Lockheed Martin Corporation (LMT) Earnings Call Transcript & Summary

Good morning. I'm Myles Walton, the UBS aerospace, defense and airlines analyst here at UBS, and I'd like to welcome you all to the UBS Global Industrial Conference for 2021. And over the next 2 days, you'll be able to hear from over 120 companies. And to kick off this morning, we're very fortunate to have with us Lockheed Martin. And presenting and speaking for the company will be Ken Possenriede. And we're really excited to have Ken in his position as CFO of one of the largest defense companies in the United States and in the world, presenting his view on what the outlook is for the business as well as the backdrop of defense spending overall. And so Ken, welcome.

Thank you, Myles. Glad to be here.

So maybe to just kick off, Ken, it's a budget time of the year. So those documents, at least for fiscal 2022, have come out. And there's some initial reads, and there's some still open-ended questions. So maybe at a high level, I'll give you the opportunity to talk about what you're seeing in that budget at a high level. And what in particular you think are areas that are surprising on the upside? What areas are still question marks for you?

You bet. Hey, before we do that, Myles, just a little housekeeping matter. So if we could put up our forward-looking statement. I'll be really brief, I promise, folks. This just basically lays out all the risks that potentially could impact these forward-looking statements that I'm going to make via Myles' questions, and please refer to our 10-Q that we just recently filed to get a deeper look at those risks. So onto the budget. So Myles, when we saw the skinny version of what came out and then the more detailed, I guess, it's been about 1.5 weeks now, we were not surprised at all. It basically was in line with what we expected. So up about $11 billion year-over-year. I think exact numbers, 1.6% growth. Our expectation was it was going to be flattish. So again, no surprise there. I think you start with our cornerstone program in F-35. In the budget was 85 aircraft. It's exactly what we thought would happen. In fact, I just saw a couple of days ago, the Navy actually wanted 5 additional airplanes. So I'm sure you're going to want to talk about the appropriations process, so I'll hold off on that. But whether it's air missile defense, our fighter aircraft, our aeromobility aircraft, our strike weapons, our helicopter programs -- actually somewhat of a pleasant surprise that is playing out is Space. We weren't sure what to expect with Democrats coming into office, specifically human space flight. But it appears that things are in line with where we would have liked them to go. So I'd say on the whole, we're feeling really good about where the budgets are today.

And to just stay at a high level, growth is an area of questions I often get. You have a flattening defense budget backdrop, as you said, a 1.6% growth. How should investors think about Lockheed's growth in the context of a flattening real growth defense budget or a flattening nominal growth defense budget?

Sure. So step back and look at what we've accomplished over the last couple of years. We had 11% year-over-year growth for 2019. Last year, we had 9%. This year, we're outlooking still about 4% with strong profit margin. So I'd say, for us, it starts with our backlog. And right now, we're sitting at about $147 billion of backlog, which I'd say is very impressive. So that will keep us going for a while. But again, if you go a little bit around the horn in terms of what we're seeing from a budget standpoint, think F-35, we're still going to see some growth there. Perhaps not in the development side of F-35 or on the production side, I think we're getting close to plateau on the production side. And I know you're going to have an F-35 question, so I won't spend much time on that. But we are still seeing growth in sustainment on -- for F-35. And I think that's going to continue for some time. We're seeing some strong growth in our Skunk Works portion of Aeronautics. And I know it's not domestic, but internationally, we're seeing strong growth for F-16. If you go to Missiles and Fire Control, I think it's all about air and missile defense, specifically PAC-3. We've spent a lot of time over the last couple of years building out capacity for Hellfires, GMLRS, which I think for the most part, have peaked or plateaued. But we still see strong growth for PAC-3. We're going to build out about 350 missiles this year. Capacity build-out is up to about 500. In fact, working with our customer set, who's -- speaking with the international customer set, there is stronger demand than 500 PAC-3s per year. So we'll decide what we're going to do there. And I'll remind you, we won a rather large, classified program at Missiles and Fire Control. We're going through the development aspects of that program today, performing very well. And ultimately, we'll see that kick into production down the road. And then the other place I'd say in Missiles and Fire Control, we see strong growth going forward is PrSM. And then in RMS, I would say -- I would highlight Sikorsky. Strong demand there, still with presidential helicopter, Combat Rescue Helicopter, CH-53K. And you know we just won the Israeli deal for the heavy lift helicopter there; still trying to work Germany. We're not done delivering Black Hawks. In fact, we're still strong with Lot 9 this year. Hope to have negotiated Lot 10 very soon, and then it's all about the Future Vertical Lift helicopters, and that's FLRAA and FARA. So we see good opportunities in Sikorsky as well. And then the other part of RMS I'd highlight is our Trainer business. That has strong demand, and we see that going forward. And then Space, it's about -- all about classified. I think based on the Biden administration's priorities, there'll be strong growth there for us. Hypersonics, we'll do about $1.5 billion of sales this year in hypersonics. About $1 billion of that is in Space. That is our largest business area for hypersonics, and this is our strike hypersonics that I'm talking about. And then you have GPS, OPIR. And then back to human space flight, the Orion program is going to do well in the future. So we feel good about future prospects. Now I will say there are some headwinds, and we'll address those.

Yes. But that's a pretty wholesome response. I'll get to some of the details. But you mentioned the budgetary process. And I guess, maybe let's just go there for a second. So the unfunded requests have been put to Congress by the services. You mentioned the 5 F-35s. We're starting off with the 1.6% top line growth, but modestly down investment account. In your crystal ball, when you look at everything said and done, do you expect the investment accounts growth to actually be positive, sort of similar to the overall [ 7 15s ], 1.5% growth, or better or worse? What does your crystal ball say about the appropriations process from here?

Yes. So will history repeat itself? Let's remind everybody, just pick FY '21, the appropriations process. We helped shape that. And obviously, based on the capabilities that we have, the platforms we have, there was a strong demand for plus ups, if you will. We got an additional 17 F-35s out of that process last year, an additional 9 C-130Js. I have not spoken about the C-130Js. I'd say that's still an amazing story. When I was in Aeronautics a couple of years ago, we were talking about the cliff of the C-130 program. That has not happened yet. There's a day it is going to happen, but it has not happened yet. In fact, in our crystal ball, I would say, we're going to continue to build and deliver 20-plus C-130s on an annual basis, which is flat top line growth, which is fantastic for that program. We also had CH-53Ks plussed up, some Black Hawks. And in fact, last year, they initiated a ninth battery of FAAD. I would say, just based on what we're seeing and hearing, Myles, it may -- the process may change a little bit, but I do think there will be appropriations. There will be a demand for some of our portfolio. Not sure I know what that will be at this time, but it would not surprise me to see, based on this budget, there'll be congressional adds that will increase that number.

Okay. So let's move into some of the business areas on the Aeronautics side where you've alluded to a couple of times. There would be a question on the F-35s, so here you go. So you talked about the flattening profile for deliveries or sales, I guess, on the production side. You talked about the modernization holding steady as well and then the growth in sustainment. Maybe to just flesh it out a little bit, I know in terms of delivery cadence, there might be a desire to smooth that delivery cadence to fold in Tier 3 Block 4 capabilities before the customer gets all of the assets. Maybe talk about that as well as how that affects the financials. And then I'll have a bunch of others, but why don't you start with that one.

Sure. I think before we answer that, we have to step back and look at what we did last year. So going into last year, in the January time period, we thought about 100 -- I'm going to round up, 140 aircraft. I think the exact number was 137. But it became clear when the pandemic hit and -- frankly, it was, I think, 3 days before earnings, we were still getting our act together in terms of what was I going to say for the rest of the year. But it became clear, working with the Aeronautics team and their supply chain, it was not realistic for us to hit -- deliver 137 aircraft. So we realized there were things we were going to have to do to keep the line going but to slow it down, and we outlooked 120 airplanes. And I give the team a lot of credit in terms of what they did going from an alternate week -- an alternate schedule, excuse me, for our final assembly and checkout, working with the supply chain. And as you know, our progress payment rate increased, which we basically flowed all that down to our supply chain just to keep them going. And we were able to deliver 120 airplanes. So when we rolled into this year, it became clear, we were not going to hit our original 145 aircraft target, and we ranged anywhere from 133 to 139 airplanes this year, mostly almost strictly driven by the COVID experience. So now because of the modernization you talked about, we're working with our supplier on the Integrated Core Processor, which is one of the 3 pieces of technology in TR-3, of getting through that and being able to cut that into Lot 15. You mentioned Block 4 also, get that to cut in at the appropriate time. And working with the customer, we had an original desire collectively to deliver 169 aircraft. We more than likely are going to smooth that out, as you stated, Myles. And I'm not sure what that number is. We'll work with that, but it's in the best interest of the program, still due to COVID and still due to -- to insert that technology at the appropriate time. But based on demand from the U.S. services, our partners, the FMS customers we have today and the competitions we're in for additional FMS customers, we see a path, and it's not -- and I'm saying plateau. It's not a peak to get to about 175 airplanes per year and extend that out for some time. So you're right. That will -- I mean, it's still a good problem to have. It's going to be a very large piece of our portfolio, but it will be flattish out in that time period. What I'd like to step back though and talk about the modernization you mentioned. So when SDD ended -- so this was the initial design and development piece of F-35. My thought was, my belief was there would be some demand for modernization. It was not what we are seeing today. It's much greater, and that's a tribute to the servicemen and women that are flying this aircraft today, whether it's the international customer set or the U.S. customer set. They love the technology. They love the capability of the aircraft, but they have a thirst for more. And we're seeing roughly, on an annual basis, $1.5 billion, $1.6 billion of sales in development. And then that leads us to sustainment. There's a point where, as we just described on production, when that technology is going to kick over and we're going to insert that on aircraft that are in the -- on the production line. But working with our customers, we're going to go back for those fielded aircraft and actually install that capability, modernize that technology on those platforms as well. So that's going to be a big driver for our sustainment sales. And I'd also remind everybody that we're still standing up bases, and we've only stood up about half the bases we know today. So we're going to continue standing up bases and continue working with our customers. And it's going to be all about parts availability, sparing and then that modernization upgrade that I talked about. So that's where the big driver for sales growth is going to be, is in sustainment.

So there's always -- I mean, it's a huge program. So it's always going to be subject to media attention, GAO attention, congressional attention and Block 4 readiness, Tier 3 status, more particular focus, I think, with the GAO this year. And maybe just give us an update on where you are in resolving some of the time lines with your suppliers, with the customer? And are you at a point yet where everything is back on track if you use today's data as opposed to 6 months ago's data?

Right. And you want to talk specifically on TR-3, Myles?

I think -- yes, Tier 3 and Block 4 in context.

Got you. Okay. Yes. So yes, we had some -- we did -- we, industry, had some bumps in the road, to your point, working with our supplier. This -- and I'll remind everybody, this is a cost-plus program. We significantly overran that or are overrunning that, and we were quite a bit behind schedule. Working with our supplier, working with the customer, we think we have our arms wrapped around the technical issues on that program. In fact, to relieve the funding concerns that our customer had, we, industry, or parts of the industry, specifically Lockheed Martin and our core supplier on the integrated core processor, we agreed to not just suspend profit, but to do the job cost, no fee. So hence, you saw the -- it was somewhat of a sizable write-off, debook we had in the first quarter of this year. We think we have those technological problems behind us. We have a little bit of margin still in the schedule, and we're driving over the next 1.5 years to complete all the requirements we have for that program, so we could kick that over into Lot 15. Similar with Block 4, we think we have most of those issues behind us. It's now just making sure we hit the schedule to give our customer comfort so we could then get that aircraft on the platform as well.

Okay. On sustainment, it's an area where the customer, clearly given the size of the fleet, wants to make sure that they contain the cost of operating the fleet. And Lockheed's got a strategy, which is basically creating competition through commercial entities providing services versus depots to some extent or in combination with depots. But where is that process? It sounds like the PBL in full-blown form maybe is not where we're going to end up in the near term. Maybe something a bit smaller in a compromise. How close does that get us to the $25,000 bogey? And just give us an update on what that would mean over the next year or so.

Sure. So we are absolutely, we, industry, the Air Force, all the services are absolutely committed to driving down the cost of O&S. If you step back and -- a little bit of whack-a-mole, if you will. A couple of years ago, all we talked about -- or 90% of what we talked about was driving the production down cost. So I would say all of us, Herculean effort to drive down the cost of production. Now the -- and everybody's satisfied. I'd say on the whole, everybody is satisfied with the cost of what an F-35 production aircraft costs. It's all about O&S now. We are absolutely committed to driving down the cost. In fact, if you look at what Lockheed Martin has done over the last 4 or 5 years, we have invested $470 million to drive down the cost of O&S. We've driven down the cost about 43%. I think rough numbers, 43%. We're absolutely committed. We're going to invest to drive out another 40% of costs. And again, this is our share. And just to remind everybody that if you look at the cost per flight hour, we, Lockheed Martin, plus our teammates, our partners and suppliers are about 40% of that cost. The other 60% are the services and then Pratt & Whitney, which is a government-furnished equipment. I know they're industry, but they're not part of our cost. So we have spent a lot of time focused on that, looking for ways to continue to drive down the cost. And it really comes down to where we see the biggest bang for the buck. It's in parts availability. And that's where we're going to spend a lot of time. So to your point, Myles, we put out a proposition, a white paper, of a performance-based logistics or PBL concept that basically states, hey, we, industry, will make all the investments. We, industry, will sign up to a service level agreement. You talked about the cost per flight hour. Availability of aircraft is also important. And basically, try to make it, in commercial terms, we'll make investment, we'll take the risk. And if we hit these key targets, we should then be rewarded for that. And if we don't hit those targets, we shouldn't be rewarded for that. And there's been a lot of interest from the customer. But I think to your point, as that sits today, that probably, as advertised, is not going to happen. And so what we're now working on is we're likely going to get some kind of request for a proposal on a parts availability concept, because that's where the money is going to be. We'll respond to that. And I think what will happen is we'll try to -- we collectively, the customer and us, we'll try to cherry-pick the best things that could come -- that were in that white paper to incentivize industry, but also make sure there's integrity there so the customer doesn't feel that they've been taken advantage of. And I think we'll get to that happy medium. And you asked me the key question. We are very confident we will drive down the cost of -- cost per flight hour to where it is comparable to a fourth generation aircraft. And we're very confident we'll get to an availability number, percentage number that will make our customers very pleased with where the F-35 is going.

Okay. And you talked a bit about the other aspects of Aeronautics. I wonder if you could touch on F-16 and then Skunk Works or other sort of your bucket for undisclosed programs, which you do disclose how much revenue is growing by each year, and it's actually one of the fastest pieces of Aeronautics. So maybe touch on that to the extent you can. How much more runway of growth is there within the Skunk Works or the classified portion of Aeronautics as well as the F-16.

You bet, and I'll actually do AMMM, since I brought it up and they don't get enough love. So I will bring it up. So F-16, if you go back a couple of years, we delivered our last F-16 for the Iraqi customer out of Fort Worth a couple of years ago. Essentially, F-16 got pushed out of the building to make room for F-35. And from a production standpoint, F-35 is Fort Worth. Had no customers, took all of our tooling, put it in storage, started continuing to develop -- build out added capabilities for now the Viper, the 70 version of the F-16. Found a customer in Bahrain, who had keen interest in that program. We worked a deal with South Carolina. We now have our final assembly and checkout for the F-16 in Greenville, South Carolina. Right now, 5 customers, 128 aircraft in backlog, many other customers out there that have an interest in the F-16. In fact, we signed an IDIQ contract for $62 billion, which gives us a contracting vehicle to quickly be able to propose, negotiate and settle and then ultimately build aircraft for these new customers. We're going to deliver our first F-16 next year. I think we're going to deliver a total of 8 next year, if I recall correctly. And then over the next couple of years, we're going to get to a production cadence of about 3.5 per month. And I'd say, very successful. I also want to -- I would be remiss if I didn't mention, we still have a strong modernization program on F-16 for our international customers. And in fact, not too long ago, we got almost a $900 million contract for sustainment for the U.S. government for F-16, which we have not gotten in a while. So F-16 is going to be a very robust, growing part of our portfolio. I'll spend a couple of minutes on C-130. I talked about the infamous 20 per year. We're going to deliver way north of that. I believe it's 28 this year, over the LRP. We still think we'll be in the 20s. So not exciting from a top line growth standpoint, but it still is a great base for the Aeronautics organization. And then that takes us to the Skunks, which is probably the fastest-growing piece of Aeronautics today. And the base for that growth is that classified program we won a couple of years ago. We're still in development. We're soon going to go into production. And I've talked about our capital demands, Myles, and a piece of that is we had to build a building out in Palmdale to do production for that customer. So we're in the throes of doing that. We have a second customer that's coming on board. And we also think there's many other customers, whether it's domestic or international, for that piece of the portfolio. In fact, Skunk Works is not just Palmdale. It's Palmdale, it's Fort Worth, and now it's Marietta. We actually have a group of people doing engineering for Skunk Works programs in Marietta, and we're also looking to do some production for Skunks in Marietta because we have that capacity out there. So there's other programs that we're bidding on that we think we'll be successful with. There's also hypersonics that is out of the Skunk Works. Not the largest. I talked about Space being the largest, but there's also hypersonics work that's being out of the Skunks as well. So F-16 and the Skunks should be the fastest-growing pieces of Aeronautics going forward.

Okay. Switching to Space, I want to be mindful of time and actually get through your businesses that work hard as well. So if you look at the budget, classifieds Space R&D was up 20%. Classifieds Space in general or Space in general was up 8% or 9%. Obviously, within Space, it's more than just the defense -- U.S. defense space budget. There's NASA as well as other services that are putting revenue through there. But talk a bit about not just -- and it's a long-cycle business, right? So you're going to get awards, and they're going to span multiple, multiple years. So what's the runway for growth? What's the rate of growth for the Space business over the next few years? Is it the more durable piece of the portfolio from a growth perspective? That you would kind of put the money on the line today and say, no, I know for the next 3 years, 4 years, more or less what my growth is.

Yes. So first, you got -- we got to do a little housekeeping. So unfortunately, AWE, which has been a piece of Space, that's the Atomic Weapons Establishment out of the United Kingdom. That government, the U.K., decided they wanted to renationalize the program. Just for everybody, it was not we weren't performing. It's just that's their priority. They want to take control of that. Roughly $1.2 billion, $1.3 billion per year for sales for us. Middle of this year, coming up very soon, that will end for us. I mean we're going to have a small piece of support for that program. But we're going to lose about $700 million of sales on that this year. And then another -- the other half of the year, the front half of the year, the $700 million last year. So if you look at this year's Space, we're only growing 1% year-over-year because of AWE. If it wasn't for AWE, if you take that out, Space is our fastest-growing business area this year at 7%. So I got -- you have the year, but with AWE, taking that out next year, it wouldn't surprise me if Space was still one of the fastest-growing business areas in our portfolio, just for what you described, Myles. Long-cycle business, OPIR will continue to grow. We think there's growth with GPS. You mentioned classified, we have won our fair share of classified programs, which will be long-cycle businesses, which should continue that growth cycle going forward. I talked about human space before. So Artemis, Orion should continue to see some growth. And then hypersonics, which is the Conventional Prompt Strike weapon program, that is a Navy program, still in development. We're still doing some tests for that program. When we're successful -- we think we will be successful. And assuming that customer wants to take that into production, we do think there'll be some continued growth prospects there as well. We didn't talk about NGI. Obviously, NGI will be a nice growth area for us of as well. So yes, we feel good about the Space organization.

Maybe this is a good time to insert. If you think about the backlog through the end of the year versus the beginning of the year and sort of where the areas of upside growth would be versus the starting point, give us some color as to where you think the best opportunities are to grow your backlog by business.

You bet. So I mentioned that we're at $147 billion this year. The wildcard for us is -- so if you go back last year, we talked about Lot 15 for F-35, that if that happened in the year, you would see significant backlog growth. What we did say is we're not going to take a bad deal just to get an order. We did not settle that. We think we're going to settle that sometime either probably next quarter. Since we're in June now, I'm going to say that's going to happen in the third quarter. There's a lot of complications to get that done due to the pandemic, due to the performance incentive fee that we have. So we'll get that deal done later in the third quarter. The wildcard for the end of the year is Lot 16. If we can get that settled. I'm going to say right now, just based on where we are in the year and not haven't settled F-15 -- I'm sorry, Lot 15, it's likely that Lot 16 will not settle. But if we did settle this year, you would see strong backlog year-over-year. So the big drivers for order book and backlog, it's in Aeronautics, it's -- the lion's share of that is F-35. And that's -- whether that's these production lots that I've talked about, it's the annual sustainment program, it's a handful of modernization programs. We have earmarked an F-16 order. Not sure who the customer is going to be yet. There's a variety of customers out there. But for planning purposes, we believe we will get an F-16 order. There's also some classified Skunk orders that will help backlog as well. Missiles and Fire Control is predominantly FAAD and PAC-3. We'll see some nice growth there from a backlog standpoint. In RMS, it's a variety of things. It's obviously our most complex organization. So there's quite a bit of Sikorsky in there. There's some Aegis, there's some Trainer business, there's some C6 business in there that will help us grow. From a Space standpoint, it's NGI. There's some hypersonics in there. And then there's some follow-on work, and then there's some other classified programs. So we're either going to grow from the $147 billion or we will be above $150 billion if we get that Lot 16 order in this year.

Okay, cool. But RMS, you mentioned Sikorsky a couple of times. And it's obviously going through a product transition, product transition from Black Hawks to the CH-53K as a growth driver, and then sort of binary-ish outcomes as it relates to Future Vertical Lift on the FLRAA and FARA. How do you position a business where you have that much potential variability in the outcomes, where your FLRAA and FARA outcomes could be determinant of what that business should look like? 53K, I think you're still at a low-rate initial production, 9 or 10 a year. What does that business look like? And is it really more or less a 2-branch tree of outcomes? Or maybe it's a 3-branch tree, depending on FLRAA and FARA. Maybe just talk about Sikorsky in isolation over the next few years.

You got it. So yes, there -- the good problem is there's a lot to talk about. So I'll try to do it and not have anybody fall asleep. But so yes, you mentioned CH-53K. We're still -- we're working through our performance development, testing and production issues. We think most of that we have behind us. The good news, and it's actually this month, IOT&E, which is Initial Operational Test and Evaluation, will happen starting this month. So we're starting to get a lot of our issues behind us. We are in limited rate production, as you said, so we're delivering Lot 1 aircraft now. We just got a handshake on Lot 5, Lot 6. We're delivering out, as you said, a handful of aircraft now. Program of record is about 200 aircraft. So we have a long way to go on this program. From a cost takeout standpoint, we're spending a lot of money on digital transformation. A lot of money to continue to drive the cost of that heavy lift helicopter cost -- to get that lower to be more and more competitive. I mentioned Israel before. That's our first international customer. So we're, on the whole, feeling really good about CH-53K. There is a lot of opportunity, a lot of growth there. So next is Combat Rescue Helicopter. We're still in the early stages of that. We're delivering on Lot 1, Lot 2 aircraft, which I think is roughly around 20 airplanes -- or 20 helicopters, excuse me. Lot 3 is another 20-aircraft program. Our record is about 113. So we have a long way to go on that program as well. You didn't mention presidential helicopter, but we should mention that. We've been proud to be the helicopter of choice for every president since President Eisenhower, and we have delivered 5 of those aircraft today. Program of record is for 23 of them. So we have a ways to go with that program as well. And I'm still going to bring up Black Hawk. I know one of the Future Vertical Lifts is to replace Black Hawk. But that program is still a strong base for us going forward. So then the future becomes Future Vertical Lift. And let's start with FLRAA, which is the medium lift helicopter. We have been down selected with one other competitor. We are teamed with Boeing. It's our SB>1. This is our DEFIANT platform. We are now in the second phase of the Competitive Demonstration, Risk Retirement phase. That's the CD&RR phase. That will go for about another year. We responded to a pre-RFP late last year. We're being told we're going to get the RFP shortly in, say, in the next couple of months to respond to that. As I mentioned, we'll go through CD&RR over the next year. And then the plan is for that program -- the winner to be down selected sometime next year. And we're feeling good. We hit the nautical miles we wanted to hit. We feel really good about the maneuverability of our aircraft. So I think we're offering a very compelling solution. And as I said, we feel really good about that. Anywhere -- program of record is upwards of $80 billion for that program. So this is a big, key franchise program for us. For the lighter aircraft, the FARA, we're now working on the development, production and test phase of that program. That's going to go for a while. We'll then get into a flight test by 2023. And then in 2024, the customer is to down-select the winner of that competition. It happens to be the same competitor. So it's exciting competition for both of those. You'll see aircraft starting to build out and get to a decent ramp by the end of this decade. So we feel really good about our base programs, and we feel really good about where we are on FARA and FLRAA. And you're right, there's a bunch of variables. We feel good that we're not going to get shut out of the Future Vertical Lift competition. Now do we win one of those, or do we win both of those? That would be great. So I would say to you that it's our base programs. Then one scenario would be one of the Future Vertical Lift programs, and that's where Sikorsky goes. And the other one would be is our base programs, doing very well on those. And then we win both Future Vertical Lift programs, and that takes us to a different trajectory.

Okay, and just a quick one. Do you expect the FLRAA to be, when that RFP comes out, as single source?

It will be both. Both competition will compete for that and then they'll down select for FLRAA next year some time.

But the FLRAA, you expect to be single-sourced at the end, conclusion.

Yes. Yes. We're not -- I know some analysts have asked me if they're going to split the award. We're hearing that's a potential not from anybody who's officially...

An authority?

No. Yes, who's a decision maker. But we're assuming it's -- sorry, I didn't understand your question. Yes, we're assuming that it's a single-source award. Yes.

Yes, okay. Sounds good. MFC, obviously, has been a workhorse of growth for a number of years. Talk to us about the mid-single-digit growth for this year. And it sounds like IAMD is sort of the upside for backlog for this year. As you look out a little bit further, some of the businesses are plateauing in terms of munitions and capacity, sometimes limiting it. What's the outlook for growth here? And is there any risk of -- the inventories are built and there's a breather that has to take place for MFC?

Yes. So last year, year-over-year growth I think was around 11%. It's been our fastest-growing business area for a couple of years now. They're tied with Aeronautics, I guess, technically, for fastest-growing business area this year, roughly mid-single digits mostly, as I said, driven by PAC-3. So if you look at the air and missile defense piece of our business, PAC-3 delivered roughly 350 PAC-3s this year. Still building out capacity, as I stated earlier, to get to about 500. And I mentioned there is demand for more. We don't see that demand waning. I talked about FAAD earlier, that ninth battery that the United States government wants. There is still keen interest across the globe for FAAD. So we see some growth prospects there, not as much as PAC-3, but growth prospects there. And to your point, if you look at Hellfires, we went from 7,000 to about 11,000. That's probably where we see the world. Same with GMLRS, we went from 5,000 to 10,000, same thing. Is there some risk? I mean, to be honest with you, sure. There could be some risk that there'll be a massive slowdown of demand just because of the built-up inventory that's out there. That is a possibility. We don't see that this year or next year, but my crystal ball is not that good for farther out. And then the other growth area we see is PrSM. We're going to see that continue to grow. And then I mentioned the classified area. We'll continue to be in development for the next couple of years. I got to be a little loosey-goosey on the schedule for classified reasons. But then ultimately, we'll get into production, and we'll see some growth there. So we're still bullish about the growth prospects at Missiles and Fire Control. It's just going to come from a couple of areas.

Okay. And we only have a few minutes left, but I wanted to get to a cash capital deployment and, in particular, AJRD as an area that you're putting the capital to in the near term. So maybe let's start there. Give us an update on the timing, getting through the regulatory, second requests, et cetera. And then maybe move to cash. Obviously, one of the characteristics of Lockheed for the last few years is the multiyear cash targets that end up being raised each year. And so maybe just touch on the upside potential, where it would come from in those targets as they sit today.

Sure. So in Aerojet Rocketdyne, you're right. We got our second request from the FTC. We expected that. That was no surprise. We're working through the questions that they have. We still feel really good about this. If I go back, it's probably been a year ago or a little bit longer now when Aerojet Rocketdyne approached us. Once we have conversations with them, it became clear that we would be a better owner than them as a stand-alone entity, and probably, frankly, better than anybody else out in the industry. We think there's a lot of logic to this acquisition. This is a long-term play for us. We see a lot of synergies of bringing their production in with our engineering organization, which we think will help flesh out any performance issues that they have, which will then help with quality because we'll bring in our Missiles and Fire Control high-volume quality team to help them with their performance. We also think there'll be some cost takeout synergies that will allow us to be more competitive with -- not just our government customers. But also it's our intent, and that was part of our business area. We're committed to being the best possible merchant supplier we can to the rest of industry. We also think long term, there's investments that they're going to have to make that, based on our balance sheet -- and I'll get to cash in a second. In our balance sheet, that we can make that will be more robust than what Aerojet Rocketdyne could do on their own. So we think we have a compelling story, and we think this will close, based on this regulatory process, sometime in the fourth quarter of this year. So I'll go to cash now, Myles. So you're right. What we've tried to do over the last couple of years is give the investor community some comfort on where we think cash is going. We are very focused on cash. I've talked about a culture of cash. This is not just a financial organization that's focused on it. It's the entire enterprise, the entire corporation. And right now -- and this was due to the American plan relief act that just came out. So this is the Pension Relief Act. We basically took our 3-year number up, round numbers, by $1 billion. So we're outlooking $8.9 billion this year, $9 billion next year and $9.1 billion in 2022. And we're going to see our CAS costs come down, which will be a little bit of a headwind on cash. But we elected to start that in 2022 to give our customers some time, based on the underruns that they're going to see on our flexibly priced programs, if they wanted to, rather than pocketing that money, give us additional scope that perhaps will impact that in a good way, the headwind that could happen there. But it's also going to make us much more competitive going forward because it will take costs out of our business. And I would say we were the biggest benefactory of that in our industry. The other piece of this, we don't have to make any required pension contributions until post 2025. And based on what we see today in the models that we have done, 2026 and out, the pension contributions we have to make are probably in the tune of $200 million per annum. So not material. We are feeling really good about our cash, our cash generation. We're feeling really good about the liquidity we have. We are under leveraged. Back on Aerojet Rocketdyne, we will likely take cash off of our balance sheet. We'll need to do that. But we are definitely going to go into the debt market. We're still trying to sort that out. Whatever makes sense, just based on these historic low interest rates, we'll do that. And Jim Taiclet and I are committed to a strong dividend. Last year, we did an 8% per annum increase. Jim and I will go to the Board in September. We will make a recommendation on a robust increase in the dividend that will satisfy our yield investors. That's still to be determined. We've talked about our share buyback plan. Started the year at $1 billion. I've talked to you in the first quarter call that based on where our stock price is, we are going to go into the stock -- into the share repo market to do at least another $500 million to $1 billion. We're doing that today, and we'll go from there. And based on the cash we have at hand at the end of the year and going forward, we are not going to have excess cash on hand. We will be active in M&A. Jim has talked about that. We bought I3, which has been very successful for us. We're in the midst of buying Aerojet Rocketdyne. We think we'll be successful in getting that closed. And if we see other opportunities out there, we'll have the cash for that. And if we don't see opportunities out there, we'll do something with it, give it back to our investors or make value creation, internal investments.

Well, this has been great, Ken. Thanks so much for taking the time. Congratulations on getting through the conference gauntlet of June, and looking forward to catching up on the earnings call.

Thank you for having us. Thanks a lot. Good seeing you, everybody. Take care.

Take care.

Bye-bye.