Operator: Thank you. The next question is from Ron Epstein from Bank of America. Please go ahead.
Ron Epstein: With FARA off the table, and it looks like the flyer program has decent support, how are you thinking about the outlook for the vertical lift business? Where could we see some upside? What other competitions are out there? And how should we think about that?
Jim Taiclet: Yes. So Ron, this is Jim here. As we kind of roll into the 21st Century, what our company is trying to do is not just look at things through the programmatic lens or I’ll call it vertical kind of column but also horizontally through the actual mission and figure out what technologies can accomplish the mission that will enable our core basic platforms to be successful as well. And that’s how we’re looking at the rotary business. It’s not just at Sikorsky anymore. It is Sikorsky plus all of Lockheed Martin, right? And that’s one of the reasons we’re able to work with U.S. Army, Congress and the broader U.S. government to increase support for, let’s say, Black Hawk, for example, in spite of the fact that FARA is being canceled and there’s another vertical lift program in the form of FLRAA, which is going to be a tilt rotor.
So there are missions that the Black Hawk will be extremely well suited for in the rotary lower — it’s really the lower air domain. It’s not just for rotorcraft. So how do we pair those rotorcraft, a traditional Black Hawk, let’s call it, by modernizing the Black Hawk with digital technology to do what the Air Force would call CCA, collaborative combat aircraft, meaning you can in the lower air domain tie drones and unmanned, uncrewed aircraft to a Black Hawk using digital technology, and we’ve demonstrated that already. You can actually make the Black Hawk itself autonomous with no pilots in it being flown from a command center to do high-risk missions. So we’re looking at the mission and saying, what can we do all across Lockheed Martin, whether it’s through sensor fusion, AI, 5G, space-based sensor assets to make the Black Hawk, for example, a much longer lived platform, a much more relevant platform and actually a very efficient platform compared to, say, the FARA aircraft that won’t be able to do some of the missions anyway.
So we have a strong confidence then in Sikorsky itself and the platforms that it does produce. And that includes CH-53K, which I mentioned the Seahawk, which is a Black Hawk that’s configured for maritime operations that is pretty high tech as well. And so we feel really solid, as I think Jay said in his remarks, on Sikorsky’s future with a backlog of $20 billion and the ability to modernize these really reliable in production aircraft to do new things and with missions in digital technology and other — and integrate with other parts of LM and our partners to make those platforms relevant in the future. So I’ll stop there. Jay, you have anything else you want to say?
Jay Malave: Sure. Just a couple of things, as Jim mentioned. A stable outlook is the best way to describe it. As Jim mentioned, CH-53K is really the pillar. And those revenues between now and 2027 and 2028 are going to double. And so while we will see declines in other programs such as combat rescue helicopter, some declines on Black Hawk and others, the CH-53K will really offset all of those declines. We do have to go through a rebalance, a little bit of a rebalance of the workforce because the mix of development work versus production work is different than what we had originally anticipated. So we’ll go through that. But I think the business, as I mentioned, will be — is pretty stable. We’re also, as Jim mentioned, continue to have dialogue and just investments in Black Hawk modernization, which will maintain its relevancy particularly in the JADC2 environment.
And so, of course, you continue to see opportunities for not only the base missions that Black Hawk performs but other missions as well. Those dialogues are ongoing with the army to determine what would be the best fit for those. And so as I mentioned, from a revenue standpoint over the next five years, it will actually go up over the next few years a little bit, come back down, but pretty much flat to where it is today. And so stability, I think, is the best way to describe it.
Operator: The next question is from Rob Spingarn from Melius Research. Please go ahead.
Rob Spingarn: If we put the impact of TR-3 to the side, on the last call, you underscored the importance of the supply chain in producing F-35s at a rate of 156. And one of the things that’s made the F-35 program so well supported by Congress and international countries is the breadth of the supply chain. But is the complexity and scale of the supply chain limiting the potential and affordability of the program? And on future fighter aircraft programs, whether it be NGAT or FAXX, might we expect Lockheed to do more of the work in-house, the production work in-house when compared to F-35?
Jim Taiclet: So it’s a great topic, Rob. And so let’s start with the origination of the F-35 program. It was intended, as you said, to be a wide-based Allied program. I think it was seven literally partners, essentially treaty partners that we all get together and contribute their industrial capacity and their financial capacity to this program, given its importance and complexity and the scale that people are contemplating. So yes, we have a pretty broad supply chain. There were a couple of times when that’s gotten a little tough for the program. COVID was one of those. So we had delayed deliveries out of the UK, because the factories there weren’t open, although ours were. So we will be mitigating any future programs that we have.
And we’re eager to have international production and sustainment partners, and we’re going to expand that. But we’re also going to apply some anti-fragility methodologies to those initiatives going forward. No one really thought of COVID, of course. But now that we’ve had that example, we need to know — we know we need to have second and maybe third sources. And geographic diversity would be a positive thing from that perspective. So we’ll just be a little more broadly thoughtful about how we do this. Having single sources outside the U.S. is probably not the best idea. There’s an affordability issue around that too. So we’re just going to have to balance everything out. So based on its origination and essentially the commitment of the countries to the program, we do have that sort of spread out supply chain with a couple of weak spots in it.
Look, another weak spot’s canopies, right? How hard is it to make a glass canopy? Well, with this kind of stress and the kind of precision that’s needed and put in an F-35 canopy together versus an F-4, which I used to look out a little bit. Highly complex, hard to produce, single source, one of the big degraders that we have. So again, we’re going to learn from that, whether it’s a domestic or an international supplier going forward. In addition, as you pointed out, we are heavily in-sourcing when we can, and Lockheed Martin has the best technology. We’re looking hard at making sure that we can control as much of the supply chain that is feasible and reasonable based on whatever program it is. And so, for example, on NGI, that was at MFC, Lockheed Martin Space collaboration to make sure that the most critical sensor components that we could produce in the company effectively and efficiently were the ones that were selected, okay?
And so your topic is a really great one. We intend to actually geographically further diversify our supply chain but really based on this anti-fragility concept of having two or three sources, either different parts of the world, different companies, different logistical chains, things like that where we won’t run into some supply chain issues as much as we have on some prior programs, including F-35, honestly, so.
Operator: Next question is from Rob Stallard from Vertical Research. Please go ahead.
Rob Stallard: Jim, last quarter, you had some comments on contract structures and the way perhaps your customers have been dealing with defense industry in recent years. I was wondering if there’s been any sort of resonance from your commentary and any willingness, early willingness from the customer to look at this in a fresh way.
Jim Taiclet: So let me focus on digital service contracting because I think that’s a really ripe opportunity area for the DoD to work with industry, not just the traditional defense fronts, if you will, but broader industry too. We want to play on subscription basis ourselves. We want to bring in partners that will only be our suppliers on a subscription basis. So in terms of, say, 5G, connectivity services, backhaul, those kinds of things, AI, which needs constant refreshing and modeling. We will do a lot of the AI in-house, but we’re not going to be possible to do all of it. We want to bring in partners. We announced a couple of them like NVIDIA and IBM. They want to work with us. So I do think we’re starting to get interest inside government on how to do this.
We proposed, frankly, ourselves, which will open up opportunity for a lot of other companies in different sectors an adjacent acquisition process within the DoD for digital services alongside the traditional DoD acquisition process for largely physical goods like aircraft, ships, et cetera. There’s interest in that. We haven’t gotten it over the line, so to speak. But I think there’s a lot of advocacy across broad industry to do that and starting to be in Congress and other places in DoD as well. Along with that, we want to drive an open architecture system so that U.S. government has a lot of diversity in its potential suppliers because we’re all working off of the same standards base as far as APIs, interfaces, frequencies, use and those kinds of things and synchronize that as much as we can with commercial industry so we can use more of their IP and more of their resources and more of their people.
So I think that there’s a lot of opportunity here, and we’re getting — starting to get some traction on it. But it’s going to take a little bit of time to get those processes and those standards bodies put in place. But we’re actually on it, and we have some partners and teammates agree with those.
Jay Malave: I’ll just add, Rob, we have seen some changes where the contract structure is more closely aligned with the capability that’s being requested and the assessment of the technology maturation of that capability. And so you’re not seeing as many of these kind of high-risk fixed-price development contracts that really don’t work well for anybody because they don’t optimize a solution, and they typically end up poorly for the contractor. And so we have seen those changes. Again, they’re case-by-case. But I can tell you that at least what we’re seeing, particularly in the higher risk, higher technology-type risk arenas, we are seeing a shift in contracting to contracting vehicles that are just more relevant to those circumstances.
Jim Taiclet: Yes. And Rob, maybe to support just another minute what Jay is speaking about in a more direct way here. I have a view, as you may have heard, that having a — even a cost-based development project or program with a fixed price set of early production options is a tough thing to intellectually get at least my arms around, which is committing to cost and price on an object that really hasn’t been fully invented yet. And we’re looking really, really hard if that’s — in any opportunity that’s presented to us in that context as a company. So that is one area where to, again, highlight what Jay is speaking about, more of an alignment of what can industry deliver on a reasonable risk basis. And so the government can get a successful program out of it, frankly, and not have massive write-offs in industry or cost overruns or long schedule delays. We think it’s constructive to get some more of that alignment that Jay described.
Operator: Our next question is from George Shapiro from Shapiro Research. Please go ahead.
George Shapiro: Yes. Good morning. A couple of quick one’s for you, Jay. If the first quarter normalized growth was 5%, and even at the high end, you’re looking for 3.5%. So will this be the fastest-growing quarter? And what slows down and obviously normalizing for the fourth quarter? And then, the second question is the guide for other net was $400 million. First quarter is only negative 61. So I was expecting you might lower that number for the year. And so what was the reason why you didn’t lower it? Thanks.
Jim Taiclet: Jay?
Jay Malave: All right, George. Thank you. On the quarterly profile for sales, as you mentioned, on a normalized basis, 5% growth here in the first quarter. I’d see it will slow down to low-single-digit in the second and third. And we’re thinking that the fourth quarter probably flattish to maybe slightly down. You might recall that the fourth quarter of 2023 ended up being stronger than we were originally expecting. And so our compare in the fourth quarter of this year would be a little bit tougher. And so you’re talking in second and third quarters probably 2% to 3% type of growth numbers with a flattish year-over-year in the fourth quarter. As far as other net, George, you got me there. There’s probably some opportunity in there.
We’ll calibrate that, and we’ll update the guide in the second quarter for the full year. But it’s probably more prudent to just wait till we’re halfway through the year and just make an assessment of the entire outlook, and we’ll just leave it there.
Operator: And our next question is from Noah Poponak from Goldman Sachs. Please go ahead.
