When you know that belts will soon be tightening, clever companies tighten their own belts first. With hundreds of billions in U.S. defense spending cuts expected over the next decade, the country’s top weapons contractor Lockheed Martin (LMT) has decided to cut costs by buying some cheap money. A lot of cheap money.
In order to keep a workforce of more than 100,000 moving, the money needs to be as cheap as possible. Lockheed took the opportunity to nail down $2 billion in cash in early September in the form of 5-year, 10-year, and 30-year bonds in order to pay down its own debt as well as salaries of 100,000 workers.
Due to continued economic strife throughout Europe and much of the world, the similar-maturity Treasuries upon which LMT’s bonds are based are about the lowest on record. About a quarter of the bonds mature in 2016, another quarter in 2041, and the rest in 2021.
The company seeks to shed about 300 jobs in response to defense spending cuts, half of them voluntary.
But with such a huge workforce, 300 jobs is a drop in the bucket. And that’s just how the company wants it. Jobs are what the aerospace and defense industry is betting Congress will defend when the time comes to cut back.
With the president and the opposition both promising to create jobs, companies such as Lockheed, Boeing (BA), and Northrop Grumman (NOC) say they’re the key to keeping America’s manufacturing industry humming. If the United States wants to see job growth, they will contend, it needs to keep defense businesses running.
LMT saw second quarter net sales up slightly on the year at $11.6 billion with between $46 billion and $47 billion expected for the year. Lockheed Martin next reports in late September.
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