Lockheed Martin's Search For Commercial Opportunities Leads It To The Sea

The future is turning out to be a lot brighter for America's biggest defense contractor than federal budget trends might suggest, and one surprising reason why is a raft of new commercial ventures at sea.  Lockheed Martin has found ways of adapting technologies developed for its military customers to answer some of humanity's most vexing needs -- for potable water, for clean energy, for affordable protein and for strategic minerals currently in short supply.  Lockheed executives believe the solutions to those challenges lie largely in the world's seas.

Nobody at the company's Bethesda, MD headquarters has said that the $46 billion federal contractor has an environmentally-friendly plan to diversify into ocean-based industries, but if you piece together all the opportunities it is chasing, that is what Lockheed Martin seems to be doing.  The irony is that its core military business fared so well in the Obama Administration's proposed 2014 budget that it has less need to diversify than any of its brethren elsewhere in the defense sector; it is poised to be the government's leading supplier of tactical aircraft, naval electronics, space systems and information services for decades to come.

But company executives liked being in a growth industry over the last decade -- dividends have risen at an average annual rate of 22% for ten years -- so now that Pentagon demand is cooling, they are looking for new ways to keep growing.  Some of the adjacencies Lockheed Martin is pursuing are just what you'd expect from a military player -- aircraft engine maintenance, commercial pilot training, cybersecurity for utilities, etc.  To a striking degree, though, the company seems to have decided that the most attractive opportunities are at sea.

Consider an agreement it signed just last week in Beijing.  It is teaming with a resort builder to construct the world's biggest "ocean thermal energy conversion" plant off the southern coast of China.  The plant would generate 10 megawatts of power by exploiting natural temperature variations in tropical seas, and unlike other renewable energy sources it would operate nonstop 24 hours per day, 365 days per year.  Lockheed Martin executives want to scale the technology up to 100 megawatts in subsequent ventures, producing the same amount of electricity in a year that 1.3 million barrels of oil could while generating virtually no fuel costs or greenhouse gases.

Only weeks earlier, a Lockheed unit in the United Kingdom was granted an exploration license by the International Seabed Authority to mine polymetallic nodules on the ocean floor between Hawaii and Mexico.  The naturally-occurring nodules are found over two miles underwater, and are rich in manganese, nickel, cobalt and copper -- not to mention strategically vital "rare earths" in which China currently enjoys a global monopoly.  Until recently the extreme depths at which the nodules are found made them uneconomical to retrieve, but in a story of technological progress similar to that of hydraulic fracturing ("fracking"), the company thinks it has figured out how to use unmanned undersea vehicles and other naval technologies to mine them cheaply -- without damage to the deep-sea ecosystem.

Coincidentally, one of Lockheed's space units in Louisiana has begun selling cryogenic fuel-tank technology for use on oceangoing vessels powered by liquid natural gas.  The technology was initially developed for the external fuel tanks on the Space Shuttle, but is readily adaptable to the storage and transport of LNG, which must be refrigerated at very low temperatures so that it can be concentrated in a liquid state.  Vessels powered by LNG typically are less polluting that those using more traditional fossil fuels, and the Lockheed unit believes it can apply similar aerospace technologies to a wide range of supply-chain opportunities in the rapidly-expanding energy sector.

A more revolutionary concept the company is pursuing uses graphene filters only a single atom thick to remove sodium and chlorine from ocean water through a process known as reverse osmosis.  The process has been around for years, but the trademarked "Perforene" filtration system for which Lockheed recently received a patent would make high-volume desalination a hundred times more efficient.  It would also greatly reduce energy costs, since reverse osmosis involves forcing water through filters to remove minerals, and the Perforene filter is so thin that much less pressure is required (graphene is a thousand times stronger than steel).  The new process has obvious appeal in coastal areas where fresh water is scarce such as the Persian Gulf.

Farther from shore, Lockheed Martin is pursuing a similarly revolutionary solution to the environmental degradation associated with commercial aquaculture.  Farming fish close to shore often causes contamination of water and seabeds, so the company has partnered with fish producers to devise a remotely-controlled fish pen that can drift with currents in the open sea.  The system would use satellite communications, robotics and other cutting-edge technologies to produce millions of sushi-quality fish from each pen with no adverse environmental impacts.  Large-scale use of the technology could eliminate America's $10 billion trade deficit in fish.  Time magazine recently recognized this novel approach to aquaculture as a major breakthrough.

Lockheed Martin's pursuit of such non-traditional opportunities is a distinct departure for the company.  When I first became a consultant to Lockheed Martin in the 1990s, the prevailing view about defense companies going into commercial markets was summed up by the quip of former CEO Norm Augustine that such ventures were "unblemished by success."  Since that time, though, industry rival General Dynamics has achieved heady success with its Gulfstream business jets and number-two ranked Pentagon contractor Boeing has recovered its status as the world's biggest producer of commercial jetliners.

So even though Lockheed Martin looks well positioned both at home and abroad to weather any downturn in Pentagon demand, it is working hard to leverage military technologies into the commercial marketplace.  Those technologies have vast commercial potential, and Lockheed has wisely decided to partner with other companies in tapping new markets, rather than going it alone.  However, what's most striking about this new phase in the history of a company that traces its origins to the dawn of aviation is that rather than casting their eyes to the skies and beyond, Lockheed Martin executives now find themselves increasingly drawn to the sea.