to hit it, you can’t jam it, and that’s something that is being introduced already, so that’s great. The second thing is, and we haven’t initially done this yet or advertised that we have, is you could make it manoeuvrable and you could give it defensive capabilities to shoot out a, you know, a fake satellite when something it senses is coming at you, and have it maybe divert and hit that. There’s a lot of ways to do this, but it’s still going to be a little bit vulnerable, so then you would say, well, let’s put some satellites into geostationary orbit above it, and a lot of them in the lower orbit, below them, and have redundancy.
So, again, the point is not to hit one satellite if you’re an adversary, the point is to take away our ability to navigate and so let’s have redundant ways to navigate. And again, it’s complicating the success equation. That’s what we want to do every time, and we want to do it the most efficient way as possible because our governments, especially with the COVID pandemic still going on, they don’t have infinite resources to put to defence. So, part of bringing in those digital technologies is they get efficiency out of the budget they do have too, with the threats going up and the budgets staying probably flat.
Evan Davis
Well, that’s a good point to turn to the business of defence, because I did want to ask you what you thought would be happening to defence budgets globally. I mean, that’s important for those in the business, it’s important for the taxpayers who are going to be funding it against lots of other things. It does feel like there’s upward pressure in Europe on defence spending, a sense we’d probably better chuck in some for ourselves. The threats don’t seem to be going away, to say the least. What are you factoring in? Are you just assuming that defence budgets are squeezed or rising?
James D. Taiclet
We listen to the governments’ customers that we have. In Australia, for example, they’re raising the defence budget because they’re feeling real pressure from China in their region directed at them, and they’re trying to make sure that, on the other hand, that they can increase their deterrence factor and their defensive capabilities while that’s going on. Japan, for example, is also in a similar vein right now, given the threat environment and attitudes they’re facing, they’re going up, they’re increasing their defence budget. If you turn to the US, the – what the Biden administration has probably said is that, over the next three years or so, defence budgets will be roughly flat, and so, the only one we’ve seen so far was between, you know, zero increase and inflation, so it was about halfway in the middle there, it was at 1.5%. Congress, this time around, is adding more to that, more funds, so we may end up keeping up with inflation or close to it, but that’s going to be probably your upper bound in the US, and I would imagine potentially in Europe too, so…
Evan Davis
I mean, you’re basically a US Government supplier, though, aren’t you? Most of your business is…
James D. Taiclet
Yeah.
Evan Davis
…the US public sector, so…
James D. Taiclet
70% is to the US military and civil government customers, and about 30% is international.
Evan Davis
Can you be a very – can you be – how big a global player can you be when you’re so at home, dependent on your core customer? And I suppose I’m – the background to my question is, I’m wondering whether different regions, whether Europe for example are thinking, “We need some homegrown, some – we need some champions here. We cannot just rely on overseas companies, because they won’t give us the technology when push comes to shove.”
James D. Taiclet
Well, one of my goals at Lockheed Martin, in whatever tenure I’m going to have, is to make Lockheed Martin a much more international company. So, at American Tower, I can just give you the example, we started there, again, it was called American Tower, because 95% of its assets and revenue were in the United States when I came on as CEO. By the time I transitioned, I retired from there to take this job, starting all over again, by the time I finished up there, about two thirds of our revenue was international. So it went from 5% to 65%. It’s a very doable thing if you put your mind to it.
Evan Davis
Yeah, but it’s a much more sensitive business for…
James D. Taiclet
Yeah.
Evan Davis
…international…
James D. Taiclet
It is indeed, and there are national champions in other countries in defence, but we’ve been very successful to the extent that we have worked on it so far. In the UK, for example, we’ve got 2,000 employees here and a significant amount of physical infrastructure, factories, plants, engineering teams. We’re talking to the government about potentially creating a satellite manufacturing facility here, if we achieve some certain opportunities that we were hoping for, so in the next few years we may be there.
Evan Davis
So that would involve intellectual property created outside of the United States.
James D. Taiclet
That’s absolutely right, and that…
Evan Davis
So not in the US, being outside…
James D. Taiclet
…it makes it more exportable, not only to the country you created in…
Evan Davis
Yeah, but you’re not under the control of the US Government in fact…
James D. Taiclet
No,
Evan Davis
…for that technology.
James D. Taiclet
That’d be correct, and we’d be very careful, Evan, that anything we did view to be exportable to other countries, including the one that we’re operating in, did not have any US content in it from the start that wasn’t allowable itself. So we would be careful about that. But, yeah, my endeavour would be – you know, we can grow this business internationally because we’ve got really great technology in the physical world and we can apply that elsewhere. We can do the engineering development and manufacturing elsewhere and not take anything away from the US operation that we have, at all, and we’ve got the management skills to be able to try to bring in that digital world technology too.
Evan Davis
Okay, I’m going to open to the floor in a second, so if you have questions, submit them online and get ready. But let me ask you, what would be your advice, as an outsider, a friendly outsider, looking at Europe and its defence position, its defence procurement? The Brits and the French are the biggest of the Europeans. They don’t really do that much together. The French seem to get better value for money, I’m told, than the Brits. I have no idea, judging from where I stand, whether that’s the case. What’s your advice to Europe on what to do at this point and how to get, if you like, a – without undermining the Atlantic Alliance and making sure that they’re pulling their weight and they have their own stable base from which to be able to maintain a, kind of, a degree of indigenous security?
James D. Taiclet
So, it’s a government-to-government conversation on what defence budgets are to be, so I’ll probably let that go on off on its own. But as far as industrial policy or interest, you know, my suggestion would be, decide what you’re going to be great at, focus on that, and then look around you and see what others are focusing on that they’re going to be great at. And the less duplication where there’s basically sub-scale attempts at the same really, really hard thing, you know, how many hypersonics endeavours or enterprises can the free world support? Probably not that many. Probably not ten. Two or three, because when you get into that level of sophistication, the testing facilities alone, wind tunnels, heat generating areas, the factories themselves and the tolerances of the manufacturing. I mean, if ten companies or countries did that, you would have a terrible return on investment, for pretty much everyone, probably, except maybe the one biggest. So, I would suggest just, as we’re trying to do, recognise what we are good at, recognise what others may be better at, and team up with them, and work together. Because we do have a shared collective interest in national defence among our alliances, and I think we – our industrial policy should reflect that.
The other thing I will mention is that everybody recognises and understand that, let’s say, the US military services are competing with the Chinese equivalents that, you know, the People’s Airforce and, you know, we’ve got clear and obvious competition going on between the services. What’s less evident is that there’s another competition going on in defence industry between the US and the free world, and China and Russia, for example.
I’m asking and I think we’ll get some traction on this, to have not our own company, but others that can be neutral and credible, do a, you know, a Porter analysis of the US defence industry, for example, or the French or the British, and the Chinese defence industry, and see what are the forces at work, you know, that the government policies, the strengths, the weaknesses, the infrastructure, the funding, between those two industries, just like you would do a wargame between the two air forces, to figure out where are we lacking? What are they doing better than us from, you know, an industry point of view? Because whoever comes up with the first hypersonic, effective, scalable, hypersonic weapon portfolio, it’s going to give their military an advantage in that competition.
So those industries are competing on behalf of our military customers respectively. You want, one would think then, that our government would want, first of all, strong defence industries in their countries and among their allies. But secondly, look in the mirror and say, “Well what am I doing, potentially, holding these companies back to be successful?” We don’t need to be subsidised necessarily or anything like that, but – and we don’t want to have other companies forced to collaborate with us that maybe don’t want to or don’t have the interest to, but it is worth looking in the mirror, I think, and doing that SWAT analysis, if you will, of, like, the two industries.
Evan Davis
Yeah, the consultancies. You’re the old Consultant in the early 90s…
James D. Taiclet
Yeah.
Evan Davis
…at McKinsey’s.
James D. Taiclet
Yeah, I’ve tried to beat that out of myself, but not completely.
Evan Davis
Just break through at the end there.
James D. Taiclet
Yeah, just for a minute.
Evan Davis
Alright, well, look, if that – it invites me to start talking about procurement, but I don’t – I think to save us from that, why don’t we move to questions from the floor. I have one online, but I’m going to take questions from the floor. First, we’ll take – I’m just scouting the room. We’ll take – we’ve got a little cluster of gents in the middle here. I’m looking for women. I do like to have diversity in the questions. Okay, we’ll take the – sorry, I can’t see. We’ll take the woman who put her hand up when I said I’m encouraging diversity at the back, and then we’re going to go to the cluster of gents here. And it’s lovely if you can tell us who you are, by the way, just for our sake.
Anna Claron
Yeah, I’m Anna Claron. I’m a postgraduate student at King’s College in War Studies. My question would be, in the wake of technological development such as the hypersonic missiles, would you characterise this as a revolution in military affairs, potential revolution in military affairs, going forward?
James D. Taiclet
Well, I think hypersonics is one element of what is absolutely a revolution in military affairs, because what our adversaries, if we can use the term, are doing, is they’re actually leveraging these 21st Century technologies to try to catch up and surpass the historical Western advantage in military technology. So, yes, it’s overall, this is a precipitous time in military history, but not only because of a hypersonic weapon.
Evan Davis
What are the other ones? What would put up there? The AI, the…?
James D. Taiclet
Stealth technology, much of which has, you know, purportedly been taken, you know, through industrial espionage. But yes, stealth technology. Something as one might think, as pedestrian as the range at which an air-to-air missile would be effective against another aeroplane. If you’re an ex-Fighter or Transport Pilot like me, I flew both of them, that’s really, really, really important to you, okay? So there’s competition in propulsion, thermal management, targeting, passive sensing, thing like that, that are just as important as hypersonics, and it’s all happening now, simultaneously.
Evan Davis
Alright, we’ll take the gentleman here, and then we’ll just run across these three gents with their hands up here. Yes, so the – yeah, go ahead.
Donald Smythe
Donald Smythe, member of Chatham House and I’ve been a student of military history for 70 years. I’ve lived in this country when we’ve had bombs dropped on us. I was brought up that we in the West were always the good guys and the clever guys and that we had a very substantial military advantage over our potential adversaries. Now this does not seem to be the case. Why is it that we have been, shall we say, caught with our pants down, when we look at military expenditure in America of a budget of something like 820 million – billion and against the Chinese of about 283 billion. One would expect that we would still have a quantum advantage. Would you like to explain?
Evan Davis
That was a very interesting point about the counterintuitive account you’re giving.
James D. Taiclet
So, one very brief point to make is, it’s not apples-to-apples, dollars. Our US military spends, I believe, about half or maybe more of its budget, on personnel and medical and retiree costs. Just – it’s a fact, so that’s fine. But we do spend a lot of money on defence, and we should stay competitive. Where we’ve been channelling much of that resource, in the US over the last 20 years, has been towards counterterrorism, wars in Afghanistan and Iraq, etc., and meanwhile, we didn’t necessarily view China or Russia as such a direct threat during that time. It’s emerged, over the last few years, that while we were emphasizing those conflicts, indeed, China and Russia were moving down the technology path faster than we thought – than perhaps we thought they were.
Now, intentions come – so there’s two things. So there’s the notion of, you know, relatively balanced resource input between the two systems, I’ll call it. Secondly, our focus on the Middle East and counterterrorism, and the third is that intention. In my view, the intention of the United States as the good guys, and the UK right along with them and the French and others. We’re not out to expand our sphere of influence by military force or coercion, but China and Russia are. And they’ve had that intention, quietly pursued it, and now it’s become evident that their capabilities are quite competitive. So, I wouldn’t put any blame anywhere, and it goes to just the circumstances are that played out over the last 20 years. And now, I think the only way for us to keep whatever advantage we do have remaining, it’s to use these digital world technologies in ways that will allow us to keep pace.
Evan Davis
Right, we’ve got two questions. I’m going to take them both, actually. The two gents sitting across sitting across the aisle from each other there. We’ll take them both at the same time, and then, just to speed things up.
Member
Good evening, [inaudible – 39:16], Royal College of Defence Studies and MBA as well. You mentioned an objective for Lockheed to increase your footprint internationally. How do you see the future of industrial collaboration, in particular between the UK and the US? And do you see the new agreement, AUKUS Agreement, as a potential for an increased collaboration?
James D. Taiclet
Yeah, let me start at the end. Yes, I think the AUKUS Agreement’s really important because it creates the policy at the top of governments, the three government involved, for sure, that we are going to co-operate on security affairs, closer than perhaps ever before, since World War Two, together. Now, that should open up a lot of avenues for the thing we just talked about. What is the collaboration scheme that makes the most sense based on capabilities, resources, etc.? So I’m very encouraged by that. The way that…
Evan Davis
Wouldn’t you want the French there? I mean, would you want that French in that, as a…?
James D. Taiclet
Of course, yeah, well, ultimately, yeah. I mean, that’s a government decision, not ours to influence it or to attempt to. But yeah, you’d want the widest possible net of likeminded countries thinking this way and acting that way. What I am hoping to do with Lockheed Martin, at least in our case, is to continue the existing practice, which is, we will be involved in a campaign to sell a product or system to a country, that country will ask us, “Well, if I’m going to buy this from you, then we would like some industrial investment along with that product sale.” Let’s call it offset or industrial collaboration.
We should be doing what we talked about earlier, which is what can we do in the UAE, for example, that would make sense in general, whether we’re selling that product or not? What should we do in the UK in general, whether we’re selling a product or not? And so really flip this whole thought process back to say, you know, if we call ally with the UK based on government policy, an umbrella that allows us to do that, in attractive investment environment, capital markets that are global, that will help us support doing that, and we have a good business case as a company to launch that business, we should just launch the business here, or in UAE or in Japan or Australia, wherever it makes sense to do that. So, that’s what I’m going to try to do under – in this environment, which is becoming increasingly amenable to this, to really change or augment, I’ll say, the way we do industrial co-operation now.
Evan Davis
It’s a really good question, and I should say two people online have – Patricia, I’m sorry, I was going to come to you, and your question’s already been asked. But Patricia does ask, “How is it influencing Western defence contractors more widely, AUKUS?” Has that changed how people are thinking about how they do business, Lockheed and others?
James D. Taiclet
Well, I think it’s a lot – it’s created that umbrella that we can be more hopeful that real cross-investment is going to have a business case at the end of the day, yeah.
Evan Davis
And Mohamed Foboy asks, “Does the exclusion of France reinforce EU strategic autonomy?” Do you feel that is perhaps the direction in which the Western Alliance now goes?
James D. Taiclet
I would speculate that these are independent events. Government policy between Australia, UK and the US relating to essentially, in Asia to start with, I think happened in an independent track than the outcome, the tactical, I’ll call it, outcome of a submarine purchase decision. That was also – that submarine purchase decision was also influenced by, well, do the Australians have the right technology assumption to build a next generation of submarines or not? And so I think that’s a completely independent conversation than, you know, the AUKUS Alliance, and they happened to, kind of, collide very publicly in that the Australians changed their procurement strategy for a submarine, you know, alongside and under the umbrella of the AUKUS Agreement, because perhaps they couldn’t have gotten the nuclear technology without the agreement, and therefore, the other piece of it, you know, again, independently intention – I’m again, speculating on this question.
Evan Davis
Yeah, sure, that’s no problem.
James D. Taiclet
But they seem to be independent issues that, kind of, came to the fore together.
Evan Davis
Right, I promised we’d take this gent here, and then we’ll take another couple. Yes, go ahead.
Euan Grant
Yeah, thank you very much. The name’s Euan Grant. I was the old UK Customs Services Intelligence Analyst for the ex-Soviet Union and Transnational Organised Crime. I don’t think you can look at those countries, particularly Russia itself, and increasingly China, in that subject, without considering the military and geostrategic. I think they are not quite joined at the hip, but they’re not far off it. My question follows on from the gentleman from France. Where do you think the particular niche expertise lies in various parts of Europe where Lockheed and the US can particularly co-operate with, and are you, in fact, planning in this trip to Europe, ‘cause we are still in Europe geographically, are you planning to go on to other European capitals, or to Brussels, to NATO, or to the European Commission? Thank you.
James D. Taiclet
Right, so just on a travel basis, the NATO Industry Summit is in about a month. I’ll be coming back for that. So, yes, just not all on the same particular trip. But take the UK, for example, these spaces are an area of high interest for us and the UK Government and UK industry. You know, those are the investment in OneWeb a year, a year-and-a-half ago. I know there’s strong interest in the launch facility in Northern UK and manufacturing of satellites in the country. So that – those are things we’re all interested in.
Now, okay, we come to the right agreement, is there a business case there? You know, there’s going to be a new or an upgraded British military communication satellite network that’s going to be procured or evolved over the next few years. So, for example, if we were to be involved in that, and had some commercial demand to come with it, and be able to do independent or local, I’ll call it, development, which we could export to other countries, you could see us, I think, working with the UK, within the UK in the area of space, for sure. We’re quite engaged in your nuclear deterrent and, you know, expect to remain so, it’s another area. The F-35, which is, kind of, our, sort of, signature programme right now, in the company, it’s about, you know, between – depending on what you’re counting, 25 and 30% of the revenue of the entire company.
Evan Davis
Say that again, the F-35 is what? It’s…
James D. Taiclet
It’s 25% of the entire…
Evan Davis
It’s a quarter of Lockheed Martin?
James D. Taiclet
…revenue stream that comes in.
Evan Davis
But hasn’t that – do you not look at that and think – is that a burden to carry, because no-one – does anybody look at it and think, “This is how you should do it, this is how you should create a, you know, strike fighter”? Is it – is that the…?
James D. Taiclet
Ah well, let me come back to that, because the point I want to make for your question, sir, was that there’s a significant proportion of F-35 content that comes out of the UK.
Evan Davis
Yeah, no, that’s right.
James D. Taiclet
So there’s BAE and many, many other suppliers we have. So we’re very integrated on that programme too. So, you know, aerospace – oh, by the way, submarines, we do combat systems, BAE can do the whole, so there’s a lot of integration and collaboration here, and room for more, in those areas and others. So yeah, I’m very encouraged.
Euan Grant
Well, almost certainly and up on that.
James D. Taiclet
Yeah, very encouraged on that front, and we have alliances across Europe too. We have a factory in Poland for helicopters, for example, just to give you another, you know, wide ranging idea.
Evan Davis
Let’s talk about the F-35 though, ‘cause I mean, it has been described as a very, very expensive committee drawn plane. I mean, what lessons do you draw about what went wrong with that? Or do you think it is a – just a great success, and looking back we’d do a – we wouldn’t change anything?
James D. Taiclet
So, I came into it a year ago. Now, having been an ex-Fighter and Transport Jet Pilot and had a chance recently to get in the backseat of our F-16, which is also really awesome, but, you know, the F-35 is an aircraft, and we just heard this people we met with today in London, performing extremely well operationally, including on the deployment on Queen Elizabeth. So, the aircraft itself is outstanding. The second piece which I’ll elaborate on if we have time in a minute, is it is the core node in the future architecture of how you would network all the domains. So, aerospace – this is aircraft with the largest data storage, the largest data processing and the best connectivity back to the cloud, if you will, you know, ways to transmit back and forth to multiple communications, and also has excellent sensors, which can then be linked back to other places off the aeroplane. So it has all the attributes of what’s called an edge compute node already, and so therefore, it has now this dual purpose.
Now, I wasn’t around for the entire procurement process, and the way it was done, but I can tell you the product itself is outstanding. And I’ve talked to Pilots all the way from Israel to the US and in-between, and they will all agree with this, and I know you – well, I know our – your Air Pilots have said very similar things, and your Commanders.
Now, what we could have done better, perhaps, is, you know, really understand the cost of something this sophisticated and bake it into the business plan all – from the beginning. So, our objective now is the production costs are quite reasonable, in other words, you can buy and F-35 with a – in a similar, you know, kind of, range of production cost than say, an F-15 or an F-18. Where it gets into a little more expensive is because of the stealth coding and all of the advanced electronics in there and the sensor systems. You know, the sustainment or the ongoing cost of operating the plane per flight hour is higher than the fourth generation planes, which you would, kind of, expect, ‘cause it’s a fifth generation plane, with a lot more sophistication.
What we are endeavouring to do, as industry and our government, including the international partners, which the UK is one, is how do we get the – these operating costs down? And here’s the problem I have with that, and it’s, again, nobody’s fault, it’s just the way it is. In commercial industry, I worked at Pratt & Whitney and Honeywell, as you mentioned, almost all the airlines, for example, in jet engines have gone to these maintenance programmes where they buy the engine and they buy a maintenance plan with the engine, and they outsource it to the OEM, the manufacturer…
Evan Davis
Rolls Royce or whoever…
James D. Taiclet
That’s right.
Evan Davis
…they look after the engine…
James D. Taiclet
Rolls Royce does this all the time.
Evan Davis
…and they give you miles of engine use, yeah.
James D. Taiclet
That’s right, and usually those prices do not escalate over time. They tend to be flat, or sometimes they go down over time, because now it’s up to us, the OEM, to put capital investments and other investments in R&D into making it cheaper to run this thing, okay? The US Department of Defence procurement system doesn’t largely allow for that. And the US services have their own maintenance operations that they want to keep, maintain, and keep employment and all these other things going on. So, we should have just been, I think, really frank with ourselves collectively about what it’s really going to cost under that system to run this aeroplane, given its sophistication.
Now having, I think, now all agreed that it’s too expensive to run it, to operate this plane over time, we’re all working together now to get the cost down, so…
Evan Davis
That’s – that is really – that takes us – that really is the question on procurement, and you’ve actually given a really good response there as to this issue about how you pay really matters for what you get, and you’re trying to make a culture change at Lockheed Martin. Ladies and gentlemen, we actually do have to finish now, I’m afraid. I’m going to ask you the last question, which is from online. I’m sorry, I haven’t – I’m not going to call you, Oded, but it’s a good last question. “Would Lockheed ever consider going back to building passenger aircraft?”
James D. Taiclet
I’m a big believer in staying at what you’re good at and really focus on it and be best in the world at it, so I think we’ve got two wonderful and highly scaled aircraft manufacturers in the Western world, and Airbus and Boeing can probably keep that market.
Evan Davis
Right, I take that as a no. We need to leave it there, everybody. Now, look, there is a reception upstairs. Wine will be served. You’re allowed to take your masks off while drinking wine, because that actually completely stops viral spread of any kind, as you know. So there’s a reception upstairs. I’ll ask you just to stay in the seats while we leave. But I think it’s been a really interesting 50 minutes with Jim. So can we thank Jim for that. We really appreciate it [applause].
