Canaccord Genuity Morning Coffee on Lockheed Martin (LMT): It’s a’s a’s a Big Looming Federal Budget Cut

June 21, 2012 10:44 AM EDT
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Canaccord Genuity Morning Coffee on Lockheed Martin (NYSE: LMT): It’s a’s a’s a big looming federal budget cut.

Lockheed Martin said it could face hundreds of millions of dollars in business claims from suppliers if $500 billion in additional defense spending cuts take effect in January, as currently mandated. The additional reductions are part of $1.2 trillion in U.S. budget cuts triggered after a congressional committee failed to reach agreement on other ways to reduce the cavernous federal deficit. Lockheed Chief Executive Bob Stevens said further cuts in spending would cause massive disruption across the defense industry, resulting in extensive layoffs, facilities closures and an erosion of quality. Stevens said the sequestration cuts could trim 10% of programs across the board in just the first year, which would carve about $3.8 billion from its annual total of $38 billion in government contracts, potentially triggering thousands of claims from its 43,000 suppliers. Many of those smaller companies have signed fixed-price contracts with Lockheed that would need to be restructured or renegotiated if spending cuts took effect. Additional budget cuts could also force Lockheed to lay off about 10% of its current workforce of 123 000, resulting in thousands of job losses in an already struggling economy. Separately, senior executives at Lockheed said they were working hard to reduce the cost of the F-35 Joint Strike Fighter program, but ultimately needed bigger order volumes to make the program affordable.

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