Lockheed Martin Case Analysis

Lockheed derived 78% of their total net sales from the U.S. Government in 2015, including 58% from the Department of Defense (DoD). They expect to continue to derive most of their sales from work performed under U.S. Government contracts. One of the factors that Lockheed Martin sales are driven by is the downward pressure from the effects of U.S. Government budget reductions; primarily in its services businesses (Lockheed Annual Report, 2015). U.S. defense spends have fallen and as a result, the Department of Defense now faces annual cuts (Lockheed Annual Report, 2015). These budget cuts resulted in lower volume and aircraft deliveries for Lockheed Martin. The budget reduction is one of the main reasons that Lockheed Martin's revenue is decreasing. The U.S. Government continues to face significant deficit reduction pressures and it is …show more content…
It represents 20% of Lockheed’s total net sales in 2015 and is expected to represent a higher percentage of their sales in future years. Over its 55-year life, the program will cost the Pentagon an estimated $1.50 trillion. A decision to cut spending or reduce planned orders could have an adverse impact on their results of operations. Since the F-35 is the military's largest weapons program, many officials consider it the easiest to cut (Barnes, 2013). The production of the F-35 stealth fighter plane was delayed to save on costs for the government, which effects Lockheed Martin because this was one of the largest contracts that companies in the industry. In the summer of 2015, the U.S. Marine Corps announced that the F-35 is officially ready for production (Cameron, 2015). This took about 14 years after Lockheed Martin was awarded the contract. For the delayed years, Barnes (2013) stated that the Pentagon was planning to save $1 billion to $2.5 billion for each year in costs. This negatively impacted Lockheed’s