Lockheed Martin Corp. has suffered a string of rocket and missile failures because of a tendency to worry more about cost than quality, a review panel commissioned by the company said in a report released yesterday.
The self-scolding came in the wake of losing a major contract for spy satellites, and company leaders promised to do better.
"We have let some of our customers down over the course of the last year-and-a-half to two years and we intend to rectify that situation in a very strong and meaningful way," Lockheed Martin President and Chief Operating Officer Peter Teets said in a conference call with reporters.
Teets said he and Vance B. Coffman, Lockheed Martin's chairman and chief executive officer, discussed the space report for "five or six hours" Aug. 30 with the 16 team members who prepared it.
Led by former Martin Marietta President A. Thomas Young, the team took shape in May and spent four months examining the company's space businesses and interviewing government and military customers. The group included former Air Force Vice Chief of Staff Gen. Thomas S. Moorman Jr., former presidential adviser Brent Scowcroft and several current and retired company executives.
"We obviously found enormous technical strength throughout the [space and missiles] sector. We also found some significant problems," Young said during the conference call. He said many of the military and government customers who deal with Lockheed Martin have lost confidence in the company's ability to conduct successful space launches.
Several Lockheed Martin-built Titan IV and Athena rockets have failed since last year, destroying hundreds of millions of dollars' worth of satellites. In addition, the Army's THAAD anti-missile missile failed to strike its target for the sixth time earlier this year, though it recently achieved two hits.
Lockheed Martin had already cleaned house among the managers of its main space and missile businesses, which are based in California and Colorado. Young's review team praised the new leadership, and said the THAAD program, in particular, is on much better footing.
But the executive summary of the report released yesterday identified six continuing problem areas:
Management of the Titan IV program. There are 11 more launches on the books before the Titan rocket program comes to an end. The team urged Lockheed Martin to develop a specific plan for playing out the program effectively, and urged the company to aim for 100 percent success rather than particular cost or schedule targets.
Cost emphasis. Cutting corners has overtaken the pursuit of excellence as a driving force on some programs. "People took 'cheaper' as a chance to not do things they don't like doing," such as flight checks and certain testing, Young said.
Accountability. The report suggests that on-site managers and engineers have in some cases become lax in taking responsibility for debugging the hardware and software they are working on.
Quality. The review team chided Lockheed Martin for combining its quality control department with an independent oversight function called Mission Success about two years ago. The result has been less oversight during the early stages of complex programs. Teets pledged to separate the functions again, making Mission Success a third and independent set of eyes to scrutinize programs for problems.
Loss of experienced personnel. The team recommended more training for employees, more planning about succession of leadership and increased use of retirees when certain types of expertise are in demand.
Subcontractor and supplier management. Lockheed Martin needs to push its suppliers to hew to the strictest standards of quality and reward them for doing so, the team said.
Teets pledged to have a plan by the end of this month for fully implementing the team's recommendations, and said many steps are already under way. The steps will not cost money, Teets said, and in the long run should lower expenses.
He added that it was unclear whether the problems outlined in the report contributed to Lockheed Martin's loss last week of an important spy satellite contract for the National Reconnaissance Office.
Companies absorbed by Lockheed Martin have handled such satellites for 30 years or more.
On Friday, Boeing Co. pulled off a coup by winning the latest contract, which is said to be worth at least $4.5 billion.
"Obviously, we are disappointed by the news," Teets said. "We haven't had an opportunity to really understand the reasons and rationale.
"But we have an attitude here at Lockheed Martin that we want to learn from every bit of adversity we face. This is an example of facing some adversity. We will learn from it."
Investors seemed encouraged by the company's soul-baring stance. Lockheed Martin's stock, which nose-dived Tuesday after Defense Daily disclosed the loss on the secret satellite contract, rose 81.25 cents yesterday to close at $35.8125.
"It's a step. It's a positive step," said Byron Callan, a defense industry analyst for Merrill Lynch.
He said that while there were no bold revelations in the internal review, the process was valuable for highlighting "the fine balance between cost-cutting and efficiency" as well as other subtle issues.
"I think the other thing people forget about every business, particularly financial analysts, is that at the end of the day, the numbers and the products are created by people. So the issues of mentoring, training, retention are a fundamental business basic that can sometimes get lost," Callan explained.
Analyst Paul Nisbet of JSA Research Inc. said the report "was sorely needed" and that it might be reassuring to investors.
He found no surprises in the criticisms or recommended fixes, but said the simple act of commissioning such a high-profile self-examination was extraordinary.
"It is unusual," Nisbet said, "but they've had their unfair share of problems lately."
Pub Date: 9/09/99