Lockheed Martin migrated its headquarters to DC from southern California because that’s where the money is

OCTOBER 18, 2018

Lockheed and Loaded: How the Maker of Junk Fighters Like the F-22 and F-35 Came to Have Full-Spectrum Dominance Over the Defense Industry

by JEFFREY ST. CLAIR

Photo Source Charles Atkeison | CC BY 2.0

Lockheed-Martin is headquartered in the Bethesda, Maryland. No, the defense titan doesn’t have a bomb-making factory in this toney Beltway suburb. But as the nation’s top weapons contractor, it migrated to DC from southern California because that’s where the money is. And Lockheed rakes it in from the federal treasury at the rate of $65 million every single day of the year.

From nuclear missiles to fighter planes, software code to spy satellites, the Patriot missile to Star Wars, Lockheed has come to dominate the weapons market in a way that the Standard Oil Company used to hold sway over the nation’s petroleum supplies. And it all happened with the help of the federal government, which steered lucrative no bid contracts Lockheed’s way, enacted tax breaks that encouraged Lockheed’s merger and acquisition frenzy in the 1980s and 1990s and turned a blind eye to the company’s criminal rap sheet, ripe with indiscretions ranging from bribery to contract fraud.

Now Lockheed stands almost alone. It not only serves as an agent of US foreign policy, from the Pentagon to the CIA; it also helps shape it. “We are deployed entirely in developing daunting technology,” Lockheed’s new CEO Robert J. Stevens told the New York Times report Tim Weiner. “That requires thinking through the policy dimensions of national security as well as technological dimensions.”

Like many defense industry executives, Stevens is a former military man who cashed in his Pentagon career for a lucrative position in the private sector. The stern-jawed Stevens served in the Marines and later taught at the Pentagon’s Defense Systems Management College, an institution which offers graduate level seminars in how to design billion dollar weapons deals. From the Marines, Stevens landed first at Loral, the defense satellite company. Then in 1993 he went to work at Lockheed, heading its “Corporate Strategic Development Program”. There Stevens wrote the gameplan for how Lockheed would soar past Boeing, General Dynamics, Northrop Grumman and the others, as the top recipient of Pentagon largesse.

The plan was as simple as it proved profitable. Instead of risking the competition of the marketplace, Lockheed, under Stevens’ scheme, would target the easy money: federal contracts. The strategy was also straightforward: flood the congress with PAC money to get and keep grateful and obedient members in power. Those friendly members of congress would also be surrounded by squads of lobbyists to develop and write legislation and insert Lockheed-friendly line items into the bloated appropriations bills that fund the government. It also called for seeding the Pentagon and the White House with Lockheed loyalists, many of whom formerly worked for the company.

“We need to be politically aware and astute,” said Stevens. “We need to work with the congress. We need to work with the executive branch. We need to say: we think this is feasible, we think this is possible. We think we have invented a new approach.”

The scheme succeeded brilliantly. By the end of the 1990s, Lockheed had made the transition from an airplane manufacturer with defense contracts to a kind of privatized supplier for nearly every Pentagon weapons scheme, from the F-22 fighter to the Pentagon’s internet system. Then 9/11 happened and the federal floodgates for spending on national security, airline safety and war making opened wide and haven’t closed. Lockheed has been the prime beneficiary of this gusher of federal money.

Since September 2001, the Pentagon’s weapons procurement program has soared by more than $20 billion, from $60 billion to $81 billion in 2004. Lockheed’s revenues over the same time period jumped by a similar 30 percent. And, despite the recession and slumping Dow, the company’s stock tripled in value.

Almost all of this profiteering came courtesy of the federal treasury. More than 80 percent of Lockheed’s revenues derives directly from federal government contracts. And most of the rest comes from foreign military sales to Israel, Saudi Arabia, South Korea and Chile. Israel alone spends $1.8 billion a year on planes and missile systems purchased from Lockheed. Lockheed sells its weaponry, from F-16 fighters to surveillance software, to more than 40 nations. “We’re looking at world domination of the market,” gloated Bob Elrod, a senior executive in Lockheed’s fighter plane division.

And there’s little risk involved. Nearly all of these sales are guaranteed by the US government.

After 9/11, Bush tapped Lockheed’s Stevens to lead his presidential commission on the Future of the US Aerospace Industry, a body which, not surprisingly, wasted little time pounding home the importance of sluicing even more federal dollars in the form of defense and air traffic control contracts to companies such as Lockheed.

But Stevens’ position was just the icing on a very sweet cake. Former Lockheed executives and lobbyists toil every day on behalf of the defense giant from the inside the administration and the Pentagon. At the very top of the list is Steven J. Hadley, who replaced Condoleezza Rice as Bush’s National Security Advisor. Prior to joining the Bush administration, Hadley represented Lockheed at the giant DC law firm of Shea and Gardner. Other Lockheed executives have been appointed to the Defense Policy Board and the Homeland Security Advisory Council. Bush’s Transportation Secretary, Norman Mineta, and Otto Reich, the former deputy Secretary of State for the Western Hemisphere, both once worked as Lockheed lobbyists.

But the revolving door swings both ways for Lockheed. On its corporate board reposes E.C. Aldridge, Jr. Before retiring from the Defense Department, Aldridge served as the head of the Pentagon’s weapon procurement program and signed the contracts with Lockheed to build the F-22, the world’s most expensive airplane.

When insiders don’t get you everything you need, there’s always political bribery. In the US, politicians who serve Lockheed’s interests get annual dispensations of cooperate swill courtesy of the company’s mammoth political action committee. Each year Lockheed’s corporate PAC doles out more than $1 million, mainly to members of the crucial defense and appropriations committees.

Overseas, the Lockheed has often resorted to a direct bribe of government officials. In the 1970s, Lockheed famously handed out $12.5 million in bribes to Japanese officials (and organized crime figures) to secure the sale of 21 Tristar aircraft to Nippon Airlines. The ensuing scandal brought down Japanese Prime Minister Kakuei Tanaka, who was convicted of being on the receiving end of Lockheed’s payola. Even though the imbroglio lead the enactment of the Foreign Corrupt Practices Act in 1977 which set stiff penalties for bribery, Carl Kochian, Lockheed’s CEO at the time, defended the practice of handing out covert cash inducements as a cost-effective way of securing billions in contracts for the company. Bribery was just a cost of doing big business.

And indeed the Corrupt Practices Act didn’t deter Lockheed from handing out financial incentives to foreign officials to speed things along. In the 1990s, Lockheed admitted to stuffing the pockets of an Egyptian official with $1.2 million dollars in order to grease the sale of three Lockheed-made C-130 transport planes to the Egyptian military.

The clunky old C-130 Hercules continues to bring millions to Lockheed, which sells the cargo plane to Jordan, Egypt and Israel. But the biggest profits continue to derive from sales to the Pentagon, even though the latest model of the transport has been plagued with operational problems and cost overruns. Of course, in the funhouse economics of defense contracts “cost over-runs” simply mean more millions in taxpayer money going into the accounts of the very defense contractors that performed the untimely or shoddy work in the first place.

Since 1999, the Air Force has purchased 50 of the new C-130J prop planes from Lockheed. But none of these planes have performed well enough to allow the Air Force to put them into service. An audit of the C-130 contract by the Inspector General of the Air Force revealed a host of problems with the new plane that had been gilded over by Lockheed and Pentagon weapons buyers.

One of the biggest problems with the plane is an ineptly designed propeller system that keeps the C-130 from being flown in bad weather. The C-130J is powered by six-propellers covered in composite material that becomes pitted or even dissolves under sleet, hail or even heavy rain. Ironically, many of the first batch of planes were delivered to an Air Force reserve unit in Biloxi, Mississippi, where they were supposed to function as “Hurricane Hunters,” plying through thunderstorms and heavy winds in search of the eye of the storm. The planes proved useless for the task. As a result, most of the C-130Js have been used only for pilot training.

“The government fielded C-130J aircraft that cannot perform their intended mission, which forces the users to incur additional operations and maintenance costs to operate and maintain older C-130 mission-capable aircraft because the C-130J aircraft can be used only for training,” the IG audit concluded.

Nevertheless, the Air Force paid Lockheed 99 percent of the contract price for the useless planes.

“This is yet another sad chapter in the history of bad Pentagon weapons systems acquisitions,” said Eric Miller, a senior Defense Investigator at the Project on Government Oversight. “For years, the Air Force has known it was paying too much for an aircraft that doesn’t do what it’s supposed to. Yet it has turned a blind eye. The aircrews who have to fly these aircraft should be very angry. They’ve been betrayed by the very government that should be ensuring that the weapons they receive are safe and effective.”

The profits from the C-130 are a mere pittance compared to what Lockheed stands to make from its contracts to produce the two costliest airplanes ever envisioned: the Joint Strike Fighter and the F-22 Raptor.

The Joint Strike Fighter, also known as the F-35, is slated to replace the venerable F-16. Even though the initial designs for the F-35 proved faulty (there continue to be intractable problems with the weight of the plane), the Pentagon, under prodding from influential members of Congress, awarded the Lockheed a $200 billion contract to build nearly 2,000 of the still unairworthy planes. Lockheed plans to sell another 2,500 planes at a sticker price of $38 million apiece to other nations, starting with Great Britain. Once again, most of these sales will be underwritten by US government loans.

The F-35 contract was awarded on October 16, 2001. Already, costs have soared by $45 billion over the initial estimate with no end in sight.

But the F-22 Raptor stands in a class of its own. With a unit price of more than $300 million per plane, the Raptor is the most expensive fighter jet ever designed. One congressional staffer dubbed it, “Tiffany’s on wings.” Conceived in the 1980s to penetrate deep into the airspace of the Soviet Union, the F-22 has no function these days, except to keep a slate of defense contractors in business, from Lockheed, which runs the project, to Boeing which designed the wings to Pratt-Whitney which designed the huge jet engines.

The F-22 was supposed to be operational a decade ago. But the latest incarnation of the plane continues to suffer severe problems in fight testing. Its onboard computer system is mired with glitches and its Stealth features haven’t prevented the plane from popping up “like a fat strawberry” on radar. Even worse, several test pilots have gotten dizzy to the point of nearly passing out while trying to put the fighter through evasive maneuvers at high altitudes.

Even so, the doomed project moves forward, consuming millions every week, and no one with the power to do so seems to show the slightest inclination to pull the plug.

* * *

By one account, Lockheed garners $228 in federal tax money from every household in the US each year. But when it comes time to paying taxes Lockheed pleads poverty. By taking advantage of a bevy designer loopholes, Lockheed’s legion of accountants has reduced the corporation’s annual tax liability to a mere 7 percent of its net income. By comparison, the average federal tax rate for individuals in the US is around 25 percent.

Of course, these kinds of special dispensations don’t come cheaply. Lockheed spends more money lobbying congress than any other defense contractor. In 2004, a banner year for the company, it spent nearly $10 million on more than 100 lobbyists to prowl the halls of congress, keeping tabs on appropriations bills, oversight hearings and tax committees. Over the past five years, only Philip Morris and GE spent more money lobbying congress.

With Lockheed, it’s sometimes difficult to discern whether it’s taking advantage of US foreign policy or shaping it. Take the Iraq war. Lockheed’s former vice-president, Bruce Jackson, headed an ad hoc group called the Committee for the Liberation of Iraq. This coven of corporate executives, think tank gurus and retired generals includes such war-mongering luminaries as Richard Perle, Jeane Kirkpatrick, Gen. Wayne Downing and former CIA director James Woolsey. The Washington Post reported that group’s goal was to “promote regional peace, political freedom and international security through replacement of the Saddam Hussein regime with a democratic government that respects the rights of the Iraqi people and ceases to threaten the community of nations.”

This supposedly independent body seems to have gotten its marching orders from inside the Bush White House. Jackson and others met repeatedly with Karl Rove and Steven Hadley, Condoleezza’s Rice’s number two at the National Security Council and a former Lockheed lobbyist. The group eventually got a face-to-face meeting with the dark lord himself, Dick Cheney. After meeting with White House functionaries, members of the Committee would fan out on cable news shows and talk radio to inflame the fever for war against Saddam.

Jackson has long enjoyed close ties to the Bush inner circle. In 2000, he chaired the Republican Party’s platform committee on National Security and Foreign Policy and served as a top advisor to the Bush campaign. Naturally, the platform statement ended up reading like catalogue of Lockheed weapons systems. At the top of the list, the RNC platform pledged to revive and make operational the $80 billion Missile Defense program supervised by Lockheed.

In 2002, the Bush administration called on Jackson to help drum up support in Eastern Europe for the war on Iraq. When Poland and Hungary came on board, Jackson actually drafted their letter supporting an invasion of Iraq. His company was swiftly rewarded for his efforts. In 2003, Poland purchased 50 of Lockheed’s F-16 fighters for $3.5 billion. The sale was underwritten by a $3.8 billion loan from the Bush administration.

Lockheed also made out quite nicely from the Iraq war itself. It’s F-117 Stealth fighters inaugurated the start of the war with the “Shock and Awe” bombing of Baghdad. Later, the Pentagon stepped up orders of Lockheed’s PAC 3 Patriot missile. The missile batteries, designed for use against SCUD missiles that Iraq no longer possessed, sell for $91 million per unit.

After the toppling of Saddam, Lockheed executives saw an opportunity to gobble up one of the big private contractors doing business in Iraq, Titan Corporation. The San Diego-based company was awarded a $10 million contract to provide translators for the Pentagon in Iraq. Two of those translators, Adel Nakhl and John Israel, were later accused of being involved in the torture of Iraqi prisoners at Abu Ghraib prison. Titan translators, who are paid upwards of $107,000 a year, were also implicated in a scandal at Guantanamo prison.

Like Lockheed, after 9/11 Titan jettisoned almost all of its commercial operations and began to focus entirely on government work. By 2003, 99 percent of its $1.8 billion in corporate income came courtesy of government contracts. The firm also went on a buying spree of other smaller defense contractors. Since 2001, Titan gobbled up ten other defense-related companies. The most lucrative acquisition proved to be BMG, Inc., a Reston, Virginia based company that specializes in information collection and analysis for the Pentagon and the CIA. BMG alone held Pentagon contracts worth $650 million.

The abuse scandals didn’t deter Lockheed from pursuing Titan. Indeed, Christopher Kubasik, Lockheed’s chief financial officer, told the Los Angeles Times that the torture allegations “were not significant to our strategic decision.”

The merger was later delayed for other reasons by the Justice Department, which was looking into allegations that Titan executives and subsidiaries paid bribes to government officials in Africa, Asia and Europe in order to win contracts–a method of doing business that Lockheed executives must have admired.

Titan, which was formed amid the Reagan defense build up of the early 1980s, saw itself as a new kind of defense contractor, a weapons company that didn’t make weapons. Instead of building missiles or planes, Titan concentrated on developing software and communication packages for Pentagon programs. Its first big contract was for the development of a communications package for the guidance system of the Minuteman missile. Since then Titan has become a major player in the lucrative information technology market.

In recent years, Lockheed has begun to aggressively pursue the same types of “soft defense” programs. In the past decade, Lockheed’s Information Technology sales have increased by more than four hundred percent. The bonanza began during the Clinton administration, when Al Gore’s “reinventing government” scheme auctioned off most of the data-management tasks of the federal government to the private sector. Now nearly 90 percent of the federal government’s Information Technology has been privatized, most of it to Lockheed, which is not only the nation’s top arms contractor but also its top data-management supplier.

This opened vast new terrains of the government to conquest by Lockheed. It now enjoys contracts with the Department of Health and Human Services, Department of Energy and EPA. Lockheed also just corralled a $550 million contract to take over the Social Security Administration’s database. The privatization of Social Security has already begun.

But even in the IT sector, the big bucks are to be made in the burgeoning surveillance and Homeland Security business. Lockheed now runs the FBI’s archaic computer system, which took some much deserved heat for letting the 9/11 hijackers slip through its net without detection. It also won the $90 million contract to manage the top secret computer network for the Department of Homeland Security, a system that is supposed to function as a kind of “deep web”, linking the systems of the FBI, CIA and Pentagon.

All of this is a precursor to even bigger plans hatched by Lockheed and its pals in the Pentagon to develop an all-encompassing spying system called the Global Information Grid, an internet system that is meant to feed real time tracking information on terrorists suspects directly into automated weapons systems, manufactured, naturally, by Lockheed.

“We want to know what’s going on anytime, any place on the planet,” pronounced Lorraine Martin, Lockheed’s vice-president for Command, Control and Communications Systems. And eliminate them, naturally.

On the battlefield of defense contractors, Lockheed has now achieved full-spectrum dominance.

This is adapted from a chapter in Grand Theft Pentagon.

More articles by:JEFFREY ST. CLAIR