Lockheed and Loaded

Lockheed-Martin is headquartered in 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 reporter 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 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.

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 of the administration and the Pentagon. At the very top of the list is Steven J. Hadley, recently tapped to replace 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.

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.

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

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 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. 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 of 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.