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 "Skunk Works," Lockheed's business for developing weapons outside
the company's main chain of command, is starting to lift the veil in
a sign of fierce pressure to win new orders and protect its brand as
military budgets shrink.
The pride of Lockheed, Skunk Works has been celebrated since it
developed the first jet fighter in 143 days during World War Two to
battle the Nazis. But its logo was kept off buildings and employees
were barred from saying where they worked.
Now, the company has published a glossy brochure with a 10-point
“Skunk Works 2015” agenda focused on keeping costs down, working
closely with government, and building prototypes. Its officials are
meeting in small groups with all 3,300 employees, or "Skunks" as
they are known, to underscore the importance of staying competitive.
Over the past year Skunk Works has invited a few journalists to its
most secure facilities, including Palmdale, a site in the high
desert 60 miles (100 km) from Los Angeles, where new products range
from next-generation unmanned systems to a hypersonic aircraft twice
as fast as its Blackbird SR-71 spy plane that could fly across
country in just over an hour.
 Most of the 100 buildings and 3 million square feet of floor space
at the site are off-limits, and photography and audio recordings are
strictly forbidden, but a tour last month offered a glimpse of some
projects.
In one building, Lockheed is using the world's largest gantry
machine and 3-D printing to build aircraft. Across campus, Lockheed
has a giant airship that could deliver cargo to remote areas, and a
compact nuclear fusion reactor that could revolutionize power
generation.
PRESSURES MOUNT
The decision to go public with Skunk Works, albeit modestly,
reflects the unprecedented pressures Lockheed faces from tight
budgets, nimble smaller competitors and shareholders who prefer
dividends and share buybacks to long-term projects.
Challenging Skunk Works are such newcomers as Space Exploration
Technologies Corp, or SpaceX, which operate more like commercial
firms than legacy weapons makers. Their costs are lower due to a
younger staff - the average age of SpaceX's engineers is 27, while
Lockheed expects half its employees to retire in the next five years
- and their ability to leverage commercial orders.
Defense consultant Jim McAleese said Skunk Works needed to win
orders and cut costs given lower profits in the aeronautics
division, where margins fell by about 10 percent last quarter.
Aeronautics sales fell 6 percent to $14.1 billion last year.
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Skunk Works has survived over the years because it is not only an
advanced research arm, but also makes money by managing a few
signature programs, including the F-22 stealth fighter and other
classified programs, general manager Rob Weiss told Reuters. He gave
no numbers.
Bucking an industry trend, Lockheed is boosting internal R&D
spending by 5 percent this year after a 13 percent increase to $697
million in 2013, its highest percentage of sales ever, CEO Marillyn
Hewson told analysts in October. She said the rate would rise again
in 2015.
The Skunk Works outlook could dim if Lockheed loses out on the few
big programs up for grabs: a new bomber, a carrier-based drone, and
a new Air Force training jet, analysts say.
Skunk Works officials say they also need to be more open to
strategic partnerships, such as those it has with GenCorp unit
Aerojet Rocketdyne and Boeing Co, and new business models, such as
fee-for-service deals.
Pentagon officials often say they see Lockheed's Skunk Works and
Boeing Co's Phantom Works as models for rapid development of weapons
and ensuring U.S. military superiority.
Deputy Vice President Steve Justice, who has 30 years with Skunk
Works, said its historical focus on speed and affordability was more
relevant than ever given the tough budget climate. The proof, he
said, came in recent requests from the Navy and others that want to
set up similar groups.
(Reporting by Andrea Shalal; Editing by Howard Goller)
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