Lockheed on ‘campaign-like’ hunt for new solid rocket motor supplier – or suppliers

WASHINGTON — Lockheed Martin is embarking on a “broad” and “campaign-like” mission to foster a new solid rocket motor supplier, Chief Executive Officer Jim Taiclet said today, hinting that the world’s largest defense contractor is eyeing a long-term plan for the supplier to compete across the industrial base.

“Our objective is to bring anti-fragility into our own supply chain first and to broadly apply that to the DoD in partnership with them as well,” Taiclet told investors during the company’s third quarter earnings call. “We’re actually starting with GMLRS [Guided Multiple Launch Rocket System] for example, a legacy technology where we want to augment our existing supplier and add a dual source frankly, and then that will extend into other systems large and small, legacy and advanced” he added.

Taiclet did not name the supplier in question — saying only “we’re in negotiations and discussions with a counterparty” that can “start us off” on the company’s “journey” — though he did say “this is not a one-time objective. This is a broad and, in a way, campaign-like approach to strengthening our own supply chain and enabling multiple sources, really for even beyond our company for our industry, which I think is important.”

Taiclet also added that “it’s going to be a long journey, and we’ll probably have additional participants and programs as the years and even decades roll on.”

Following the earnings call, financial analyst Byron Callan of Capital Alpha Partners said in a note to investors that the “counterparty” in question “could possibly be” the Norwegian company Nammo. (Northrop Grumman currently supplies motors for GMLRS.)

The creation of the new solid rocket motor supplier would accentuate burgeoning growth for the sector, which has separately seen at least two other recent entrants. In June, defense firm Anduril announced its acquisition of the small solid rocket motor firm Adranos, a purchase aimed at scaling up Adranos’s production capacity to compete with larger primes as a supplier for missiles, hypersonics and other systems. 

And then in September, the Pentagon announced that it awarded $64 million to a smaller company called X-Bow Systems, which DoD said in a release would “expand manufacturing capacity and reduce the production cost of solid rocket motors used in hypersonic weapons.” The release said the effort would bring on X-Bow as a new supplier for the Navy’s Conventional Prompt Strike program as well as the Army’s Long-Range Hypersonic Weapon, which share a common hypersonic glide body.

The new suppliers would seem to break the market grip by Orbital ATK, which was acquired by Northrop Grumman in 2018, and Aerojet Rocketdyne, whose acquisition by L3Harris closed this summer after regulators balked at a previous bid for the company by Lockheed. 

Continued growth of solid rocket motor sources also points to the continued influence of the war in Ukraine — as well as new conflicts and ones looming on the horizon — over the industrial base, as the Government Accountability Office previously estimated in 2017 that demand could only support two suppliers. But continued need for weapons like Javelins and Stingers on the battlefield, as well as expansion for other sectors like space systems, appears to be giving companies confidence that demand is durable enough to support several new suppliers. 

Lockheed Earnings Up

Today’s earnings release reportedly beat some analysts’ expectations, though it was not all good news from the contracting giant. Revenue for Lockheed’s aeronautics sector dipped 5 percent compared to the third quarter of last year with profit falling 12 percent by the same measure, according to the company’s earnings release [PDF]. 

The company said that revenue fell compared to the third quarter last year due to “lower net sales” for the F-35 as well as a deferred award that was recognized in the third quarter of last year, as opposed to the second quarter. Profit fell for a similar reason, the company’s release said, though Chief Financial Officer Jay Malave reiterated today that Lockheed’s F-35 lot 15-17 production deal would have stronger profitability than a previous award for lots 12-14 despite some “short-term limitations on our ability to take profit rate adjustments.”

As Breaking Defense first reported, upgraded F-35s are currently being warehoused until software kinks with the Tech Refresh 3 (TR-3) improvement are worked out, though Lockheed continues to deliver jets in the TR-2 configuration. A total of 80 Joint Strike Fighters have been delivered to date this year, Taiclet said, who reaffirmed the company’s position that upgraded jet deliveries would commence sometime between April and June 2024. 

The TR-3 delay, and subsequent decision to sequester the upgraded jets until the issues are worked out, have prompted the Pentagon to withhold about 10% of a new F-35’s price, which Bloomberg previously reported could see a payment delay of nearly $400 million this year alone.

During the company’s first quarter earnings call earlier this year, Taiclet assured investors that the issue would only affect a “fraction” of F-35s. Prior to Taiclet’s warning, the company expected to deliver between 147 and 153 of the stealth fighters this year. But since that time, the aerospace giant has had to revise down its delivery projections for 2023 twice, trimming it to a current estimate of 97. 

Fielding a question from an investor, Malave also estimated that raising production capacity for the F-35 would require a “manageable” investment in the “low hundreds of millions,” though Taiclet cautioned expanding capacity would likely require “significantly more international orders” to spur that change. 

Separately, the company’s Missiles and Fire Control and Rotary and Mission Systems sectors saw revenue and profit increases, whereas the company’s space division reported a revenue gain but profit loss compared to the third quarter of 2022. The fall in profit for the space sector was attributed to “lower equity earnings” from United Launch Alliance, a joint venture with Boeing, “due to lower launch volume,” according to Lockheed. 

During the call, Malave additionally discussed “headwinds” for a classified program for the company’s Missiles and Fire Control division. The program had a cost-plus development contract, but its early production lots were priced “pretty aggressively,” Malave said.

In his investor’s note, Callan said the classified program is likely the AIM-260 Joint Advanced Tactical Missile (JATM), the replacement for RTX’s popular AIM-120 Advanced Medium-Range Air-to-Air Missile (AMRAAM). The production schedule would seem to align with comments from top Air Force officials: though senior leaders previously said JATM was planned to enter production this year, Secretary Frank Kendall took a less firm stance recently when asked when the missile’s production would begin.

“Details on JATM are classified, but I’m hopeful on getting it into production as soon as possible,” Kendall told reporters during the Air and Space Force Association’s Air, Space & Cyber conference in September. A Lockheed spokesperson deferred questions to the Pentagon.