Jay Malave: Well, just some key things that we’re talking about from sales perspective. Lot ’18, ’19 is a big one for the F-35 program. We also have some long lead F-35 awards that we would be expecting as well. We’ve got things — there are some classified contracts across the portfolio. I can’t really get into any beyond that. But you’re talking multi-billions of dollars there that we have in our order plan for this year. There are things like PAC-3 orders, which is multiple billions of dollars there for FY ’24 requirements. And also, I would say hypersonics space, particularly on CPS is another one that can approach $2 billion. So there are a number there. As those get clicked off in the year, we’ll certainly report on those and keep you appraised on the progress.
Peter Skibitski: Thank you.
Operator: Thank you. The next question is from the line of Jason Gursky from Citi Research. Please go ahead.
Jason Gursky: Yes, hey, Jay, just a quick clarification then one for Jim and sorry if I missed this, but the deliveries that you’re expecting for the F-35 this year with the acceptance on T-3 happening potentially in the third quarter. Can you discuss a little bit about the cadence throughout the year? Do you expect to deliver some F-35s throughout the year and maybe the older version of it in the first half of the year? I’m just trying to get a sense of whether you’re truly doing 75 to 100 aircraft in the second half of the year? And what does that tell us about the potential for deliveries in 2025. Can you get to 200 in that year as a bit of a catch-up? And then, Jim, for you, just overall expectations on bookings, book-to-bill for this next year based on the pipeline that you’re seeing and maybe just kind of update us on your current thoughts on the competitive environments and fixed price versus cost plus, and how you — how the industry and you all specifically are kind of reacting to the contracting environment and what’s being asked of you and whether you’re toggling back more towards less risky programs?
Thanks.
Jay Malave: So let me get into the deliveries. Jason, we do have a handful of deliveries we expect in the first half. But for the most part, you’re talking 90% of the anticipated deliveries actually will happen in the back half of the year. And so I think that’s just the way to think about just a handful, really in the first half. Maybe I’ll kind of give a little bit of color and then hand it over to Jim. For the year, we still expect there to be strong demand, and we have a pretty solid line of sight to a book-to-bill that would be above one yet again in 2024. And so obviously, these things have to materialize. The budget has to be approved and all these things have to happen. But the line of sight is there for continued growth in orders as well as in our backlog.
A couple of things, too, and you’ve just done the question about cost plus. The interesting thing is that part of the margin pressure that we saw in 2023 was due to mix. Our percent of sales of cost type contracts went from 38% in 2022 to 41% in 2023. That in itself caused some margin pressure of about 20 basis points relative to what we were anticipating in the year. And so we’re actually seeing an uptick in cost plus contracts, which we think kind of bodes well from terms of risk tolerance in the way some of these stronger technological types of programs will be contracted for. And so I think that is, generally speaking, a favorable trend. Well, the other thing that we’re — just to talk about what we’re thinking about contractually, and Jim has really led the way here is that we just are employing a lot more pricing discipline than we have more recently.
And we’re looking at things and ensuring that there’s just a more analytical support for the way we approach pricing. Do we capture any types of technological advantages that we may have also that as we make an assessment of risk, a, the contracting vehicle is appropriate to that risk, but that our pricing accounts for that risk as well. And so that’s the way we’ve been approaching things for really this year going into 2024. And I’ll hand it over to Jim.
Jim Taiclet: Yes. Sure, Jay. So look, there’s a near-term and a long-term approach that we’re taking to government contracting with industry. And the near-term piece of it is a lot of what Jay just described, really matching the pricing and the risk profile within our company, I’ll say. Now I don’t know what other companies doing and how they’re making their decisions. But what we’ve recognized and I’ve said to our senior customer base, look, we’re in a monopsony environment here, meaning there’s a single buyer for the most part, for almost everything that we make or Boeing Defense makes or Gel Dynamics makes. And so I guess, the government’s credit in a way, they’ve been taking advantage of that monopsony power, if you will, over the industry.
And what’s happened as a result of that over the last number of years or even decades is you have lots of programs which are over cost, cost overruns, right, whether fixed price or cost plus and you have scheduled delays because what that monopsony environment can do is give so much power to the buyer that some of the competitors feel that there are must-win programs for them that they will take tremendous risk on cost and pricing and tremendous cost on the ability to technically deliver these capabilities. So when you multiply those two risks together, you get a lot of cost overruns, a lot of schedule delays, programs reviewed by Congress, et cetera. So I’ve been advocating in the near term and certainly implementing with our company, we don’t have any must-win programs at Lockheed Martin anymore.
If we have a good business opportunity with a balanced price risk profile, we will bid. If not, we will not bid. If we hit our limit parameters, we won’t go beyond those, a competitor may win, so be it. And so that’s our near-term approach to this. The longer-term approach is in addition to delivering products that we and our cohorts in the traditional defense industry do so well, we need to start migrating towards delivering capabilities, right? So capability would include either products that are already fielded and/or new products, but especially digital technologies, which is why we are collaborating with so much effort with commercial tech companies large and small, because we can value price capabilities, right? If we sell products, and that’s all we do as an industry, we are kind of locked into the far, the federal acquisition regulation as it is written today, which means even a fixed price contract, you’ve got to provide all your cost information, right?
