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Jul 21, 2020

Lockheed's new CEO rules out commercial aerospace in deal hunt

Paul Harris discusses Lockheed Martin


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Lockheed Martin Corp.’s new chief executive officer, Jim Taiclet, is prowling for deals amid the coronavirus pandemic and economic downturn.

Just don’t expect the world largest military contractor to rummage for bargains in the distressed commercial aerospace industry, where Boeing Co. and its suppliers are grappling with an unprecedented collapse in air travel.

“Pure-play defence is going to be the field we’re playing on,” Taiclet said in an interview Tuesday after Lockheed exceeded Wall Street’s earnings estimates and raised its 2020 financial forecasts. “But we may want to expand the edges of the field,” he said, pointing to artificial intelligence as the kind of area that might strengthen the company’s weapons line-up.

Taiclet’s priorities squelched earlier speculation that Lockheed would consider a commercial aerospace deal to counter the tie-up of Raytheon and United Technologies, which formed Raytheon Technologies Corp. earlier this year. The pandemic has injected too much risk into such deals, Lockheed’s new boss said, particularly for a company sitting on a record US$150-billion backlog of defence contracts.

Lockheed rose 2.6 per cent to close at US$375.12 in New York. The stock has dropped 3.7 per cent this year while the S&P 500 has gained 0.8 per cent.

‘Batting Order’

The CEO inherited a solid performer from predecessor Marillyn Hewson, with strong fighter-jet, missile-defence and hypersonic-aircraft offerings. Hewson stepped into the chairman’s role in June at Lockheed, which makes the F-35 Lightning II fighter, the Pentagon’s costliest weapons program.

When it comes to allocating capital, Taiclet said shareholders shouldn’t expect the large-scale share repurchases that companies such as Boeing used before the pandemic to entice investors.

In his “batting order,” the dividend comes first and is sacrosanct, he said. That’s followed by research and development that has the promise to generate strong returns. Then there are mergers and acquisitions.

“The fourth, lonely batter that comes to the plate is share repurchases, because that means I didn’t have a better use for my cash,” he said.

Defining Scope

A former U.S. Air Force pilot who flew Lockheed aircraft during the Desert Storm operation of the early 1990s, Taiclet went on to work in aerospace for engine maker Pratt & Whitney and Honeywell International Inc. before jumping to American Tower.

He intends to build on the strategy he used for about 17 years as CEO of American Tower, a real estate investment trust with an emphasis on telecommunications.

“Define your scope,” he added, “become great at that, and scale it.”