Lockheed Martin Corporation (LMT) Earnings Call Transcript & Summary

Okay. Let's get started. I'm Doug Harned, Bernstein's senior global aerospace and defense analyst. I'm thrilled today to again have with us Jim Taiclet, Chairman and CEO of Lockheed Martin; and also Evan Scott, the new Chief Financial Officer at Lockheed Martin. And I know, Evan and Jim, you have maybe a couple of things to say first before we get into the chat.

Yes. I appreciate it. So just to read off here, statements made today that are not historical facts are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities law. Actual results may differ materially from those projected in the forward-looking statements. Please see Lockheed Martin's SEC filings, including our 2024 Form 10-K, for a description of some of the factors that may cause actual results to differ materially from those in the forward-looking statements. Thank you.

Okay. Great. Well, Jim, why don't we start out here with -- you just taking us through kind of an overview of what you see at Lockheed Martin as your biggest opportunities and challenges today.

Yes. Sure. Doug, thanks for having us. Two big opportunities out of a number of others but -- would be working with the administration to guarantee U.S. air superiority over the next many, many years. And I think we've got some really novel ideas to share and have shared with them on that. And this starts with our first priority, which is the health of the F-35 program. What we suggested is longer-term production and sustainment agreements perhaps, where we could stabilize the supply chain, get some cost out and make sure that we can deliver on time and on schedule more reliably. Another opportunity is to take the F-35, and actually the F-22s are out flying today, and port over the NGAD technologies that were on our bid that we use for sixth generation and really create a more capable fifth-gen-plus version of both the existing F-22 fleet and the existing and to-be-built F-35 fleet. And so that's, I think, pretty exciting where perhaps we can get a fifth-gen-plus aircraft -- set of aircraft, which would be -- our target is 80% of the capability of an NGAD sixth generation at 50% of the unit costs. And that's a target -- a set of targets actually that we're going after as a company. And we're recommending consideration of some of those ideas to the U.S. government right now. The second opportunity, which is pretty obvious and quite public lately, is the Golden Dome initiative of the government. Our company happens to have areas across the board where we can contribute to this right now. And that's everything from space sensors, existing and prospective; to command and control systems; to the most sophisticated radars, we think, in the world; as well as the kind of antimissile systems like PAC-3, THAAD, et cetera, that we've been producing for years. And we can just scale those up right away and contribute significantly. So I would say, air superiority and Golden Dome are 2 of the most relevant opportunities for us. As far as challenges, this is a very difficult operational business to run, whether it's delivering on legacy contracts, managing risk, getting through flight tests, managing a still imperfect supply chain, getting more sources so that we have a better supply chain. The day-to-day operational and financial maintenance of the results of the company is a big challenge. And we have a fantastic team. And Evan has just recently joined the senior team here that works on that every day. First and foremost, cost, quality and schedule, we have to keep it as robust as we can.

Well, I know you were just on a trip to the Middle East with the President, I believe. And we heard some really big numbers coming out from the Middle East. Can you describe a little bit about what you're looking at in opportunities there?

Sure. Again, in air superiority, there's a discussion about a path to fifth generation in Saudi Arabia, for example. There will be multiple steps in that. It could take some time. But I think if we can work with Saudi, Qatar and UAE on really bolstering their air superiority capabilities and their integrated air and defense capabilities, the 2 areas I just mentioned, there'll be really significant opportunity for the company along those lines and a few others, too.

Do we know any specifics yet on things happening there? Like I said, there were some huge numbers put out around the trip.

We are still working through the exact details. I will say in the case of the countries we're talking about, in each case, they're existing customers for us. And we have programs that we're still working on that actually came out of the first Trump administration and some of the trips there. So -- and for instance, we recently talked about the fact that in KSA, they're actually building THAAD canisters. So you see that as a very natural next step here as a business opportunity for us that is really exciting, and more will continue to emerge.

Well, if we kind of come back to the U.S., so far, we've seen the President's skinny budget for 2026 and not a lot of details in there. And then we've seen this large reconciliation bill with a big add. But in terms of actual obligation of that money, it can be over 4 years or 10 years of spend. So from a Lockheed Martin perspective, how do you look at these collectively in terms of the process that we're probably headed through in time line and then what they likely mean for your businesses?

I could speak to what I view is the strategic approach that the government is taking. And then Evan could talk about some of the specific programs where there's been markups, et cetera. But government's leadership, both in executive branch, both houses of Congress, have advocated for significantly higher run rate defense budget commitments to make sure that the country can be defended. And so that's the strategic level. The tactics of 2025 budget reconciliation 2026, how those are all going to play out, I think will be very positive for the company and for our sector actually. But in the near term, we actually have some insight into where those initial benefits might come. Evan?

We do see growth across all 4 business areas in different aspects. And as a whole, each 4 of the business areas is expected to grow. And so we see strength in several areas. In terms of Aeronautics, F-35 sustainment is actually the largest growth factor there, in addition to the growth we see in F-35 production. In Space, our strategic missile defense business is very well supported, which includes our hypersonics business as well as fleet ballistic missile and NGI as a key component to missile defense. In RMS, we look at Sikorsky, particularly the heavy-lift helicopter is a big growth driver for us. At MFC, we've got several growth drivers where we're scaling as many as 4 different ammunitions simultaneously, and we continue to see very strong budget growth there domestically.

On F-35, we don't know the budget yet, and you talked about how you've been in discussions on this. Some people have raised the possibility that the administration might reduce the quantity. But you're looking at production at 156 a year rate. Even if you saw some changes in the budget, how do you look at export sales, which obviously there's very strong demand for it? If we saw any reduction in quantity on the U.S. side, can we see the way to pretty solid support for that 156 from export orders?

Yes. Doug, there is solid support from international customers on F-35. A couple of other countries have initiated discussions with the administration about that as well on top of the existing group. And it will be the details -- again, those operational details of -- based on the supply chain coming through today. If we need to switch from U.S. to other nations in the midst of that, we'll have to pay attention to the details on it. But I'm confident that we can maintain the 156 level of production scale in the company even if the U.S. order itself waivers a little bit up or down.

I agree. It's also important to note, if you look just where we are today, we closed quarter 1 with a backlog of 361 F-35 jets, and we're about to add another 150 to that backlog when Lot 19 closes as soon as this quarter. So we start from a position of strength as we watch the budget develop.

Yes. And when you look at exports, some people have heard speculation on one side that in Europe, there -- this buy European effort that people might try and move some away from the F-35. Firstly, I find this a little -- F-35 has some unique capabilities that nothing else has in Europe. But -- so on one side, do you see any risks associated with the European buyers of the F-35? And then on the other side, you mentioned Saudi Arabia as potential. The President has brought up India as potential. These all would have hurdles to go through. But how do you think about export demand as you go across these different international situations?

From a practical standpoint, Doug, you're absolutely right. There's no substitute for F-35 at the moment. The only fifth generation in-production aircraft in the free world is the F-35. Final assembly is mostly done in Fort Worth, Texas, but it's also done in Europe and Italy. Rheinmetall is on track to be a center fuselage provider to the F-35, and there's numerous, literally hundreds of companies, contributing to the F-35 in Europe. So there's a strong bond between European industry and that program, and that was by design in the original setup of the F-35 program. So I feel really strong -- that there'll be strong support for F-35 over the next many number of years because, a, capability; and b, the embedded industrial commitment already in Europe. And we're seeing the same kind of demand trend in Asia as well. Obviously, the geopolitical threat in both areas of the world and in the Middle East as well are rising, unfortunately. And literally, the only relevant aircraft that can compete with any fifth-gen opposition aircraft is the F-35 that's in production today.

Now if we get -- if we go to the production today, can you update us on Tech Refresh 3, which we've been following for a while? There's been the question of when you get cash payments when that -- those deliveries are complete. I know it's -- Lot 19 is good news here. But help us understand a little bit more how that's going.

Sure, Doug. And then I'll turn the financial ramifications over to Evan in a second here. As an ex-pilot and the lapsed engineer, I can talk about TR-3 and Block 4 all day long, but I'll keep it short. TR-3 is a technology refreshment, a technology upgrade from the prior F-35 core processor, which is basically the onboard server computer, a data storage unit, which is much more robust and can hold and process a lot more information and then a pilot's display generator that is a next generation. It's more sophisticated, more capable. That's 3 pieces of hardware and a software package or firmware package really that integrates the core processor, server, the data storage unit and the display generator into the aircraft itself. The hardware is complete. It's being produced at scale at L3Harris. The software integration with the aircraft is also complete. And so TR-3 has met its completion milestones. What's going on now is that aircraft are being run through the factory with TR-3 plus the first hardware component or one of the initial hardware components of what's called the Block 4 upgrade to the aircraft hardware. And that piece of equipment is called the distributed aperture system, which is 6 apertures or antennas located around the aircraft that provide lots of sensing capability. And so we're going to go from the prior generation of that sensor set to the next generation of that sensor set. That is the holdup now is that, that sensor set of a new piece of hardware and its own software and its own firmware has to now integrate with the TR-3 aircraft. And that is a little bit behind schedule. Once that catches up, we think by the end of this year, then all those aircrafts that have been delivered will be combat capable and allowable to be like at the frontline base for the services and for our allies.

And from a cash flow standpoint, there are 2 key elements for the F-35 to share that we're tracking. One is the fact that the award definitization of Lot 18 is a cash liquidation event. And with the acceleration of Lot 19 to be grouped with Lot 18, that likely then moves it later to the end to this quarter. So that liquidation event for Lot 18 is likely to occur in the third quarter. So that may put some pressure on our 2Q cash. More specifically to your question on TR-3, as Jim mentioned, with the progress we're making, we expect to have those cash liquidation events occur throughout this year. And for conservatism, we assume from a cash perspective into early next year.

And I mean, F-35 is -- I think it was so important for you all. It's about 30% of revenues. And when you look at the trajectory going forward, production rate should be 156, fairly flat. There's some of these events in here, which I consider to be more short term. But when you think of the entire program, when should we think of it as a growth rate when you add in upgrades, sustainment? What should we see F-35 kind of progress like.

The biggest -- I'll say, when we think of F-35, we think of those 3 legs of the stool that are all very important. One is the ongoing development side, which is key to the very creation of the F-35 program that it allows for continual refresh. As Jim mentioned, after TR-3, there's a Block 4 component. So that will continue to be a key revenue driver for us with low single-digit growth revenue. F-35 production also continues. We think of low single-digit sales growth. F-35's sustainment is likely to grow faster than that. As the number of deployed jets continues to increase, there is that ongoing sustainment tail that's built into the program from the beginning, and we see that more like high single digits growth.

Well, then sort of shifting off of that, you have the classified program in Aeronautics that's been -- you took charges on. Can you give us an update on how that's going and what we should see going forward here?

We're still working through that process that we expect to complete for 2Q. Just to share a little additional color, when we took the charges in 4Q, we ensured that we had additional insights from a program rhythm into those programs. And so what we've shared is just based on that insight. We are seeing some cost pressure on the Aeronautics classified, and we're not seeing that same cost pressure on MFC classified. So as we continue to work through this process, which we expect to have complete by 2Q, we'll share exactly where that process ends.

Now more simpler program area. C-130J, F-16, these have had long lives, much longer than I think people expected sometime back. Could you talk about how those programs look today? There are a lot of -- these are export-type programs with attractive margins. How are you seeing that demand?

I'll just speak again to the high level, the broad demand for C-130 is actually quite strong. And it doesn't all come from international these days. There's a program called TACAMO, which is the communications command and control system and element of it for the nuclear triad that will move to the C-130J as an aircraft platform. That kicks in, I think, in 2026 or '27. That's U.S. Navy program. There's also recap opportunities in the National Guard, U.S. National Guard and Air Force Reserve that will probably be continued, we would think. And then on F-16, there is continued demand for the new jet. And actually, some countries are trading for F-16s in literally the aftermarket there. So I think the F-16 also has strong legs, if you will, and more increasing interest as we go forward from a number of countries that aren't quite ready for F-35 and even some countries that could see F-21 or F-16 for India, for example, as a stepping stone to F-35 because as a pilot that needs training, you actually have to go from a few legacy Russian cockpits and instrumentation and flight controls to U.S. NATO standard cockpit. And this is a really great transition aircraft to be able to start getting your Air Force ready to adopt fifth gen.

Are you still looking at potential Indian production?

Well, we've already started with the wing section. So F-16 wings are co-produced in India for export to other nation's aircraft. We also built significant portions of the C-130J in India with our -- again, with our partner, Tata, in both cases. And we built Sikorsky aircraft cabins there as well. So we've got an industrial base in India, partly to demonstrate to the Indian government that we're serious about being a partner, not just in aircraft sales, but in industrial participation. And so I think that as the long-running fighter competition in India continues that we're in a very good position to be competitive there for the next fighter aircraft.

Yes. I just think back to when you look at Indian Ministry of Defense, the whole procurement strategy that they've laid out over time, all sort of hinged on partnerships and in-country production. So that's something that is just still -- you're still -- this has been going on quite a while.

Yes. And I can add to that, Doug, that we've made commitments to literally the highest level of the Indian government that should they choose F-21, which is the modernized version of the F-16, that we would initiate production as feasible in India for final assembly of the aircraft as well as the wings.

So if we look forward, you mentioned before about the NGAD technology that you've been developing. Can you help us understand a little bit? I mean, if you can get 80% of that sixth-gen capability working off of the F-35 platform, what kind of time frame are we talking about? And can you talk about any specific capabilities that would be added to an F-35 platform?

So we feel like within 2 to 3 years, we could have a meaningful increase of capability for the F-35 by porting some of these technologies over. And the kind of technologies we're speaking about are coatings, for example, stealth coatings, both infrared and radar coatings on the aircraft surface. There have been some adjustments or learnings, I'll say, on -- we call outer mold line, which is the actual shape of the aircraft itself, especially with regard to engine inlets and outflows of nozzles that we might be able to, again, improve on the F-35 without redesigning it. There's also electronic warfare improvements, networking improvements that we have and also autonomy, which is really critical that we could make the F-35 pilot optional over a relatively modest time frame based on a lot of the development we've done for our NGAD office. So those are just a few of the areas. And then the other piece of it is weapons capability that would be designed theoretically for sixth generation, but can be applied to fifth generation.

And you were saying in 2 to 3 years, would this be production in 2 to 3 years or ready to start integrating into a platform?

Yes, ready for first flight and integration. Now all of these technology development cycles on aircraft are staged. They have to be, because you cannot introduce too much new equipment or too much new software at once necessarily without interrupting the production flow. We look at also the mission capability road map as well, meaning, how can we use that F-35 with upgraded systems itself as part of a family of systems, the Air Force calls it, with drone capability.

So CCA ..

CCA is the term of art in the Air Force, yes. And so we're thinking of the F-35 not just as a stand-alone aircraft, but how it can interface with sixth generation and with unmanned aircraft and itself be optionally manned. So this is the way to look at the air superiority program of the future is not just plane to plane, what's faster, what turns tighter, what's got the longest duration of flight, but how it interacts and can interact with a wider ecosystem to create a [Technical Difficulty].

So when you look at Aeronautics as a whole and development work you're doing, F-35, and then some of these mature programs with higher margins, can you get -- the margin profile, can you get that margin profile above like an 11% type level? Is -- how are you thinking about margins there?

For Aeronautics, there's a couple of things to consider. One, we still have to work through our existing backlog, just any operational challenges we have there that in the near term could put margin pressure on. However, we do see a path long term to get margins incrementally higher for new contracts that have been awarded. We're particularly excited to get Lot 19 awarded for F-35, which gives us an opportunity to find some margin growth. And we see continued cost improvement on F-16, which is a growth program for us right now. So we do see potential over the LRP period to get to some incremental margins. I don't think we're going to be at 11% in that near term. But long term, past those next 3 years, we see a path there.

And there's more of a strategic opportunity here, Doug. F-35's program of record is about 3,500 aircraft over many, many years. Right now, we're contracting those a year or 2 at a time with the U.S. government, including the FMS sales that go through the U.S. government. If we can get an alignment between industry and government to have longer-term contract being done for something as I would like to think stable as the F-35 program and mature as it is now, that we can start to go back to our supply chain with those same multiyear agreement time lines and get cost out of the system, get cost out of our own production system, get cost out of our supply chain, have a more resilient supply chain and get savings to the government while even maybe expanding our own margins at the same time. And that actually is even more valuable, I think, on the sustainment side. All the airlines in the world, whether it's engines or aircraft, almost all of those contracts are 10-year service agreements. That's the standard we should be looking at to say, "Okay, how can we get commercial performance out of a U.S. Department of Defense acquisition program for sustainment?" That's a doable thing, but it would require some contracting changes on the part of the government. But we're putting those ideas to them to basically say, "Look, if we can save you 20% of what the cost would be 10 years from now and our margins go from 10% to 20%, you shouldn't care. As long as you're saving money, our margin shouldn't matter to you." And so that's part of the strategic approach we're taking is not all contracts need to be cost-based. Even fixed price contracts under the FAR are mostly cost based for big programs. And so instead of putting in capital a year later, having lower cost, the government then saying, "Oh, your cost is lower, so now your revenue is lower." We can get out of that cycle and get more investment upfront into making this performance better.

And given that the F-35 occupies a pretty large part of the Aeronautics revenue stream, should we be thinking of Aeronautics as a low single-digit growth business? If I'm thinking about the next 5 years, is that kind of the right construct?

I think with our current forecast, that's the right way to think about it. There are some opportunities that Jim mentioned that are on our radar screen. But notwithstanding those, I think our current profile has that as a low single-digit growth business for us.

Well, going to higher growth. So over the last 2 years, your Missiles and Fire Control backlog is up 48%, okay? That's a big number. If we start to look at that one, and we can talk about some of the digital programs, I mean, is this a high single-digit growth business from here? You've got -- just the backlog increase has been huge.

I think that's the right way to think about it. Certainly, over the LRP period, we see high single-digit growth with potential in some years to get as high as double-digit sales growth. The demand function right now is very strong both domestically and international for that munitions business as we continue to scale multiple of our products over the next couple of years to reach max capacity, and we'll continue to explore raising that capacity in coordination with our customer. And then as Jim mentioned, potentially international co-production opportunities to scale further.

Yes. I mean in Q1, you had 29% of your sales are international in Missiles and Fire Control. And Europe was the biggest grower. When you look forward now, how do you expect that percentage to change? And in particular, we've seen before, like the last few weeks, literally, we've seen the Middle East kind of come down over time after the first Trump administration. But now, of course, there's all of this emphasis there. What do you see now as kind of the ongoing mix shift to international? And are we going to see more Middle East in there?

I think we see international revenue continue to be a growing part of our business as well as the backlog growth being a larger percentage than domestic, at least in the near term. And that is notwithstanding a Golden Dome opportunity, which is not currently fully priced into our profile. We think of international naturally as 3 major regions: Europe, Asia Pacific and the Middle East. All 3 are seen as areas for us. And you're right, Europe is a very key component. We look at Poland as a very key customer, where we have existing capacity or capability in country. And we see opportunities to partner and grow that specifically in Poland and in other areas of Europe as well.

And perhaps you can translate that a little bit. If you look at some of your major programs, can you highlight the production capacity increases that you're making on some of those?

Sure. So the major munitions that we are scaling, one is PAC-3. So I think in the next couple of years, we'll get to a capacity of 650, which is the growth we've done, which just a few years ago was a much lower number. So that has just been a rapid scaling and where we probably see the largest continued demand function both domestically and internationally. GMLRS, we're scaling to a capacity of 14,000 over the next couple of years. We've got JASSM/LRASM, which is a very key munition when you look at the mission set for Asia Pacific. So we're scaling that to 1,100 over the next couple of years. And you've got our HIMARS launcher that we're scaling to annual capacity of 96 in the next couple of years. So those are likely the major drivers. PrSM is a new product that is starting to scale, just not yet at the numbers of the munitions I mentioned previously.

And is that growth -- you're able -- I mean we've seen rocket motors as kind of a bottleneck over the last few years. Are you now looking at that production capacity as, in a sense, straightforward to execute on? Rocket motor is still an issue here?

Solid rocket motors is clearly a key element, I'd say not the only element. One of the things that we've made a lot of progress on is making sure we have growth and capacity on the solid rocket motor side. And we've done that in a variety of ways, including looking at existing domestic suppliers as well as potentially expanding beyond with partnerships like the one we announced with GD OTS. So we'll continue to drive solid rocket motor resilience in the supply chain and look at other suppliers that could potentially be bottlenecks. But I think you're right to point out supply chain. When we're scaling 4 munitions currently across those years, supply chain is going to be absolutely critical for us to hit those marks.

Now you have one large classified program there, which -- I think that's a huge long-term opportunity. But you've had some significant charges on it that you're still working through. Can you give us an update on the profile for that program?

What I can share is that the cost performance looks solid based on the charges that we took at the end of last year. So we continue to watch that one very closely. As you mentioned, there's a lot of excitement for what this could mean long term for the company and for the customer. And I think the cost basis has been very solid this year.

And Doug, I would add just again, as a former Air Force pilot, the key today is you don't want to get into an old-fashioned dog fight with the enemy, right? It's really interesting in seeing that in World War II movies. But today, the best thing to do is to sense the enemy before they can see you with their sensors. The second thing is to be able to have a radar system or an infrared system, even better, that can provide a missile track to the weapon. And the third and maybe the most critical piece of this is to have a weapon that can hit the enemy plane before, in fact, they can even sense you're there. That's the dog fight of the future. That's the one we want to be in. And so the capabilities that we're speaking of will contribute to that outcome. And they'll be very important, I think, to the Department of Defense over time. And we are through the ringer, I think, on cost control on that now. And then we've got to go ahead and scale the production when that time comes.

Now Europe has been a big source of growth here. But as European budgets go up, there has been a movement in Europe by European relative to the F-35. But more broadly, that's true. You've announced a JV with Rheinmetall. Can you describe what you want to get out of that and what sort of the time line is?

Yes. So one of our major 3 strategies in the 5 years that I've been in management of the company, Doug, has been to internationalize our production and sustainment operations because it makes sense for a lot of reasons to have what's called coproduction in allied countries in the areas of responsibility of the U.S. Armed Forces where they're based and where they may have to operate if there's a conflict. And so Europe, again, Middle East and Asia Pacific are the right places for us to do coproduction. So this is a trend we've had ongoing, in fact, for years before I joined the company's management. And before I was even on the Board, there were operations in Poland, U.K., Australia, a number of other countries. What we've done is taken those benchmarks, those footholds and expanded them deliberately in the regions. And what we're doing is we're taking the concept of offset, meaning a country decides to buy and puts an order in for X number of products or airplanes, et cetera. And with that order comes, we want you, Lockheed Martin or Northrop Grumman or Boeing Defense to invest in our country in some industrial fashion. It may or may not have anything to do with the aircraft itself that they're buying or the defense industry. What we've done at our company has turned this upside down and said, look, let's have this international production and sustainment plan. And one of the pieces of that plan was to be able to do F-35 components -- more F-35 components or even segments of the airplane in Europe, where we also do final assembly in Italy. And so it's natural, for example, for Rheinmetall to fit right into that. It's our program, it's our goal, and it actually is their goal to be able to have such a kind of a high-profile sophisticated industrial operation as part of their F-35 buys. So it's constructive for everyone. And we have a lot of confidence as a company in Rheinmetall and their leadership and their ability to perform in the supply chain and the industrial business in Germany around it that we will do more projects with Rheinmetall, we think.

Well, you mentioned Golden Dome before. And so for both Missiles and Fire Control, it's relevant and so is space. But when you look at something that's complex as what's being laid out here for Golden Dome, and I know there's a lot to come, there's a Huntsville meeting coming up. So in the past, when we've seen large systems, you and I have talked about JADC2, for example, you -- which I consider to be sort of a fragmented effort to do a lot of things. You've had Future Combat Systems, which was kind of a Boeing-led single program. We had jitters, which was like a national team that led -- when you look at this, the Golden Dome, what would you like to see in terms of the structure of the team for a technical strategy and for the acquisition strategy?

So Doug, I think you recognize that one of the other major strategies that I've had coming to Lockheed Martin's management from the telecom technology industry is this industry, aerospace and defense, especially when it comes to government contracting, needs to evolve to be much more like the telecom tech industry and how it behaves and how it contracts and programs are launched. And so we've been pushing the concept of mission technology road maps. So just like the tech industry, whether it was 5G deployments of mobile, whether it was distributed cloud services, now it's AI, there's a mission or a service -- they'll call it road map. They want to make their product or service to the public better every week, every month, every quarter continuously to stay ahead of their competition and to gain more market share. That's the approach that would be perfect for the Golden Dome program because a lot of it will be digital services to begin with that stitch and knit together the physical products that the aerospace and defense industry tends to lead in. And so if we can get the government to do a couple of things with us as a team, if you will, is, first of all, convene a standards body so that we can all agree as industry partners and players on APIs, integration protocols, frequencies that we're going to use, error correction methodologies, these kinds of things that are common in a network type, which is this is a network type of deployment. That's those standards which will evolve over time with industry as teammates and pick the best of breed, and everybody designs in their lane to those standards. That's one thing that needs to be done. The second thing that would assist Golden Dome to be a success would be to have an adjacent acquisition path in each of the military services, so Space Force, Air Force, Army, Navy, because they're all going to have a part of this. And acquisition paths are made historically or designed historically to buy tanks and planes, submarines and things that take 10, 15 years to complete. These upgrades on Golden Dome should be happening every 3 to 6 months. So if we can get a parallel acquisition path, a standards body set, a mission road map that the government lays out for industry, we can actually together pursue this. And when I say, I mean A&D, aerospace and defense, I mean the big tech companies, I mean start-ups, new entrants, et cetera. If everybody is working to those standards and has a faster process for acquisition where things will integrate as all of that process, we will have a Golden Dome deployment that can be a success.

One of the aspects you mentioned before going over to space in Golden -- relevant to Golden Dome is NGI. And that was a big win for you. Can you talk about what that looks like in terms of a revenue profile and time line right now?

NGI is a really exciting program. I was at space when we won that, and it's just incredible capability that it's the kind of one that helps you sleep better at night just knowing that it's in the process of getting deployed. So I think as we work through that development and deployment schedule over the next several years, think of that as about $1 billion a year with the potential to grow as we scale into production a little north of $1 billion a year.

When is production likely to start on that?

It's over a little outside the LRP period in terms of when we transition to production as we get ready to do initial fielding and potentially partner with our customer to see if there are ways to accelerate at their discretion based on the need-now capability for Golden Dome.

Now one of the things that has been an important dynamic for all is Lockheed Martin traditionally is the biggest player in space. You had positions on a lot of the big legacy programs, whether they're AHS, [indiscernible], GPS-III, and going over to NASA, Orion. But as you look at those, those have kind of ramped down some. And then it's been harder to see beneath that things like your growth around some of the SDA programs. Can you talk about that growth trajectory in Space as you work across the legacy programs onto these next-gen programs?

Sure. There are 2 areas of growth potential for Space that are worth noting. One is what we call a strategic missile defense portfolio. So think of that as our hypersonics weapons that are with the Navy and Army, our fleet ballistic missile program, and of course, NGI. And so all 3 of those show growth profiles in the LRP period. I think to your point, as we see the satellite market shift, what is important to note is we continue to innovate there. So you're right, traditionally think of us as the geo orbit, large satellite, we'd call LM2100-combat bus orders. We've since developed a midsized LM400 bus and have entered the market for the smaller sat. For the SDA programs, we're under contract for over 100 of these smaller satellites and have deployed dozens of them. So we do see that as a potential growth area. And then additionally classified space is in a pivot point that could also turn to be a growth area for us.

When you look at the -- I mean you've had real success on both the transport layer and the tracking layer with SDA. Is that -- how large should we think of that getting as these -- as we see it grow because they're sort of manageable numbers right now in each tranche. But long term, this is likely a very large number of satellites.

It could be because, to your point, not only is it a large number of satellites, the refresh rate is certainly quicker than some of our exquisite satellites that might last for decades in some cases. That is a market, I think, right now is pretty fluid as the customer is determining what their best path is to meet that mission set, which could rely on a number of different orbits and missions. So I think at this point, it's a little too early to state, I think, exact growth rate for that.

So if we jump over to Rotary and Mission Systems. You didn't get FLRAA, but there's still a lot of Black Hawk demand out there, it appears. CH-53K, certainly a growth program. Can you talk about how you -- what kind of growth are you expecting at RMS? I know when you get to the IWSS part, that's been pretty attractive as well. What should we look at in RMS for a growth profile?

From a growth profile, primarily Sikorsky is our growth driver in IWSS right now. And that is paced by the heavy lift or CH-53K. In the near term, Black Hawk continues to also be a growth program as we watch the Army modernization and the future of Black Hawk get determined. I think IWSS, to your point, is a very interesting program mix. And we've seen some good demand there and could also be very pertinent as we talk Golden Dome, not only on the radar system, but our track record of deployed C2 systems that can pull all these capabilities together from a cross-domain perspective.

So one thing we've talked about in the past when we look at Lockheed Martin overall are the challenges around fixed price development. And you've got some of those that are kind of rough right now and so do almost all your counterparts who are at this conference. At the same time, there's a lot of discussion about coming from new players about commercial models for acquisition. But the challenge here is to think through how to navigate what's fixed price and too much risk in development versus what is commercial terms and beneficial in some other ways to the customer. How do you think about that range?

Well, the approach that would be optimal -- I mean there'll be a range around the optimal approach would be for the Department of Defense to really put to industry its broad objective for a certain mission set or a certain platform. And then let industry come up with whether it's we're teaming together with the new entrant or a start-up or with 2 primes is not unusual with a solution and then refine that solution in the second round or third round and narrow down the offerings to a point where there is flexibility in the development phase, but there's not massive risk in the development phase based on very specific requirements that all must be met to get to the next step. So it's more of a hybrid of, yes, requirements have to be provided by the U.S. government, by the Department of Defense, for example, but add flexibility in how those requirements are accomplished, whether it's between physical and digital assets, whether it's between small cheap many or exquisite and let industry have more flexibility in meeting the objective versus queuing to a very specific set of requirements, which may be undoable, so to speak, over a period of time because it's so tight. Not easy to -- there's behavior change for the industry and the customer that would argue for this. But I would also say that the incoming administration has as many or more people from a finance or a technology background in the Department of Defense than perhaps in recent memory. And I do think we're at a moment where there can be change -- systemic change at least initiated in the department. And industry, I would like to argue traditional industry, if you will, is ready for that, asking for it. I've been asking for it for years. I think our counterparts across the A&D industry, because many of them have commercial business, would agree that if we can modernize the contracting and acquisition system, there'll be better outcomes for industry and for government.

I know we've got to wrap up here. But Jim, perhaps you could tell us, as you look forward over the next 12 months, what are you going to be your priorities in terms of focus?

Well, my priorities, and I think will benefit again the government and the company will be to make sure that we have effective air superiority capability with us and our allies over the foreseeable future. And there's a lot of opportunity in potentially F-22 upgrades; F-35 modernization; F-35 production, et cetera; and the autonomous piece of that as well, which we are heavily involved in, especially out in Palmdale and Skunk Works. And then the second would be trying to work with government officials and industry officials to have them optimal Golden Dome approach to the program where we can get it done in a timely manner, add real capability and have a very integrated iterative and further developable platform for the future for national defense.

Well, great. Well, Jim and Evan, thank you very much for joining us today. It's been great.

Thanks, Doug.