Exclusive: Lockheed eyes overhead cuts of up to 30 percent

[October 17, 2015]  By Andrea Shalal
 
 WASHINGTON (Reuters) - Lockheed Martin Corp <LMT.N>, the Pentagon's No. 1 supplier, has launched a review aimed at cutting corporate overhead costs by as much as 30 percent, according to two sources familiar with the initiative.

Lockheed would already reduce overhead substantially as part of an announced plan to sell or spin off an array of services businesses with revenue of $6 billion. The move will eliminate one of the $45 billion company's five current business divisions.

Lockheed this week confirmed plans to reduce 250 jobs at its Missiles and Fire Control division, on top of 500 lay-offs already announced for the Information Systems and Government Services division now under strategic review.

Lockheed is also analyzing other possible reductions and a range of combined goals, including a 30 percent cut in overhead costs. However, a cut of that magnitude is seen as a "high-end figure that isn't likely," said one of the sources, who asked not to be named since no decisions have been made.

"In a large company you have a lot of overhead and it's affecting more and more bid proposals in terms of cost," the source said. "You're competing against people who are really hungry and willing to offer much lower prices."

Lockheed representatives declined to comment.

Lockheed and other U.S. arms makers have been consolidating facilities, laying off workers and streamlining operations in recent years to cut costs due to a downturn in U.S. military spending. Continued budget uncertainty is driving executives to dig deeper and look for more savings.

Northrop Grumman Corp <NOC.N> this week said it would streamline its business sectors from four to three to better align with the U.S. Defense Department's changing needs.

Howard Rubel, defense analyst with Jefferies Group, said Lockheed also faced pressure from the Pentagon to offer price concessions in several billion-dollar contracts it is negotiating: a five-year contract for up to 83 C-130J transport planes, and two separate deals for about 160 F-35 fighter jets.

"They might as well use the impetus of (those contracts) to cut cost and offset the concessions they're being asked to make," he said.

Lockheed is also restructuring the Lockheed Martin International division it first set up in July 2013 to help the company win more international orders, according to three sources familiar with the matter.

Final decisions have not been made, but the business is being converted to a support function to make it work more efficiently, said one of the sources.

(Reporting by Andrea Shalal; Editing by Dan Grebler)

[© 2015 Thomson Reuters. All rights reserved.]

Copyright 2015 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.