Lockheed Martin Aeronautics Company Sustainment Partnering: A Value Added Strategy Bill Anderson Vice President, Customer Support Lockheed Martin Aeronautics Company March 2, 2004

Lockheed Martin Aeronautics Company Partnering A Key Element of Lockheed Martin’s Sustainment Business Strategy F-16 F/A-22 Approaching 6000 LM Aircraft in Service Worldwide Success and Customer Satisfaction Heavily Influenced by Definition and Implementation of Effective Product Sustainment Strategies … Success and Customer Satisfaction Heavily Influenced by Definition and Implementation of Effective Product Sustainment Strategies C-130 U-2 C-141 P-3 C-5 F-117 F-35 F-111 S-3 … Plus Strategic Alliance Aircraft F-2 T-50 IDFC-27J Aircraft in all product life-cycle phases Aircraft in all product life-cycle phases Strategic partnerships and teammates on almost all programs Strategic partnerships and teammates on almost all programs Fine tuning sustainment strategies with our customers on F/A-22, F-35, and C-130J Fine tuning sustainment strategies with our customers on F/A-22, F-35, and C-130J Opportunity to exploit cross-vehicle synergies, e.g., F/A-22 and F-35 Opportunity to exploit cross-vehicle synergies, e.g., F/A-22 and F-35

Lockheed Martin Aeronautics Company 3 Product Sustainment Integration…The New Paradigm  Internal study conducted recently to assess emerging sustainment situation and direction…from an enterprise perspective  Customer expectations  Competitive environment  Program requirements  Financial opportunities  Concluded that a consistent sustainment strategy applicable to multiple programs provides  Flexible, affordable support for the warfighter  Optimized investments  Integrated solutions across platforms  Business value  The future of product sustainment is not a continuation of the past – new Performance Based Logistics (PBL) concept being demonstrated on leading edge programs like F-117, C-17 and B-2 – this is the new norm for product sustainment

Lockheed Martin Aeronautics Company 4 DoD Mandating Its Program Managers to Implement Performance Based Logistics ” “PMs shall develop and implement performance-based logistics strategies that optimize total system availability while minimizing cost and logistics footprint.” - DoD Directive dated May 12, 2003 “PBL is the Department’s near-term strategy to increase weapon system readiness through integrated logistics chains and public/private partnerships.” - 23 January 2004 Memo from Acting USD, AT&L Michael Wynne

Lockheed Martin Aeronautics Company 5 Critical Elements for Successful PBL Implementation   Improve sustainment performance   As measured by warfighter metrics, e.g., operational availability, mission capability   Decrease total customer ownership cost   Significant reduction compared with traditional approach expected   Accept responsibility for product sustainment integration   Be empowered to make decisions to optimize performance and cost reduction   Reduce costs by eliminating/reducing sustainment transactions   Establish and maintain network of value added partnerships with customer organizations and industry   Receive financial rewards for risks associated with being the product sustainment integrator   Double digit return-on-sales objective – must be competitive with development and production margins

Lockheed Martin Aeronautics Company 6 Critical Elements for Successful PBL Implementation   Improve sustainment performance   As measured by warfighter metrics, e.g., operational availability, mission capability   Decrease total customer ownership cost   Significant reduction compared with traditional approach expected   Accept responsibility for product sustainment integration   Be empowered to make decisions to optimize performance and cost reduction   Reduce costs by eliminating/reducing sustainment transactions   Establish and maintain network of value added partnerships with customer organizations and industry   Receive financial rewards for risks associated with being the product sustainment integrator   Double digit return-on-sales objective – must be competitive with development and production margins

Lockheed Martin Aeronautics Company 7 … Specific Sustainment Applications Should Be Analyzed For Presence Of All Five Of The Critical Elements DECREASEDTRANSACTIONSDECREASED TOTAL COST Critical Elements of Successful PBL ImplementationsINCREASEDPERFORMANCEINCREASEDRISKS/REWARDSINCREASEDINTEGRATION

Lockheed Martin Aeronautics Company 8 … Specific Sustainment Applications Should Be Analyzed For Presence Of All Five Of The Critical Elements DECREASEDTRANSACTIONSDECREASED TOTAL COST (2.1% NMCS vs 5% std) (>10% ROS) (Warehouse reductions, reduced order times) ($195M savings & avoidance to date) (LM designated Sustainment Integrator) F-117 TSPR Examples Traditional vs PBL Critical Elements of Successful PBL ImplementationsINCREASEDPERFORMANCEINCREASEDRISKS/REWARDSINCREASEDINTEGRATION

Lockheed Martin Aeronautics Company 9 Prime Contractor Supplier Base Proactive Leadership Of Sustaining EngineeringSustaining Engineering Engineering Source Data & Tech OrdersEngineering Source Data & Tech Orders Configuration ManagementConfiguration Management Fleet Health ManagementFleet Health Management Supply Chain ManagementSupply Chain Management Sustainment Integration USG Depots StrategicPartners International Partners Shared Risk/Rewards for System Cost & PerformanceShared Risk/Rewards for System Cost & Performance Multi-Year (5 – 10+)Multi-Year (5 – 10+) Minimum CLINs (4 – 10)Minimum CLINs (4 – 10) Short, Performance- Based SOW (vs Task- Based)Short, Performance- Based SOW (vs Task- Based) Contract from SPO Direct Fleet Mgmt Interface to Users Sustainment Integration Is… Others...

Lockheed Martin Aeronautics Company 10 Prime Contractor Supplier Base Proactive Leadership Of Sustaining EngineeringSustaining Engineering Engineering Source Data & Tech OrdersEngineering Source Data & Tech Orders Configuration ManagementConfiguration Management Fleet Health ManagementFleet Health Management Supply Chain ManagementSupply Chain Management Sustainment Integration USG Depots StrategicPartners International Partners Shared Risk/Rewards for System Cost & PerformanceShared Risk/Rewards for System Cost & Performance Multi-Year (5 – 10+)Multi-Year (5 – 10+) Minimum CLINs (4 – 10)Minimum CLINs (4 – 10) Short, Performance- Based SOW (vs Task- Based)Short, Performance- Based SOW (vs Task- Based) Contract from SPO Direct Fleet Mgmt Interface to Users Sustainment Integration Is… Others... Strategic Partnership Network

Lockheed Martin Aeronautics Company 11 Partnerships & Sustainment Integration Strategy  Best-in-class solutions required to meet customers’ cost/value requirements  A single entity can not currently provide or sustain best-in-class performance in all Sustainment discipline areas  Carefully selected strategic partners provide:  Demonstrated levels of performance  Willingness and commitment to provide funding to enhance their disciplines  Senior management focus on the discipline  Strategic partners includes partnerships with customer organizations Sustainment Focus Must Be On Meeting Warfighter Expectations At Greatly Reduced Total Ownership Costs Through Performance Based Logistics Contracts in Partnered Environments.

Lockheed Martin Aeronautics Company 12 Sustainment Partnerships Emerging at Different Organizational Levels  A range of relationships have been noted – from corporation to government department down to intra-program (contractor-to-customer program offices) agreements  Partnerships also emerging within corporations and between and among industry entities  All partnerships can be value added, but rhetoric does not automatically translate to sustainment results  Lessons learned from partnership experiences can and should be studied and reapplied across applications

Lockheed Martin Aeronautics Company 13 Strategic Supplier Alliance F-117 Total Sustainment Performance Responsibility C-130J Direct Sales Agreement Strategic Supplier Alliance Internal Partnering Agreements Aeronautics Company Aircraft & Logistics Centers C-130J Long Term Support F/A-22 Weapon System Partnering Charter 00-ALC – LM Aero MOU Aeronautics Company A Network of Partnering Agreements Sustainment Partnerships Take Many Forms LM – Boeing – P&W

Lockheed Martin Aeronautics Company 14 Strategic Supplier Alliance Participants: USAF (AFMC), Army (AMC), DLA, & LM Duration: Not time limited Objectives: Improve support to our nation’s warfighters throughImprove support to our nation’s warfighters through  Relationship of collaborative decision making  Leveraging member organization capabilities Support transformation initiatives including PSCM,Support transformation initiatives including PSCM, Logistics modernization, & business system modernizationLogistics modernization, & business system modernization

Lockheed Martin Aeronautics Company 15 F/A-22 Weapon System Partnering Charter Participants: F/A–22 SPO, Propulsion SPO, WR-ALC, OO-ALC, OC-ALC, Boeing, P&W, & LM Duration: Not time limited Objectives: Actively seek out opportunities for mutually beneficial cooperative public-private partnering initiativesActively seek out opportunities for mutually beneficial cooperative public-private partnering initiatives Provide a framework for implementing documentsProvide a framework for implementing documents F/A-22 Weapon System Partnering Charter

Lockheed Martin Aeronautics Company 16 C-130J Long Term Support Participants: WR-ALC, PEO (A, T and M & S), C-130J SPO, And LM Aero Duration: Until October 2005 Objectives: Integrate efforts and capabilities toIntegrate efforts and capabilities to  Meet warfighter requirements  Support government transformation goals  Achieve collective objectives C-130J Long Term Support

Lockheed Martin Aeronautics Company 17 C-130J Direct Sales Agreement Participants: WR-ALC & LM (C-130J Program) Duration: Not time limited Objectives: Provide exceptional support to C-130J operational customersProvide exceptional support to C-130J operational customers Provide best value to the USAFProvide best value to the USAF Comply with public lawComply with public law C-130J Direct Sales Agreement

Lockheed Martin Aeronautics Company 18 Summary  Partnering a critical element of emerging performance based logistics sustainment strategies  Existing and evolving partnerships may have different forms and formats  Sustainment partnerships being created to take advantage of best value capabilities of involved organizations…in order to provide affordable sustainment for our nation’s warfighters