At least two defense analysts pointed to the commercial experience James Taiclet, the incoming president and CEO of Lockheed Martin [LMT], brings when he takes the helm of the defense giant this June.
“We find it intriguing that he has a commercial background and wonder if that’s not a different direction the company starts to explore in 2020-25,” Byron Callan, an aerospace and defense analyst with Capital Alpha Partners, wrote in a March 16 note to clients.
Taiclet will join Lockheed Martin, $60 billion in annual sales, from $7.6 billion American Tower Corp. [AMT], a global provider of fixed tower infrastructure for cellular providers.
Marillyn Hewson, Lockheed Martin’s chairman, president and CEO, recommended that Taiclet succeed her.
“Jim has impressed me with his sharp intellect, keen business acumen, and strong knowledge of our industry,” Hewson said Monday on LinkedIn. “A military veteran and pilot, he embraces our mission driven-culture and core values. I will work to ensure Jim has a successful transition.”
Loren Thompson, a defense analyst and chief operating officer of the public affairs consulting firm the Lexington Institute, said in an analysis in Forbes on Monday that Hewson’s choice of Taiclet to lead Lockheed Martin is in part driven by his commercial experience.
The pick “seems calculated to continue her emphasis on tight financial management and good customer relations while positioning the company for a changing demand environment,” Thompson wrote. “That environment will be characterized by two shifts from previous years. First, the defense budget will enter a flat to declining period very different from the spending increases of the early Trump years. Second, the preference of military customers for non-traditional suppliers who think like entrepreneurial enterprises rather than government contractors will continue to grow.”
The Lexington Institute receives funding from many top defense contractors, including Lockheed Martin.
Taiclet, a former Air Force pilot, who also worked in aerospace businesses at Honeywell [HON] and United Technologies Corp. [UTX] before becoming CEO of American Tower in 2003, oversaw an increase in the company’s market capitalization from $2 billion to around $100 billion currently and a significant expansion of the company’s operations outside of the U.S.
Thompson said that the changing market climate at the Pentagon means customers aren’t looking for their mirror opposites in industry. The Defense Department is “looking for creative people who can help them stay ahead of countries like China at affordable prices,” adding that, “A conviction has grown within military circles in recent years that Silicon Valley or Austin or Boston is the best place to find such suppliers.”
Boeing [BA] and Lockheed Martin have been investing in high-technology startup companies in recent years to tap into the innovation culture and advanced technologies these companies offer. The Pentagon in the Obama administration and continuing in the Trump administration has put a keener focus on reaching out to the startup community and making it easier for them to cut through the procurement bureaucracy and do business with departments like DoD and Homeland Security.
“Traditional defense players have done their best to adapt, but just as Marillyn Hewson needed to weed out bad behavior in the ranks when she took over Lockheed Martin, so now her successor will need to imbue the company with a more commercial sensibility. Picking a charismatic leader from a top commercial company will facilitate that process.”
Thompson also said that selection of Taiclet means that “industry observers” will have to “rethink their ideas about who should guide the sector’s future fortunes.”