After major bomber win, Northrop Grumman reports strong earnings
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Version 0 of 1. A day after it won the competition to build the Air Force’s Long Range Strike Bomber, Northrop Grumman reported upbeat third-quarter results Wednesday and raised its earnings-per-share outlook for the rest of the year. In a major victory for the Falls Church, Va.-based firm, Northrop beat out a “dream team” of Boeing and Lockheed to win the contract, valued at nearly $60 billion, to build 100 of the stealth bombers, which are expected to enter service in the 2020s. On Wednesday, the company announced third-quarter net earnings of $516 million, or $2.75 per diluted share, a 9 percent increase over the third quarter of 2014. And it raised its earning-per-share guidance to $9.70 to $9.80 from $9.55 to $9.70. In a call with investors Wednesday, Wes Bush, Northrop’s chief executive, declined to take questions on the largely classified bomber program, saying, “We’re ready to get to work.” But as the company cheered its success, some defense analysts warned that the hard work is just beginning. Boeing and Lockheed Martin have not conceded the fight, and in a terse but strongly worded statement Tuesday, they said they want to know more about why their bid came up short. A formal bid protest, should they choose to file one, could hold up the program. Even if it does not, “the long and potentially perilous development phase of the acquisition process is just beginning,” wrote Todd Harrison and Andrew Hunter, defense analysts with the Center for Strategic and International Studies, a Washington think tank. They warned that Congress could suffer “sticker shock” when members realize that the costs laid out by Air Force officials could grow when interest and other factors are included. The Air Force set the marker for the program at an average price of $550 million per plane if 100 planes are built. The first ones off the line would cost more. And then, as the production achieved efficiency, the last ones would cost less. But that target was set in 2010 dollars. Adjusted for inflation, that comes to more than $600 million a plane. For such programs, the government requires an independent cost estimate, and that came in at $564 million a plane in current dollars. Add $23.5 billion in research and development costs, and the program’s price jumps to almost $80 billion. Then there’s maintenance and the amount the Pentagon has already sunk into the program. “Total program cost will likely be more than $100 billion,” Harrison and Hunter wrote. That is a big number, especially considering that the bomber is not the only major combat aircraft for which the Pentagon has to pay. In a tight budget environment, the new bomber could find itself competing for funding against the $400 billion F-35 fighter program, noted Byron Callan, a defense analyst at Capital Alpha Partners. Fresh off its victory, Northrop launched a Web site for the program that was part infomercial and part campaign flier, urging people to “support America’s new bomber.” And it implored visitors to the site to contact their elected representatives and sign a form letter that says, “Our national security depends on the ability to deter adversaries and defend American interests at a moment’s notice in any corner of the world. I urge you to support the LRS-B program to preserve our military’s advantages in a challenging and dynamic global environment.” To prevent the kinds of cost overruns and schedule delays that have hobbled other programs, Pentagon officials have said they are putting their crack acquisitions team on the program and will protect against the kinds of “requirements creep” that sent other programs into a death spiral. The technologies to be used in the new bomber have been tried and tested, they said, and the risks this time will be minimized. But Harrison and Hunter warned that the bomber is still “in a very early stage and substantial risk remains.” “The work of doing detailed design, integration, and test of a large, complex, cutting-edge aircraft still remains to be done,” they wrote. The bomber is “like a young athlete entering a professional sports league,” they wrote. It may “be mature compared to past and current fellow rookies, but it is still a rookie.” The analysts applauded the Air Force for getting the program “off to a good start.” “But the stakes are high,” they warned, “and there is little room for error.” |