Matt Grimm

the existing prime contractors to make the plane cheaper or faster fundamentally not the incentive what they're incentivized to do given that their profit margins are ultimately driven by how high they can drive the cost up because they get a firm fixed margin on top of that cost then you get the behavior that you incentivize and i think like if you look at some of the statistics and some of the performance of these companies honestly it's kind of hard to blame them it

the existing prime contractors to make the plane cheaper or faster fundamentally not the incentive what they're incentivized to do given that their profit margins are ultimately driven by how high they can drive the cost up because they get a firm fixed margin on top of that cost then you get the behavior that you incentivize and i think like if you look at some of the statistics and some of the performance of these companies honestly it's kind of hard to blame them it

Genuinely is. Like the stock performance of the top five defense primes in the U.S. is wildly outperforms the S&P 500. I have the statistics right here. I wrote them down.

Genuinely is. Like the stock performance of the top five defense primes in the U.S. is wildly outperforms the S&P 500. I have the statistics right here. I wrote them down.

Genuinely is. Like the stock performance of the top five defense primes in the U.S. is wildly outperforms the S&P 500. I have the statistics right here. I wrote them down.

Yeah. So Northrop Grumman over the last 15 years has had a total compounded annual shareholder return of just over 20%. Lockheed and Boeing are just behind them at about 15%. The S&P 500 over the exact same time period has an 11.6% total compounded annual return.

Yeah. So Northrop Grumman over the last 15 years has had a total compounded annual shareholder return of just over 20%. Lockheed and Boeing are just behind them at about 15%. The S&P 500 over the exact same time period has an 11.6% total compounded annual return.

Yeah. So Northrop Grumman over the last 15 years has had a total compounded annual shareholder return of just over 20%. Lockheed and Boeing are just behind them at about 15%. The S&P 500 over the exact same time period has an 11.6% total compounded annual return.

Yeah, I'm enjoying the light bulb going off. What's happening is that the incentive structure within the Pentagon, within the procurement office, has said like, This is how we prefer to do business because we don't want to have our companies make too much money. So this firm fixed margin is something like 8%, 9%, 10%, thereabouts, depending on the particular contract.

Yeah, I'm enjoying the light bulb going off. What's happening is that the incentive structure within the Pentagon, within the procurement office, has said like, This is how we prefer to do business because we don't want to have our companies make too much money. So this firm fixed margin is something like 8%, 9%, 10%, thereabouts, depending on the particular contract.

Yeah, I'm enjoying the light bulb going off. What's happening is that the incentive structure within the Pentagon, within the procurement office, has said like, This is how we prefer to do business because we don't want to have our companies make too much money. So this firm fixed margin is something like 8%, 9%, 10%, thereabouts, depending on the particular contract.

So that's how they've structured many of their large procurements, including the F-35, including large submarine programs, have all been designed under this kind of cost plus type structure.

So that's how they've structured many of their large procurements, including the F-35, including large submarine programs, have all been designed under this kind of cost plus type structure.

So that's how they've structured many of their large procurements, including the F-35, including large submarine programs, have all been designed under this kind of cost plus type structure.

So what the defense primes have gotten very good at is they've gotten very good at figuring out ways to take their overhead kind of corporate costs, including their buildings, including their HR departments, their finance departments, their legal departments, kind of all of these, their IT infrastructure, all of that, bundling that into that cost framework.

So what the defense primes have gotten very good at is they've gotten very good at figuring out ways to take their overhead kind of corporate costs, including their buildings, including their HR departments, their finance departments, their legal departments, kind of all of these, their IT infrastructure, all of that, bundling that into that cost framework.

So what the defense primes have gotten very good at is they've gotten very good at figuring out ways to take their overhead kind of corporate costs, including their buildings, including their HR departments, their finance departments, their legal departments, kind of all of these, their IT infrastructure, all of that, bundling that into that cost framework.

number on the beginning part of the equation, then taking that firm fixed kind of price margin markup on top of that, such that that free cash flow that comes off of that contract, actually pretty free. So then the companies perform financially very well, including some wild stats about stock buybacks and dividends.

number on the beginning part of the equation, then taking that firm fixed kind of price margin markup on top of that, such that that free cash flow that comes off of that contract, actually pretty free. So then the companies perform financially very well, including some wild stats about stock buybacks and dividends.

number on the beginning part of the equation, then taking that firm fixed kind of price margin markup on top of that, such that that free cash flow that comes off of that contract, actually pretty free. So then the companies perform financially very well, including some wild stats about stock buybacks and dividends.