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DANIEL TAUB Staff Reporter
Northrop Grumman Corp. is the last major Los Angeles-based aerospace employer and the maker of such groundbreaking aircraft as the B-2 stealth bomber. But it’s run into some recent disappointments.
First the company, along with team leader McDonnell Douglas Corp., lost a competition with Lockheed Martin Corp. to build the next-generation U.S. fighter jet, the Joint Strike Fighter.
Then last month, Northrop lost a $9.5-billion competition with Lexington, Mass.-based Raytheon Co. to purchase Hughes Electronics Corp.’s aerospace and defense units from parent company General Motors Corp. Many in the industry saw it as a failure on Northrop’s part to join the top ranks of the nation’s aerospace companies.
But even Northrop’s critics say that Chairman Kent Kresa is a shrewd negotiator who has the ability to keep Northrop Grumman a top industry competitor.
Q: Northrop recently lost a bidding war with Raytheon to purchase Hughes’ defense and aerospace units. Many saw the purchase as the last opportunity for Northrop to join the top tier of U.S. aerospace companies. How do you view the loss of Hughes?
A: We’re obviously disappointed because we saw it was a great fit it was a great target opportunity with GM selling Hughes. And we’re disappointed we weren’t able to buy it.
However, we have a very disciplined approach to acquisitions and we’re interested in buying properties where there is shareholder value where we can buy them at the right price, but not at any price. When the price got sufficiently high, it was no longer attractive from a shareholder perspective.
Q: Is the company now looking at smaller acquisitions?
A: As a policy, we don’t talk about acquisitions or divestitures. I can say generally we have been a participant in restructuring of the industry. We have bought properties over the last few years.
As the industry consolidates, we will continue to look at properties, and where we see a good fit with our strategies for the future and at prices where we can add value for our shareholders, then we will do that.
Q: You recently lost a competition to build the next-generation U.S. fighter jet, the Joint Strike Fighter. Northrop’s contract to build the B-2 bomber is also running out. Where does that leave Northrop’s defense work?
A: We have essentially restructured the corporation over the last few years going from basically an aircraft manufacturer to a defense electronics producer with a very strong involvement in aircraft production, both commercial and military.
That restructure is sort of complete we’re more than 50 percent defense electronics. And we see a very healthy growth ahead of us you’re talking along the lines of 5 percent to 6 percent per year through the end of the century. So we have made that transition and it is very successful.
Q: A large portion of Northrop’s work is with McDonnell Douglas and Boeing. With those two merging, what is the future of Northrop’s work with the two companies?
A: We have excellent relations long term strategic alignments with both the companies, and I believe with them merging that it will continue and I frankly see this as an opportunity for us to contribute and continue to work with Boeing and McDonnell Douglas.
Q: Do you think Boeing will take some of the work you have done and give it to McDonnell facilities?
A: I can’t speak for Boeing; I can only say that we have a tremendous relationship, a strategic partnership with them. We’ve been involved with them over some years in the commercial area and I believe that will continue and eventually grow.
Q: With Hughes being purchased by Raytheon, Northrop Grumman is the last large aerospace company based in Los Angeles. What trends do you see for aerospace work and employment in the L.A. area?
A: California has certainly lost more aerospace jobs defense/aerospace jobs than probably anywhere else in the country, and that’s because we had such a strong concentration here in the ’50s and ’60s.
I think that for Northrop Grumman we have a strong presence in Southern California. The acquisitions which we have made over the last several years have not been in California, they have been in other places. So the total work force is no longer here in California as it used to be.
But we still have a very strong involvement (here) in our commercial activities and in our F-18 and B-2, which we see continuing.
Q: Outside of Northrop Grumman, is aerospace going to leave L.A. en masse?
A: I don’t think we’re going to lose en masse. I think we need to see how the Boeing acquisition of both Rockwell and McDonnell Douglas fits; they haven’t shown how they’re going to do things. It could very well be that there could be growth, depending on how they do.
There is still a large subcontractor base here that is very healthy and that’ll particularly benefit from the commercial aircraft market doing well.
Q: Ten years ago, the aerospace industry was at its height in defense contracts. Now, the big aerospace mergers seem to be coming to an end and companies are focusing on commercial aircraft. Where do you see the industry 10 years from now?
A: It’s very difficult to predict where we will be 10 years from now. Certainly the commercial market we can predict it’s a growing market and it is projected that it will continue to grow well into the next century. On the military side, I think it depends on many, many things, but I think there will continue to be a desire in this country to have a strong military so that we can continue to forge our own destiny.
The size of that budget and the size of the amount that is put into new hardware is a debate that goes on continuously in Congress, and among the administration of the president, and my sense is it will continue to do so. (The budget) is certainly smaller than it was just a couple years ago. It is very difficult to predict. I think the projections we see today is that it is basically flat.
Q: Some aerospace companies are breaking into non-aerospace markets. Northrop has already developed a lightweight bus. Do you see Northrop heading for diversification?
A: I don’t believe so. I think we have certain capabilities and talents which I feel we’re quite strong on, and that’s the aerospace and defense electronics sector. We understand the needs of our customers and we have a strong base there.
The industry has not been very successful in broad diversification. Certainly the bus program and the buses are a great tribute to technology and to the advancement of the sort of need that society has in general to have better systems the Department of Transportation turns to the aerospace industry and in particular to Northrop Grumman to do that kind of design.
We don’t see, however, ourselves being the producer of that bus. We see ourselves being involved with another company that is already in the bus business or is in the business of producing large equipment for municipalities.
There are some other activities, however, in data analysis, data systems, things of that sort, where we have a position starting initially with dealing with the military, but branching out to other municipalities and other states and to the federal government. And we see that as a growing area with tremendous growth potential and it is one which we see ourselves participating in.
Q: After the other large aerospace companies have settled into their mergers and acquisitions, could Northrop Grumman be a target for acquisition?
A: Again I can’t speak to that and with the industry going through consolidations, who knows what can happen in the future? But we’re not for sale and we see a very positive future for ourselves as an independent company.
Snapshot
Kent Kresa
Company: Northrop Grumman Corp.
Title: Chairman, President and Chief Executive Officer
Born: New York City, 1938
Education: B.S., M.S. and engineering degree in aeronautics and astronautics, Massachusetts Institute of Technology
Most admired person: Winston Churchill
Hobbies: Skiing, sailing, tennis, in-line skating
Turning points in career: Deciding to be an aeronautical engineer and joining Northrop
Personal: Wife Joyce, one daughter
