Northrop Grumman Aims To Retain Grip on Aviation

Almost all military contractors these days see every competition as a “must win.” And that is especially true for Northrop Grumman Corp. as it makes a big play to join the ranks of Lockheed Martin and Boeing as one of the nation’s top manufacturers of combat aircraft.

The company has set its sights on upcoming Air Force competitions that would give the winners a once-in-a-generation chance to solidify their place in the industry. The biggest prize will be the $55 billion long-range strike bomber program. Other coveted deals will be the contract to build a fleet of training jets for Air Force fighter pilots, and a $2 billion program to replace aging ground surveillance airplanes.

Northrop Grumman Corporate Vice President Thomas E. Vice said the company has spent years preparing for these high-stakes competitions.

Vice presides over Northrop Grumman’s $10 billion Aerospace Systems sector in Redondo Beach, California. He joined the company nearly three decades ago as an engineer on the B-2 stealth bomber program.

He faces the daunting task of positioning Northrop to win programs it has owned for decades and now are at risk of being seized by competitors. The company is the incumbent manufacturer in three key competitions — the new Air Force stealth bomber, the T-X jet trainer and the Joint Stars ground surveillance aircraft — and losing them would put a serious damper on its ambitions to return to the top tier of military aviation.

Vice’s immediate focus is the upcoming first flight of the company’s T-X jet trainer prototype, which he describes as a “revolutionary” design, although its performance specs and specific features remain closely held secrets. The first operational prototype will fly later this year over the Mojave Desert. The stakes are huge for Northrop, which chose to invest significant resources in the program because it views it as one that is “strongly supported” by the Air Force, Vice told National Defense in an interview. “The Air Force sees it as a priority. So we balanced our investment. We made some internal decisions on where we wanted to invest.”

Winning T-X is a matter of pride for the company, which built the current Air Force T-38 Talon, the world’s first supersonic trainer. When the new trainer program first emerged in 2011, the Air Force insisted it wanted to buy an existing design from the open market to save time and money. But it later concluded that off-the-shelf airplanes might not meet stringent performance requirements in order to train fifth-generation fighter pilots — like sustained Gs and tight angles of attack. Northrop Grumman initially had teamed with BAE Systems to offer the Hawk trainer, but when it became clear that the Air Force was moving in a different direction, the company turned to its aircraft concept designers for fresh ideas.

Northrop spent the past two years fine-tuning a clean-sheet airplane that was purposely designed to satisfy the Air Force’s demands. Its subsidiary Scaled Composites used rapid prototyping techniques to tweak the design every time the Air Force introduced a new requirement. This approach also allowed engineers to project the cost of operating the aircraft and to avoid adding components that could increase maintenance expenses.

Another concern was to make sure the design could be manufactured efficiently, said Vice. “The design evolved with the Air Force’s requirements,” he said. “It’s the strength of our model engineering approach as we lead up to our first flight this year.”

BAE Systems and L-3 were selected to join the Northrop T-X team for their expertise in advanced simulators which are a considerable portion of the program. Estimated at more than a billion dollars, T-X would replace 350 T-38 trainers. The winner also would be poised to sell thousands more airplanes in the international market.

“This is actually going to be an extremely large aircraft program with a high quantity of airplanes that are going to be produced over the next decade,” Vice said. “It will grow significantly.”

The win imperative both in the bomber and T-X contests compelled Northrop executives to figure out a plan to position the company to win aircraft programs. The release of a Super Bowl bomber ad marked the launch of a marketing campaign — with the hashtag #ThisIsWhatWeDo — aimed at recalibrating the company’s image as an aircraft manufacturer.

A key move was the acquisition in 2007 of Scaled Composites, a renowned designer of experimental aircraft. About two years ago, Northrop began a nationwide reallocation of engineering and manufacturing talent so it would be concentrated in six “centers of excellence” in California, Florida and New York. Mojave-based Scaled Composites is located about 30 minutes from Northrop’s aviation center in Palmdale.

A realization that the company could not afford to lose the bomber to archrival Boeing (teamed with Lockheed), or lose T-X to competitors that also are working on advanced designs, shaped the corporate image campaign.

Although the company has a long history of building storied warplanes in decades past, Northrop no longer is thought of as an aircraft manufacturer. The company built by legendary aircraft designer Jack Northrop now makes many of the components and electronics that Boeing and Lockheed use in their military airplanes. One of its key markets today are unmanned drones for the Air Force and the Navy. In promotional materials and briefings to reporters, company executives for years have emphasized Northrop Grumman’s key “core competencies” as unmanned systems, cyber security, C4ISR and logistics, though not necessarily combat aviation.
 
It has been almost two decades since then-CEO Kent Kresa made the call — controversial at the time — to move the company in the direction of electronics and electronic warfare after being primarily a builder of airplanes. With the B-2 bomber and F- 14 fighter programs coming to an end, Kresa moved in 1996 to acquire the Westinghouse radar and electronics plant and shift the company’s focus.

Today, Vice believes the company can compete in the combat aircraft market as a prime contractor. He challenged the suggestion that Northrop is less appreciated as an aircraft manufacturer because some of its most high-profile airplanes are unmanned. “We are designing revolutionary unmanned aircraft,” he said. The Global Hawk, the Triton, the X-47B all have produced breakthrough technology in autonomy, aircraft control, endurance and aerial refueling, Vice insisted. “The idea that unmanned aircraft is somewhat different than aircraft is not true. They are a very complex undertaking,” he added. “I think that’s the heart of our company — it’s our advanced design capability.”

Mind blowing designs, however, might not be enough to win in a military market that rewards low-cost bids as spending on new weapons gets tighter. “Our customer wants innovation and affordability,” Vice said. That was the rationale for consolidating Northrop’s aircraft designers, engineers and logisticians that had been spread around the country into six aviation and technology hubs. There needed to be a more deliberate focus on novel technology that also could be produced at a price that could win Defense Department competitions, Vice said.

The center in Bethpage, New York, is the hub for electronic attack aircraft. Facilities in St. Augustine and Melbourne, Florida, focus on manufacturing manned aircraft design. Near San Diego is the Rancho Bernardo center for unmanned systems. Space Park, the former home of TRW, does space work — including NASA’s James Webb space telescope — and microelectronics. In Palmdale is the aircraft assembly plant where the company used to build the B-2 bomber and now makes the Global Hawk and the center fuselage for the F-35 joint strike fighter.

Scaled Composites now does a majority of Northrop’s military designs, and has assigned a team to develop concepts for sixth-generation Air Force and Navy fighters. The group also is given latitude to pursue out-of-the-box projects like the Firebird medium-altitude optionally piloted aircraft and the giant rocket-carrying Roc plane that Scaled Composites designed for Paul Allen’s Stratolaunch Systems. The mammoth airplane — the size of two football fields — will carry huge rockets to 30,000 feet and launch them into low-Earth orbit. The airplane was the brainchild of Microsoft co-founder Allen and Scaled Composites founder Burt Rutan.

While Vice has been a champion of advanced designs, he recognizes that novelty doesn’t always win. Boeing has been hugely successful at adapting commercial airframes for military use. Northrop’s joint surveillance target attack radar system was based on a Boeing 707 airframe. The company plans to compete for the next version of JSTARS with a derivative of a business jet. 

Vice said some missions are better met with commercial airplanes, but the T-X program offers a lesson in the risk of underestimating the value of military-unique designs. The performance requirements are such that there is no commercial derivative that can meet those needs, he said. “There is revolutionary capability you can’t get from commercial designs.”

For the T-X competition, Northrop will be up against another clean sheet proposal by a Boeing-Saab team. Lockheed Martin and Korean Aerospace Industries will be offering the T-50, and Lockheed suggested it, too, might propose a new design. Other competitors include the T-100 by Italy’s Alenia Aermacchi and Textron AirLand’s Scorpion, a commercially based aircraft designed for military use.

Air Force officials have hailed the T-X program as a poster child for a new procurement philosophy that was unveiled last year by Air Force Secretary Deborah Lee James. She selected T-X as one of four programs that will serve as pilot projects for the initiative called “bending the cost curve.” James said the Air Force has to “better understand how processes, procedures and some of the choices we make can inadvertently contribute to rising costs, the stifling of innovation and slow processes.”

Industry bidders for the new bomber, T-X trainer and Joint Stars replacement will be watching warily how the Air Force allocates procurement and research dollars in the coming years. Most of the service’s procurement funds are being consumed by the F-35 fighter made by Lockheed and the KC-46 tanker manufactured by Boeing. The bomber program will draw from the research-and-development account over the next five years and whoever wins the design contract will have to worry about whether there will be enough procurement funds to start production in five years. The Air Force in fiscal year 2016 requested an increase to its procurement budget from $38.6 billion to $45.8 billion. Aircraft research and development spending by the Air Force also should see an uptick. R&D for the long-range bomber alone will be about $14 billion over the next five years. According to Bloomberg Government analysis, Air Force aircraft R&D will consume 68 percent of all military aircraft R&D spending.

While the Obama administration has proposed increased funding for military investments in new aircraft, the defense budget forecast remains under a cloud of political uncertainty, said Doug Berenson, industry analyst at Avascent. Overall DoD spending on new aircraft is projected to stay at about $50 billion a year, he said, and the F-35 will remain the largest program for the foreseeable future.

The timing and vendor selections by the Air Force in upcoming programs could have dramatic impact on the industry, according to analysts. “Selling the military a new airplane will still earn a company billions of dollars, but these contracts will come at intervals of a decade or more. Fewer and fewer firms will be able to hold on to the intellectual and physical capital to produce combat aircraft,” noted Robert Levinson of Bloomberg Government. “If, for example, Northrop Grumman Corp. loses the long-range strike bomber contract to the Boeing-Lockheed team, it is difficult to envision that Northrop would even compete in a few decades when the Air Force seeks a new bomber.”

Levinson warned that budget pressures may drive the Air Force to upgrade rather than buy new airplanes. “Barring a very significant leap in combat capability, the Air Force may get a far better return on investment by modifying an old airplane than by buying a new one.”

Aerospace industry analyst Richard Aboulafia, of the Teal Group, speculated that whoever loses the bomber is likely to come under pressure from investors to either merge with a competitor or acquire one.

Only Lockheed Martin can afford to lose the bomber and T-X contracts and still have certainty that it will remain a combat aircraft prime contractor, as it will be producing the F-35 joint strike fighter for decades. But Boeing’s and Northrop Grumman’s future as combat aircraft prime contractors would depend on winning either the bomber or T-X.

“I still think Northrop Grumman would be a viable company without the bomber, and might even be able to stay in the airframe game — in the event that they win T-X, a one in four chance,” Aboulafia told National Defense. “But without the bomber, and certainly without T-X, too, Northrop would probably be a more compelling breakup story. That is, either company management or investors could well decide that the parts of the company were worth more than the whole, resulting in a series of unit sales.”

Topics: Aviation, Business Trends, Defense Contracting, Robotics, Unmanned Air Vehicles, Science and Engineering Technology, Simulation Modeling Wargaming and Training, Space