Lockheed Martin 2013 Annual Report Download - page 34

Other Business Considerations
International Business
A key component of our strategic plan is to grow our international sales. To accomplish this growth, we continue to
focus on expanding our in-country presence and strengthening our relationships internationally through partnerships and
local production joint technology offices. For example, in 2013 we acquired Amor Group, a United Kingdom-based
company, and we opened a new in-country office in Saudi Arabia that will enable development of partnerships to create
products and enhance our offerings in technology, aerospace, and security sectors. We conduct business with international
customers primarily through our Aeronautics, MFC, and MST business segments.
In our Aeronautics business segment, there remains strong international interest in the F-35 program. The F-35 program
includes commitments from eight international partner countries and two international customers; as well as expressions of
interest from other countries. The U.S. Government and the eight partner countries continue to work together on the design,
testing, production, and sustainment of the F-35. The international role on the program is growing as we opened the final
assembly and checkout facility in Italy and began international pilot and maintainer training in 2013. We delivered three F-35
aircraft to international partners in 2013, including two aircraft to the Netherlands and one aircraft to the United Kingdom.
The number of F-35 aircraft for international customers in recent low-rate initial production (LRIP) contracts continues to
increase, with the LRIP 6 and 7 contracts including new aircraft awards for Australia, Italy, Norway, and the United
Kingdom.
Other areas of international expansion at our Aeronautics business segment include the F-16 and C-130J programs. The
award from Iraq in 2013 for 18 additional F-16 aircraft extends production through the middle of 2017. Also, we delivered
the first C-130J Super Hercules aircraft to both the Republic of Tunisia and to Israel in 2013. The delivery to Tunisia marks
the first to an African country.
Our MFC business segment produces the Patriot Advanced Capability-3 (PAC-3) and Terminal High Altitude Area
Defense (THAAD) air and missile defense systems, which continue to generate significant international interest. The PAC-3
is an advanced missile defense system designed to intercept incoming airborne threats. During 2013, we received an award to
provide PAC-3 missile defense equipment to Kuwait. Other international customers include Japan, Germany, the
Netherlands, Taiwan, and the United Arab Emirates (UAE). In 2013, we also finalized the multi-billion dollar award for the
THAAD missile defense system from the UAE, which is the first international customer for this system. Other countries in
the Middle East and the Asia-Pacific region have also expressed interest in our air and missile defense systems.
In our MST business segment, we continue to experience international interest in the Aegis Ballistic Missile Defense
System. We perform activities in the development, production, ship integration and test, and lifetime support for ships of
international customers such as Canada, Japan, Spain, Korea, and Australia. In 2013, we received an award from Japan to
upgrade processors and other equipment on their ballistic missile defense ships. The Littoral Combat Ship (LCS) is another
significant program generating interest from potential international customers.
Status of the F-35 Program
The F-35 program consists of a development contract and multiple production contracts. The development contract is
being performed concurrent with the production contracts. Concurrent performance of development and production contracts
is used for complex programs to test aircraft, shorten the time to field systems, and achieve overall cost savings. We expect
the development portion of the F-35 program will be substantially complete in 2017, with less significant efforts continuing
into 2019. Production of the aircraft is expected to continue for many years given the U.S. Government’s current inventory
objective of 2,443 aircraft for the Air Force, Marine Corps, and Navy; commitments from our eight international partners and
two international customers; as well as expressions of interest from other countries.
On the development contract, the U.S. Government continues to complete various operational tests, including ship trials,
mission system evaluations, and weapons testing, with the aircraft surpassing 10,000 flight hours. In 2013, we reduced the
profit booking rate on the development contract after revising our estimate of fees that we expect to earn on the contract as
well as our estimates of the remaining costs to complete the development contract. These revisions collectively reduced
profit by $85 million during 2013, which reflect the inception-to-date impact of the change in the profit booking rate.
Progress continues to be made on the production of aircraft. In 2013, the F-35 program reached a significant milestone
as we completed the assembly of the 100th aircraft. During 2013, we delivered 35 aircraft to our domestic and international
partners, resulting in total deliveries of 73 production aircraft as of December 31, 2013. We have 93 production aircraft in
backlog as of December 31, 2013, including orders from our international partners.
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