<http://www.nytimes.com/2004/11/28/business/yourmoney/28lock.html> November 28, 2004 Lockheed and the Future of Warfare By TIM WEINER LOCKHEED MARTIN doesn't run the United States. But it does help run a breathtakingly big part of it. Over the last decade, Lockheed, the nation's largest military contractor, has built a formidable information-technology empire that now stretches from the Pentagon to the post office. It sorts your mail and totals your taxes. It cuts Social Security checks and counts the United States census. It runs space flights and monitors air traffic. To make all that happen, Lockheed writes more computer code than Microsoft. Of course, Lockheed, based in Bethesda, Md., is best known for its weapons, which are the heart of America's arsenal. It builds most of the nation's warplanes. It creates rockets for nuclear missiles, sensors for spy satellites and scores of other military and intelligence systems. The Pentagon and the Central Intelligence Agency might have difficulty functioning without the contractor's expertise. But in the post-9/11 world, Lockheed has become more than just the biggest corporate cog in what Dwight D. Eisenhower called the military-industrial complex. It is increasingly putting its stamp on the nation's military policies, too. Lockheed stands at "the intersection of policy and technology," and that "is really a very interesting place to me," said its new chief executive, Robert J. Stevens, a tightly wound former Marine. "We are deployed entirely in developing daunting technology," he said, and that requires "thinking through the policy dimensions of national security as well as technological dimensions." To critics, however, Lockheed's deep ties with the Pentagon raise some questions. "It's impossible to tell where the government ends and Lockheed begins," said Danielle Brian of the Project on Government Oversight, a nonprofit group in Washington that monitors government contracts. "The fox isn't guarding the henhouse. He lives there." No contractor is in a better position than Lockheed to do business in Washington. Nearly 80 percent of its revenue comes from the United States government. Most of the rest comes from foreign military sales, many financed with tax dollars. And former Lockheed executives, lobbyists and lawyers hold crucial posts at the White House and the Pentagon, picking weapons and setting policies. Obviously, war and crisis have been good for business. The Pentagon's budget for buying new weapons rose by about a third over the last three years, to $81 billion in fiscal 2004, up from $60 billion in 2001. Lockheed's sales also rose by about a third, to nearly $32 billion in the 2003 calendar year, from $24 billion in 2001. It was the No. 1 recipient of Pentagon primary contracts, with $21.9 billion in fiscal 2003. Boeing had $17.3 billion, Northrop Grumman had $11.1 billion and General Dynamics had $8.2 billion. LOCKHEED also has many tens of billions of dollars in future orders on its books. The company's stock has tripled in the last four years, to just under $60. "It used to be just an airplane company," said John Pike, a longtime military analyst and director of GlobalSecurity.org, a research organization in Alexandria, Va. "Now it's a warfare company. It's an integrated solution provider. It's a one-stop shop. Anything you need to kill the enemy, they will sell you." As its influence grows, Lockheed is not just seeking to solve the problems of national security. It is framing the questions as well: Are there too few soldiers to secure the farthest reaches of Iraq? Lockheed is creating robot soldiers and neural software - "intelligent agents" - to do their work. "We've now created policy options where you can elect to put a human in or you can elect to put an intelligent agent in place," Mr. Stevens said. Are thousands of C.I.A. and Pentagon analysts drowning under a flood of data, incapable of seeing patterns? Lockheed's "intelligence information factory" will do their thinking for them. Mining and sifting categories of facts - for example, linking an adversary's movements and telephone calls - would "offload the mental work by making connections," said Stanton D. Sloane, executive vice president for integrated systems and solutions at Lockheed. Are American soldiers hard-pressed to tell friend from foe in the crags of Afghanistan? Lockheed is transferring spy satellite technology, created for mapping mountain ridges, to build a mobile lab for reading fingerprints. Lockheed executives say the mobile lab, the size of a laptop, is just the tool for special-operations commandos. It can be loaded with the prints of suspected terrorists, they say, and linked to the F.B.I.'s 470 million print files. They say they think that American police departments will want it, too. Does the Department of Homeland Security have the best tools to protect the nation? Lockheed has a host of military and intelligence technologies to offer. "What they do for the military in downtown Falluja, they can do for the police in downtown Reno," said Jondavid Black of the company's Horizontal Integration Vision division. Lockheed is also building a huge high-altitude airship, 25 times bigger than the Goodyear blimp, intended to help the Pentagon with the unsolved problem of protecting the nation from ballistic missiles. The airship, with two tons of surveillance sensors, could be used by the Department of Homeland Security to stare down at the United States, Lockheed officials said. In a pilot program for the department, Lockheed has set up spy cameras and sensors on the U.S.S. New Jersey, anchored in the Delaware River, providing 24-hour surveillance of the ports of Philadelphia and Camden, N.J. The program grew out of the Aegis weapons and surveillance systems for Navy ships, and it soon may spread throughout the United States. The melding of military and intelligence programs, information-technology and domestic security spending began in earnest after the Sept. 11 attacks. Lockheed was perfectly positioned to take advantage of the shift. When the United States government decided a decade ago to let corporate America handle federal information technology, Lockheed leapt at the opportunity. Its information-technology sales have quadrupled since 1995, and, for all those years, Lockheed has been the No. 1 supplier to the federal government, which now outsources 83 percent of its I.T. work. Lockheed has taken over the job of making data flow throughout the government, from the F.B.I.'s long-dysfunctional computer networks to the Department of Health and Human Services system for tracking child support. The company just won a $525 million contract to fix the Social Security Administration's information systems. It has an $87 million contract to make computers communicate and secrets stream throughout the Department of Homeland Security. On top of all that, the company is helping to rebuild the United States Coast Guard - a $17 billion program - and to supply, under the Patriot Act, biometric identity cards for six million Americans who work in transportation. Lockheed is also the strongest corporate force driving the Pentagon's plans for "net-centric warfare": the big idea of fusing military, intelligence and weapons programs through a new military Internet, called the Global Information Grid, to give American soldiers throughout the world an instant picture of the battlefield around them. "We want to know what's going on anytime, anyplace on the planet," said Lorraine M. Martin, vice president and deputy of the company's Joint Command, Control and Communications Systems division. Lockheed's global reach is also growing. Its "critical mass" of salesmanship lets it "produce global products for a global marketplace," said Robert H. Trice Jr., the senior vice president for corporate business development. With its dominant position in fighter jets, missiles, rockets and other weapons, Lockheed's technology will drive the security spending for many American allies in coming decades. Lockheed now sells aircraft and weapons to more than 40 countries. The American taxpayer is financing many of those sales. For example, Israel spends much of the $1.8 billion in annual military aid from the United States to buy F-16 warplanes from Lockheed. Twenty-four nations are flying the F-16, or will be soon. Lockheed's factory in Fort Worth is building 10 for Chile. Oman will receive a dozen next year. Poland will get 48 in 2006; the United States Treasury will cover the cost through a $3.8 billion loan. In the future, Lockheed hopes to build and sell hundreds of billions of dollars' worth of the next generation of warplanes, the F-35, to the United States Army, Navy and Air Force, and to dozens of United States allies. Three years ago, Lockheed won the competition to be the prime contractor for this aircraft, known as the Joint Strike Fighter. The program was valued at $200 billion, the biggest Pentagon project in history, but it may be worth more. The F-35 is in its first stages of development in Fort Worth; its onboard computers will require 3.5 million lines of code. Each of the American military services wants a different version of the jet. There have been glitches involving the weight of the craft. "We did not get it right the first time," said Tom Burbage, a Lockheed executive vice president working on the program. But a day will come, he said, "when everybody's flying the F-35." Lockheed hopes to sell 4,000 or 5,000 of the planes, with roughly half the sales to foreign nations, including those that bought the F-16. "It's a terrific opportunity for us," said Bob Elrod, a senior Lockheed manager for the F-35 program. "It could be a tremendous success, at the level of the F-16 - 4,000-plus and growing." That would represent "world domination" for Lockheed, he said. In the United States, where national security spending now surpasses $500 billion a year, Lockheed's dominance is growing. Its own executives say the concentration of power among military contractors is more intense than in any other sector of business outside banking. Three or four major companies - Lockheed, General Dynamics, Northrop Grumman and arguably Boeing - rule the industry. They often work like general contractors building customized houses, farming out the painting, the floors and the cabinets to smaller subcontractors and taking their own share of the money. AND, after 9/11, cost is hardly the most important variable for Pentagon planners. Lockheed has now won approval to build as many F-22's as possible. The current price, $258 million apiece, easily makes the F-22 the most expensive fighter jet in history. Mr. Stevens, whose compensation last year as Lockheed's chief operating officer was more than $9.5 million, says cost is essentially irrelevant when national security is at stake. "Some folks might think, well, here's a fighter that costs a lot," he said. "This is not a business where in the purest economical sense there's a broad market of supply and demand and price and value can be determined in that exchange. It's more challenging to define its value." Lockheed says it has transformed its corporate culture. In the 1970's, it was discovered that the company had paid millions of dollars to foreign officials around the world in order to sell its planes. In one case, Kakuei Tanaka, who had been the prime minister of Japan, was convicted of accepting bribes. "Without Lockheed, there never would have been a Foreign Corrupt Practices Act," said Jerome Levinson, who was the staff director of the Senate subcommittee that uncovered the bribery. The antibribery provisions of that law, passed in 1977, owed their existence to the Lockheed investigation, he said. The last bribery case involving Lockheed came a decade ago, when a Lockheed executive and the corporation admitted paying $1.2 million in bribes to an Egyptian official to seal the sales of three Lockheed C-130 cargo planes. Mr. Trice, Lockheed's senior vice president for business development, says the company cleaned up its act at home and overseas since the last of the series of major mergers and acquisitions that gave the corporation its present shape in March 1995. "You simply have to look people in the eye and say 'we don't do business that way,' " he said. There really is no need to do business that way any more - not in a world where so much of Lockheed's wealth flows directly from the Treasury, where competition for foreign markets is both controlled and subsidized by the White House and Congress, and where Lockheed's influence runs so deep. Men who have worked, lobbied and lawyered for Lockheed hold the posts of secretary of the Navy, secretary of transportation, director of the national nuclear weapons complex and director of the national spy satellite agency. The list also includes Stephen J. Hadley, who has been named the next national security adviser to the president, succeeding Condoleezza Rice. Former Lockheed executives serve on the Defense Policy Board, the Defense Science Board and the Homeland Security Advisory Council, which help make military and intelligence policy and pick weapons for future battles. Lockheed's board includes E. C. Aldridge Jr., who, as the Pentagon's chief weapons buyer, gave the go-ahead to build the F-22. None of those posts and positions violate the Pentagon's rules about the "revolving door" between industry and government. Lockheed has stayed clear of the kind of conflict-of-interest cases that have afflicted its competitor, Boeing, and the Air Force in recent months. "We need to be politically aware and astute," Mr. Stevens said. "We work with the Congress. We work with the executive branch." In these dialogues, he said, Lockheed's end of the conversation is "saying we think this is feasible, we think this is possible, we think we might have invented a new approach." Lockheed makes about $1 million a year in campaign contributions through political action committees, singling out members of the Congressional committees controlling the Pentagon's budget, and spends many millions more on lobbying. Political stalwarts who have lobbied for Lockheed at one point or another include Haley Barbour, the governor of Mississippi and a former Republican national chairman; Otto Reich, who persuaded Congress to sell F-16's to Chile before becoming President Bush's main Latin America policy aide in 2002; and Norman Y. Mineta, the transportation secretary and former member of Congress. Its connections give Lockheed a "tremendous opportunity to influence contracts flowing to the company," said Ms. Brian of the Project on Government Oversight. "More subtly valuable is the ability of the company to benefit from their eyes and ears inside the government, to know what's on the horizon, what are the best bets for the government's future technology needs." SO who serves as the overseer for the biggest military contractors and their costly weapons? Usually, the customer itself: the Pentagon. "These programs are huge," said Dov S. Zakheim, the Pentagon's comptroller and chief financial officer for the last three years, who recently joined Booz Allen Hamilton, the consulting firm. "There is a historical tendency to underestimate their test schedules, their technological hurdles, the likely weight of an airplane and, as a result, to underestimate costs. "Because you have so few contractors, you don't get the level of attention that the average citizen would think would be devoted to a program costing billions of dollars," he said. "With this massive agglomeration into a very small number of companies, you get far less visibility as to whether the subcontractors are effectively managed. Problems accumulate." "Twenty years ago, the complaint was, it takes so long to build things," he said. Weapons designed in the depths of the cold war were built long after the Berlin Wall crumbled. That led some people, including George W. Bush while running for president in 1999, to suggest that the Pentagon skip a generation of weapons set to roll off the assembly line in this decade and concentrate instead on lighter, faster, smarter systems for the future. That didn't happen. It still takes two decades to build a major weapons system, and the costs are still staggering. "The complaints haven't changed 20 years later," Mr. Zakheim said. The difference between then and now is the concentration of expertise, experience and power in a few hands, he said, "and I don't think the effect has necessarily been a good one." Mr. Stevens rejected that criticism. "I can't tell you the number of times I've heard 'not progressive, not sophisticated, ponderous, slow' " as terms used to describe Lockheed, he said. "I see none of that." What he sees is a far grander vision. Lockheed, he said, is promising to transform the very nature of war. During the cold war, when Lockheed and its component parts built an empire of nuclear weapons, Mr. Stevens said, the watchword was: "Be more fearful. 'Deterrence,' isn't that Latin? 'Deterrere.' Induce fear. Terrorize." Today, Lockheed is building weapons so smart that they can change the world by virtue of their precision, he said; they aim to wage war without the death of innocents, without weapons misfiring, without fatal miscalculation. "I know the fog of war exists," Mr. Stevens said, adding that it could be lifted. "We envision a world where you don't have any more fratricide," no more friendly fire, he said. "With technology we've been able to make ourselves more secure and more humane. "And we aren't there yet - but we sure have pioneered the kind of work that is taking us well along that trajectory. And there's a lot of evidence that says we're doing well. And we're setting the bar high and we expect to be able to do that. Now that's pretty exciting stuff. "I don't say this lightly," he said. "Our industry has contributed to a change in humankind." -- ----------------- R. A. Hettinga <mailto: rah@ibuc.com> The Internet Bearer Underwriting Corporation <http://www.ibuc.com/> 44 Farquhar Street, Boston, MA 02131 USA "... however it may deserve respect for its usefulness and antiquity, [predicting the end of the world] has not been found agreeable to experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'