Lockheed Martin CEO is seeing a 'Trump effect' as NATO members boost defense spending

A F-35 fighter jet take-offs for a training mission at Hill Air Force Base on March 15, 2017 in Ogden, Utah.
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Lockheed Martin CEO Marillyn Hewson said Tuesday the company is seeing a "President Trump effect" with NATO members starting to "step up their own defense spending."

And Hewson said the expected uptick from NATO allies follows "one of the most complex geopolitical volatile environments" she's ever seen.

President Donald Trump and Defense Secretary James Mattis have been pressuring European member nations such as Germany to increase their share of defense spending. Trump claimed last week that Germany owes NATO and the U.S. "vast sums" of money for defense, although that assertion was rejected by the Germans.

Of the 28 member countries, only five — the U.S., U.K., Poland, Greece and Estonia — meet the Western alliance's target of spending at least 2 percent of gross domestic product on defense.

Germany's defense spending last year was about 1.2 percent of its GDP, and although the finance ministry expects that figure to rise slightly by 2018, it will still below the 2 percent goal.

Marillyn Hewson, CEO, Lockheed Martin
Kevin Lamarque | Reuters

Hewson said if all the NATO European members reached the 2 percent defense spending target that could result in a $100 billion increase in spending on defense. "This is significant," she said.

Lockheed, the maker of the F-35 Joint Strike Fighter, had about 27 percent of its total sales in 2016 from international customers. And more than 40 percent of its new business was international, according to Hewson.

"The largest driver of international growth will be F-35," she said. She estimated that about 50 percent of all F-35 orders over the next five years will come from international customers.

Trump has been critical of the F-35's price and has suggested possibly buying a "comparable" F/A-18 Super Hornet fighter from rival defense giant Boeing. The F-35 Joint Strike Fighter is a program with three distinct variants built for the Air Force, Navy and Marines.

The Pentagon is believed to be considering buying more F/A-18 fighters to replace some F-35C planes, the Navy's variant.

Even so, a deal announced last month by the company for a 10th batch of F-35s showed a $728 million savings in the total price when compared with the prior lot. In particular, the Pentagon's price of the F-35A, or the Air Force variant, fell below $100 million for the first time.

"President Trump made clear that he and the administration will ensure that the government is a smart buyer," Hewson said Tuesday. She added that in the "positive and constructive dialogue" she's had with him over the past few months, she's been "able to communicate Lockheed is aligned with that."

Lockheed set a goal to save F-35 customers "more than $5 billion," Hewson said. What's more, she said the company agreed to a target of $85 million or less by 2019 on the aircraft.

Meantime, Hewson also was generally upbeat about the outlook for U.S. defense spending.

"We're seeing a new willingness and resolve to increase investments in defense," the CEO said. "Although the path ahead on the federal budget remains complicated, we are optimistic."

Overall, the CEO also indicated she's "more optimistic than ever for our company's growth prospects."

Hewson also applauded the administration's efforts to lower corporate taxes and ease regulations on business.

"These policy discussions are especially important to our industry, aerospace and defense," Hewson said, adding that the industry represents about 10 percent of U.S. exports and employs about 2 percent of the total workforce directly.

Elsewhere, Hewson said the company's Sikorsky integration has largely been completed. The Bethesda, Maryland-based company acquired Sikorsky for about $9 billion in late 2015.

Some criticized Lockheed for the deal, saying the defense giant had overpaid for the commercial and military helicopter business.

Nonetheless, Hewson said she expects Sikorsky sales to grow, although she conceded that the commercial side of the business was still feeling the effects of being tied to the oil and gas industry.

"While it's taking longer than expected, we are confident that the industry will eventually recover," she said.

—Written by CNBC's Jeff Daniels, with reporting from CNBC's Morgan Brennan