...Memorandum for Lockheed’s L1011 Tristar Project Recommendation In 1967, Lockheed Corp., the American aerospace company that monopolized the military market for aircrafts, set out to compete in the commercial sector by replacing the Boeing 747 and the McDonnell Douglas DC-10. Lockheed invested tremendous resources into the Tristar thereby jeopardizing the entire corporation’s well-being on this singular project. Tristar distinguished itself from other aircrafts of its kind thanks to the highly-efficient, formidable Rolls-Royce RB211 engine that the L1011 would need to be constructed. In fact, this very engine, due to Rolls-Royce’s technical difficulties, created diminished sales because of its two year delay in production. My recommendation is that, Lockheed approach their Tristar project more peripherally while still remaining heavily anchored in military production and sales in order to offset cost and diminish the 35 target Tristar airplanes needed to break even. Rationale The reason for Lockheed having this approach is because by doing this Lockheed would be able to decrease the number of planes it would have to sell in order for it to have a positive NPV. Lockheed was put into this position because they started putting out their projections and asking for a loan before they had even secured a deal for their engine from Rolls Royce. Rolls Royce was in such disarray, that they were placed into receivership, and had to be resold to Rolls Royce Ltd. in order...
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...Lockheed Tri Star and Capital Budgeting Andrea Cunha D’ Arruda Financial Decision Making University of California San Diego – Extension Prof. George A. Haloulakos, CFA Executive Summary The commercial jet aircraft business is cyclical, and in need of huge amount of cash to invest and reinvest on its technology. During the 50’s Boeing, Airbus, and Lockheed were in a great competition for market share of the commercial and military aircraft market. This case illustrates the importance of NPV analysis in capital budgeting and the need of identification of competitive advantage with synergy with successful jet aircraft programs with new programs that can generate very large cash flows. The Lockheed TriStar Jet is a medium-to-long range wide-body trijet airliner and was the third to enter commercial operations, after Boeing 747 and DC-10. The program faced various issues during its operation, as the utilization of only one jet engine supplier (Rolls Royce), low estimated required rate of return 10%, and a misjudge of the break-even point of 210 aircrafts, that it is going to be shown on this analyzes that even with 300 aircrafts sold the project do not reach the break-even point. It is recommended by this study that the company need to embrace a business strategy of two end user, instead of only one, to the L1011 program. Concentrating only on the commercial market is not viable, but having the military market as a background of funds and positive cash flow can leverage...
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...Case: L-1011 By Carlos Mateos Santander LOCKHEED Case Study Recommendation I recommend to Lockheed shut down the L-1011 project in which you are involved because in a realistic scenario in which they could sell 330-380 airplanes until 1980 and taking in consideration a cost reduction base on cost “learning curve” and their financial problem in two other project (Lockheed C-5 and the cancelation of AH-56A helicopter) their NPV would be -$85 mill. In this case our recommendation would be shut down your commercial aircraft project and try to keep being one of the best companies in military aircraft. This would be hard, but with the C-5 project and future projects that the government is going to give you would be easy fix this situation. Background and information: At the en of the 60´s Lockheed has three important projects in which are: * Lockheed C-5: This is a huge airplane that Lockheed is developing for US Government but they are having problem with the final price because it was more than the price that they expected but the government doesn’t want to pay more money, but it is sure that the US government is going to buy the airplanes that they request and it is possible that in the future they will do more orders. * Helicopter AH-56A: This is an amazing helicopter that Lockheed is developing for the US army, but the cost is going up and it is possible that US government cancel because they can not support that cost for one helicopter for the...
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...2013 Lockheed TriStar Case Study Group 6 Leon Krolikowski Sitaram Koppaka Brian Manning Tushar Mahajan Ryan Maggiorini Nicholas Manning UNIVERSITY OF MASSACHUSSETS SUMMER 2013 SCH MGMT 640 PROFESSOR RAJ GUPTA Table of Contents Executive Summary 2 Introduction/Motivation 3 Data Analysis and Results 4 Conclusion 8 Appendix 9 References 10 Executive Summary Lockheed’s L-1011 Tri Star Airbus program was a long-term, capital-intensive endeavor projected to strongly position Lockheed to compete in the commercial aircraft market. The initial preproduction investments for the program were made in 1967, with continued investments occurring during the subsequent four years, until the program commenced production in 1972. However, during the intervening period, initial program assumptions began to unravel, and Lockheed, which was also a major contractor to the United States Department of Defense, was before Congress, requesting a $250 million bank loan guarantee to complete the L-1011 program. By 1971, over 80% of Lockheed’s market capitalization had already been lost. During the ensuing debate that followed, it appeared that Lockheed had not taken due diligence in the planning for the project, and that initial unit sales and revenue estimates would fall woefully short of being what Lockheed’s CEO termed as a “commercially viable endeavor”. As the continued difficulties of the program unfolded before the public and the investment community, it...
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... Marisa Michaels BIQ Needs Assessment Intro I write to you today to inform you of the most crucial issues that Lockheed Martin will be facing this upcoming year. I will inform you with the relevance and significance of these issues. I will also be identifying the key stakeholders that will be affected by these issues. These issues are intended to inform you ahead of time, so the necessary adjustments can be performed accordingly. Issues: Past Ending Production of specific Fighter Jets Lockheed has been producing numerous amounts of different fighter jets for the United States. A MarketLine SWOT Analysis stated that "The sequestration of appropriations in 2013 imposed by the Budget Control Act of 2011 (Budget Act) began in March 2013. The budget calls for the termination of a few programs which include C-17 Airlifter, F-22 stealth fighter, Future Combat Systems, Multiple Kill Vehicle, Kinetic Energy Interceptor, Airborne Laser, Combat search and rescue helicopter, and Presidential helicopter"(SWOT,2014). The termination of those programs have directly affected Lockheed Martin in terms of production. Issues: Future Lower quality of new employees Lockheed Martin is in the global defense, aerospace, and information technology industries, and after conducting extensive research, it is clear that those three industries could be changing in the future. "The Defense Department...
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...Experiential Exercise: For this exercise, I chose to compare the websites of Boeing and Lockheed Martin. Two prominent companies in the aerospace and aviation industry, which is, and will most likely always be, the primary industry I'm employed in. Both companies' websites successfully convey information in a simplified and descriptive manner. With Lockheed Martin, there are navigational links for different levels of employment and experience levels, such as ex-military personnel transitioning into the civilian careers, new college graduates, interns, and experienced professionals. This simplifies the job search into a 'one-click' method in which interested applicants can view the opportunities that are available to their respective experience levels, as well as any further instructions for applying. Boeing, while also having links to different employment levels, seems more focused on communicating information about the company's ethics, history, and products. This field is based on staying on top of new technology and producing goods of exceptional quality, which means there is a . However, at some levels of both companies, there is a cost-leadership strategy in producing goods for the lowest cost and having employees more efficient than the other. Therefore, it appears that both companies are using a combination strategy, and doing so successfully. There seems to be an encouraged strong desire for entry level applicants with both companies, however, there...
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...DEFENSE ACQUISITION REVIEW JOURNAL Joint Strike Fighter Courtesy of Lockheed Martin Corporation 172 Report Documentation Page Form Approved OMB No. 0704-0188 Public reporting burden for the collection of information is estimated to average 1 hour per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Washington Headquarters Services, Directorate for Information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington VA 22202-4302. Respondents should be aware that notwithstanding any other provision of law, no person shall be subject to a penalty for failing to comply with a collection of information if it does not display a currently valid OMB control number. 1. REPORT DATE 2. REPORT TYPE 3. DATES COVERED 2004 4. TITLE AND SUBTITLE N/A 5a. CONTRACT NUMBER 5b. GRANT NUMBER 5c. PROGRAM ELEMENT NUMBER The Lean Enterprise-A Management Philosophy at Lockheed Martin 6. AUTHOR(S) 5d. PROJECT NUMBER 5e. TASK NUMBER 5f. WORK UNIT NUMBER 7. PERFORMING ORGANIZATION NAME(S) AND ADDRESS(ES) Office of the Under Secretary of Defense for Acquisition Technology & Logistics 9820 Belvoir Road Fort Belvoir, VA 22060-5565 9. SPONSORING/MONITORING AGENCY NAME(S) AND ADDRESS(ES)...
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...Lockheed Martin, Fiscal Year 2012 Donna K Falkenburg Professor Susan Lightweis Accounting 206 – Accounting II 6/02/2013 Lockheed Martin is a publicly traded, global security and aerospace company formed in 1995. They are principally engaged in the research, design, development, manufacture, integration, and sustainment of advanced technology systems and products. They are also known to provide a broad range of management, engineering, technical, scientific, logistic, and information systems. They serve both domestic and international customers with products and services that have defense, civil, and commercial applications. Their principal customers are the agencies of the U.S. Government. In 2012, 82% of their $47.2 billion in net sales were from the U.S. Government, in which they were a prime contractor or as a subcontractor. This includes 61% from the Department of Defense (DOD), 17% were from international customers, which includes foreign military sales (FMS) that were contracted through the U.S. Government), and 1% were from the U.S. commercial and other customers. Lockheed Martin’s main areas of focus includes defense, space, intelligence, homeland security, and information technology which includes cyber security. The organizational governance and structure of Lockheed Martin include a Board of Directors which is made up of ten (10) Executive officers. The positions range from Chairman which is held by Robert J. Stevens, to executive vice presidents...
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...Lockheed Martin * Background Information Headquartered in Bethesda, Md., Lockheed Martin is the largest arms-producing and military services company in the world, in addition to being the largest federal contractor in the United States of America. Its core business areas are Aeronautics, Information Systems & Global Solutions, Missiles & Fire Control, Mission Systems & Training and Space Systems. * Disclosure Policy Lockheed Martin mentions about its disclosure policy under the section of Management’s Discussion and Analysis of Financial Condition and Results of Operation in its Annual Report. It has a number of programs that are designated as classified by the U.S. Government. Such classified programs are consequently not specifically described in the Annual Report. Instead, they are implicitly included in the consolidated business segment results. * General Analysis of the 2012 Annual Report The Annual Report shows the financial data based on customer category. It is shown that in 2012, the total net sales to the U.S. Government accounted for more than 82% of Lockheed Martin’s total net sales. This figure shows the dependence of Lockheed Martin with the U.S. Government. It also shows the amount of money that the U.S. government spent for the purchase of military weapon and equipment from Lockheed Martin in 2012. The Annual Report also shows the financial data based on business segments. It only states the figures for the net sales, operating...
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...Investment Analysis and Lockheed Tristar Rainbow Products Part A Cash Flow -35000 5000 Payback period IRR NPV Decision 5000 5000 5000 5000 5000 11.49% (Rs.945.68) NO WACC 12% WACC 12% -35000 4500 Payback period IRR NPV Decision Payback period IRR NPV Decision 5000 7 years Part B Cash Flow Initial Yr 1 to infinity Part C Cash Flow -35000 5000 7.78 years 12.86 % 2500 Yes 4000 4160 4326.4 4499.456 4679.434 4866.612 5061.276 5263.727 7.65 years 15.43 % 15000 Yes 5000 5000 5000 5000 5000 5474.276 5693.247 5920.977 6157.816 till infinity 5000 5000 Investment Analysis and Lockheed Tristar Add a new window Update existing equipment Build a new stand Rent a larger stand Inv. -75000 -50000 -125000 -1000 CF yr 1 44000 23000 70000 12000 CF yr 2 44000 23000 70000 13000 a) IRR rule is misleading due to difference in size of investment. b) Using NPV rule, we recommend "Build a new stand". c) The difference in ranking is explained by the size of investment. CF yr 3 44000 23000 70000 14000 IRR 34.6% 18.0% 31.2% 1207.6% NPV@15% $25,462 $2,514 $34,826 $28,470 Investment Analysis and Lockheed Tristar Cash flows w/o subsidy A) IRR 25% Cost to city PV of Cost to city @20% B) 2-year Payback Cost to city PV of Cost to city @20% C) NPV 75000 @20% Cost to city PV of Cost to city @20% D) ARR 40% Cost to...
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...Memo Recommendation I recommend that the investment decision made by Lockheed to embark on the Tri Star program was unreasonable. According to my analysis, the company could have terminated this project and invested its capital in a more profitable investment. Eventually, this poor decision resulted in dramatic loss of wealth for the Lockheed shareholders totaling a loss of $766 million in stock value. Rationale for Decision The Lockheed case illustrates the significance of NPV analysis in Capital Budgeting. Using discount rate of 10% in the given the scenario and with the project volume of 210 aircrafts, I found the NPV to be -$584 million. This was definitely an unacceptable NPV. The revised break-even analysis by Lockheed revealed that the project reached economic break-even with the production of 275 aircrafts at $12.5 million per unit. But as per my analysis, the break-even at this level of the production was not attained. Despite industry analysts predicting 300 units as Lockheed’s break-even sales point, the net present value remained insufficient to cover costs at negative $274 million. Source | Estimated Production Aircrafts (in units) | Estimated cost per Aircraft (in $ million) | NPV at r=10% (in $ million) | Lockheed | 210 | 14.00 | (584) | Lockheed | 275 | 12.50 | (312) | Industry Analysts | 300 | 12.50...
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...Background and Purpose The CEO of a U.S. electronics firm is assessing the financial forecasts and the financing plan prepared by the chief financial officer. Given the cyclicality of the industry and the volatility of the firm's performance, the CEO is unsure as to the usefulness of forecasts based on straight line extrapolation of rapid sales growth and stable relationships of profits and assets to sales. Recommendation Science Technology Company (STC) should not discuss the current 5-year financing plan prepared by Harry Finson, the chief financial officer, at the forthcoming board meeting. The industry that STC is in has short product life cycle, rapid technology obsolescence and fast growth with increasing competition. In fact, STC's strategy to survive the competition is to maintain leadership in ATE segment and to further compete in the large scale integrated (VLSI) circuits segment by chasing market share and spreading high R&D cost over large sales. However, the large sales growth seems to be more difficult to obtain with the newly added competition. Based on historical trend, level of competition, and other related industry figures; Given the level of uncertainty in the market and the emerging markets of Japan and Korea it will not be viable to discuss the future projection beyond 2 years. With the dynamic nature of the market and the product type constant up gradation and R&D requirements, a growth rate projection based on 30% annual increase is unrealistic...
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...Rich Reynolds Financial Decision Making 8/17/10 To: Lockheed Investment Committee From: Lockheed CFO Date: August 18, 1965 Subject: Tri-Star Project The purpose of this memo is to explain why my recommendation is to not approve the Tri-Star project, which would span over the period of 1967 through 1976. This project relating specifically to the L-1011 Aircraft would cause a considerable amount of stress on the company’s financial performance. Below you will find the projected cash-flows for this project. These cash flows are based on current assumptions about the project. The cumulative Net Cash-Flow at the end of 1976 is a -$480 million. This amount is based on actual cash and the time value of money has not been considered. It isn’t until 1972 that the project starts to produce a positive Net Cash Flow, after which, a Net of $1.1 million has already been spent. Aside from the negative Net Cash Flow here are some additional reasons why this project is not in the best interest of the company. 1. The large amount of upfront investment in these aircrafts will leave the company vulnerable in the event the project doesn’t perform well. The company will feel more obligated to continue on with the project because of the large investment, even though terminating it mid-stream may be a better choice. 2. Almost 5 years will pass between the time of the initial investment and the first aircraft will be completed. This long...
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...1. Describe the firm (who they are and what they do) and the amount of business they do with the federal government. Lockheed Martin was formed in 1995 by combining the businesses of Lockheed Corporation and Martin Marietta Corporation. Lockheed is based out of Maryland and is a global security and aerospace company and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. (Lockheed Martin Corporation, 2012) Lockheed divides its services into four broad major categories: Aeronautics Electronic Systems Information Systems & Global Solutions (IS&GS) Space Systems (Lockheed Martin Corporation, 2012) Majority of Lockheed Martin's business is with the U.S. Department of Defense and the U.S. federal government agencies. Lockheed Martin is the largest provider of IT services, systems integration, and training to the U.S. Government and employs approximately 120,000 in the U.S. and internationally. (Lockheed Martin Corporation, 2012) According to Lockheed’s 2011 Annual report 82% of that year’s net sales were attributed to the U.S. Government. In 2011 Lockheed had $46.5 billion in net sales. (Lockheed Martin Corporation, 2012, p. 3) As a U.S. Army Corps of Engineers employee I have daily contact with Lockheed Martin as they are the contractor providing technical support and referred to within the Corps as the Army Corps of Engineers Information Technology or more commonly...
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...Jones International University February 7, 2015 BC465: Managing Conflict in Organizations To begin this assignment I began to explore Theme 2 of the Jones International University database and an EHow website to get a better understanding of the style of conflict experienced between the Lockheed Martin Corporation and the Pentagon. I began to get a better understanding of the conflict styles by reading Theme 2; coincidentally I looked for the specific one that I thought fit the conflict style read in the article from the Washington Post—it just so happened to be 5 categories of conflict styles present. Next, I focused my attention toward the article were the conflict was first contacted by discovery and read the article entirely. I then used the EHow website to locate and read the five categories of conflict and chose “compromising style” because I remember in the article that the Pentagon asked the Lockheed-Martin Corporation to remove potential conflicts of interest within government contractors. The Lockheed-Martin Corporation did so by divesting most of two units -- in part to head off conflict-of-interest concerns. Furthermore, assertive efforts to rename the two divested units and Lockheed will also form a new business unit called Global Training and Logistics under its Electronic Systems business by combining two information systems units -- Readiness & Stability Operations and Savi Technology -- with its Simulation, Training, and Support unit (The Washington Post, 2010)...
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