A [Canadian Broadcasting Corp.] report on Aug. 6 contained some revealing remarks from Steve Callaghan, an executive at Lockheed Martin — one of three bidders on the multi-billion-dollar contract to replace Canada’s aging fleet of CF-18 fighter jets.
In touting the merits of his next-generation F-35A stealth aircraft, Lockheed’s vice president of business development said his company’s plan was to reduce the cost per flight hour from $35,000 “to at least $25,000 per flying hour in the coming few years.”
The CBC reported this as if he were speaking in Canadian dollars. He was not.
If a lobbyist omits pertinent details in an interview, and perhaps smirks while the CBC relays a beneficial false assumption, that is legal in Canada.
However, it is illegal in the United States for the chief financial officer (CFO) of a publicly traded company to deliberately mislead institutional investors.
Which makes the following very interesting.
On May 14, Goldman Sachs hosted a webcast with Ken Possenriede, executive vice president and CFO of Lockheed Martin.
The presentation began with a 979-word disclosure slide outlining how his statements were “pursuant to the safe harbour provisions of the Federal Securities Law.”
Early in the presentation, Possenriede outlined the plan to get F-35A costs down “to $25,000 (USD) per flight hour by 2025.”
Possenriede repeated the marketing language multiple times: “We have committed to drive the price of sustaining the airplane per flight hour down to $25,000 (USD) by 2025.” But when it came to long-term revenue growth, the sustainment story started to change: “We see sizable growth opportunities in sustainment.”
The Goldman Sachs moderator wanted to know how the F-35 could become cheaper for the taxpayer while also increasing revenues for Lockheed Martin. Possenriede’s answer should be required reading for anyone who writes about military procurement:
“We still see sustainment growing, and one point I’d make is — not many folks understand this — but that $25,000 per flight hour, that’s in 2012 dollars, and I’m not suggesting that it’s going to ramp up dramatically, but to get to 2025, the benchmark is in 2012 (US) dollars. So, we have to escalate that to some extent to get to current-year dollars and then ultimately then-year dollars. But I think with the modernization, the sparing that’s going to be required, the continued activation and the repairing, with or without a PBL concept, I think you’re going to see sustainment continue to grow.”
Using the United States Bureau of Labor Statistics average annual rate of inflation from 2012 to 2020, one can estimate the 2025 cost per flight hour at just under $31,000 (USD) At current exchange rates, that means a cost per flight hour of over $41,000 Cdn.
In her 2009 book, Ivanka Trump shared the following business advice: “Perception is more important than reality… This doesn’t mean you should be duplicitous or deceitful, but don’t go out of your way to correct a false assumption if it plays to your advantage.”
Do you believe what the salesperson told the CBC, or do you believe what the CFO told investors? (end of excerpt)
Click here for the full story, on the Chronicle Herald website.