Northrop Grumman

Last edited by Phil Mattera on September 15, 2008 - 7:38am

War & Disaster Profiteering

Profile editor:

Phil Mattera

Company Snapshot:

Northrop Grumman, the third largest U.S. military contractor behind Lockheed Martin and Boeing, is best known as the producer of the hugely expensive B-2 Stealth bomber, fighter jets such as the F-14 Tomcat featured in the Tom Cruise movie Top Gun, and nuclear-powered submarines and aircraft carriers. In 2008 it scored a coup when it was chosen—along with its European partner EADS—to supply the U.S. Air Force with aerial refueling tankers worth some $35 billion. Rival bidder Boeing successfully challenged the huge award, and the competition is being run all over again.

Northrop was nearly gobbled up by Lockheed Martin during defense-sector consolidation in the 1990s, but antitrust issues undermined the deal. Northrop went on to carry out some major acquisitions itself, including the Litton and TRW conglomerates and Newport News Shipbuilding. Northrop has been involved in a series of false claims cases that the company has had to spend tens of millions of dollars to settle.

Ownership status:

Publicly traded

Number of employees worldwide:

122,600

Chief executive officer:

Ronald Sugar

2008 Global Fortune 500 rank:

237

Website:

http://www.northropgrumman.com/

Tel:

310-553-6262

Location(s)

Headquarters

1840 Century Park East

Los Angeles, CA, 90067

United States

See map: Google Maps

Corporate accountability

Accountability overview:

The first major scandals in Northrop Grumman’s history came in the early 1970s, when the company, then known as Northrop Corp., was embroiled in controversies over illegal campaign contributions to Richard Nixon’s reelection campaign by company chairman Thomas Jones as well as some $30 million in bribes paid to foreign governments to win orders for fighter jets. A few years later, there were revelations that the company regularly entertained Pentagon officials and members of Congress at a hunting lodge on the eastern shore of Maryland. During the 1980s, Northrop was the subject of numerous investigations relating to alleged mismanagement during its work on the MX Missile and the B-2 Stealth bomber.

In 1989, Northrop was indicted on criminal charges of falsifying test results on cruise missiles for the Air Force and Harrier jets for the Marine Corps. Just as the trial in the case was about to begin in 1990, the company agreed to plead guilty to 34 fraud charges and pay a fine of $17 million. Under the plea agreement, federal prosecutors agreed to end the investigations relating to the MX and the B-2. However, the company agreed in 1992 to pay $4.2 million to settle a whistleblower lawsuit—brought without the involvement of the Justice Department—alleging that the company padded its invoices on MX missile guidance system work.

Grumman Corp., acquired by Northrop in 1994, brought with it a history of controversies on issues such as cost overruns in the production of F-14 Tomcat fighters for the Navy, production of defective municipal buses by its Flxible division (sold in 1983) and a bribery scandal involving Iran and Japan.

In 2000 Northrop Grumman paid $1.4 million to settle a whistleblower case alleging that the company overcharged the Air Force for B-2 bomber instruction and repair manuals. In a case inherited through the acquisition of TRW, Northrop Grumman agreed in 2003 to pay $111 million to settle claims that TRW overcharged the Pentagon for work on several space electronics programs in the early 1990s. Also in 2003, Northrop Grumman agreed to pay a total of $80 million to settle two False Claims Act cases, one involving work by Newport News Shipbuilding before Northrop acquired it in 2001 and the other involving the delivery of allegedly defective aerial target drones.

In 2004, Northrop settled for $1.8 million the remaining individual whistleblower case from the late 1980s involving cruise missiles. The following year it paid $62 million to settle the remaining claims relating to overcharging on the B-2 bomber program.

The false claims allegations continue. In March 2008 a whistleblower brought a lawsuit charging that Northrop Grumman’s Melbourne division with hundreds of millions of dollars of overcharges relating to the Joint STARS radar aircraft program.

Not all of Northrop’s performance problems have been related to overcharging. Soon after the U.S. invasion of Iraq, the company’s Vinnell Corp. subsidiary (acquired as part of the purchase of TRW in 2002) was awarded a $48 million contract “to train the nucleus of a new Iraqi army.” It botched the job so badly that the Jordanian Army had to be brought in to take over.

Labor:

Some 17 percent of Northrop Grumman’s 122,000 employees are covered by collective bargaining agreements. Some of the most contentious labor relations have been at the company’s shipbuilding operations. Northrop inherited these relationships when it acquired Litton Industries and Newport News Shipbuilding in 2001.

There had been a bitter dispute dating back to the early 1990s between Avondale Industries and the New Orleans Metal Trades Council, a group of eight unions which had won a representation election for 5,000 workers. Avondale fought the unions, which in turn launched a major corporate campaign against the company. The confrontation deescalated after Litton took over Avondale in 1999 and signed a neutrality agreement with the unions. In 2002, with Litton now part of Northrop Grumman, the dispute was finally settled.

In 2003, there was nearly a strike at the other Litton shipyard inherited by Northrop—the Ingalls operation in Pascagoula , Mississippi. After a 14-day “cooling-off” period a settlement was reached that was approved by a majority of the 7,000 workers covered. Things did not go so smoothly in 2007. The workers in Pascagoula struck the shipyard for 27 days before accepting a revised contract offer from the company.

Members of United Steelworkers Local 8888 at Northrop’s shipyard in Newport News, Virginia ratified a new 52-month contract in 2004.

In 2007 it was reported that guest workers from India employed by Signal International, a Northrop Grumman subcontractor in Pascagoula, were being held against their will.

History

After working for aircraft industry pioneers Donald Douglas and Allan Lockheed during the 1920s and then founding a company that was purchased by Bill Boeing, airplane designer John Northrop struck out on his own again in 1939 with the creation of Northrop Aircraft. With the arrival of the Second World War, Northrop focused on the development of a flying wing bomber, an innovative design that was supposed to allow for much greater bomb payloads. However, the U.S. Army Air Corps rejected Northrop’s design, so the company’s contribution to the war effort was limited to producing the P-61 night fighter (the Black Widow) as well as prosthetic limbs for wartime amputees.

After the war, Northrop continued in the military aircraft business, focusing on its F-5 and F-89 fighter planes and its Snark missile system. To supplement its direct contracts, the company (which adopted the name Northrop Corp. in 1958) took on a variety of subcontracting assignments. It also expanded its sales of fighter jets to foreign governments. The business grew to the point that Northrop began development of a fighter, the F-20, designed primarily for export.

During the early 1970s the company was embroiled in scandals regarded illegal campaign contributions at home and bribery abroad. It nonetheless remained a leading player in the military jet business. Its partnership with McDonnell Douglas on the F-18 Hornet brought new business but also a lot of friction and legal entanglements between the two companies. Northrop also had problems with the federal government during this period over sales of its F-20 to countries such as Taiwan.

During the 1980s, Northrop suffered a major disappointment when the Air Force snubbed its F-20 in favor of the General Dynamics F-16 as the primary fighter for the defense of the North American continent. The company also failed to win a huge contract to build the F-22 Advanced Tactical Fighter and suffered another blow in 1992 when Congress sharply cut back planned spending on its B-2 bomber.

The company dealt with these setbacks by embarking on several major acquisitions. In 1992 Northrop joined with Loral Corp. and the Carlyle Group to purchase the military aircraft business of conglomerate LTV Corp. It lost out to Lockheed when the tactical military aircraft business of General Dynamics was put up for sale. Yet in 1994, prevailing in a bidding contest with Martin Marietta, Northrop propelled itself to the top tier of military contractors with the $2 billion purchase of Grumman Corp.

Grumman, founded in 1929, was a pioneer in the development of aircraft for the U.S. Navy, including fighters with folding wings, which doubled the number of planes on aircraft carriers. During the Second World War, it created the celebrated F6F Hellcat as a response to the Mitsubishi Zero. In the postwar period Grumman continued making planes for the Navy, and in the late 1950s it introduced the first business jet, the Gulfstream I. During the 1960s the company was chosen by NASA to build the lunar modules for the Apollo Project. The company’s F-14 Tomcat fighter jets were the subject of a controversy over cost overruns during the 1970s, but the planes were celebrated in the 1986 Tom Cruise movie Top Gun. Grumman defeated a takeover bid by LTV in the early 1980s.

After completing its takeover of Grumman, the renamed Northrop Grumman went on to make some additional acquisitions such as the defense business of Westinghouse Electric and the military information systems company Logicon. Yet in 1997, as the consolidation of the defense sector accelerated, Northrop Grumman agreed to be acquired by Lockheed Martin. Surprisingly, the Justice Department decided to challenge the $12 billion deal as anti-competitive. Rather than giving in to demands that it divest some $4 billion of operations, Lockheed decided to call off the purchase.

Independent once again, Northrop Grumman proceeded to make additional acquisitions of its own. In 2001 it purchased Litton Industries—a conglomerate whose holdings included defense electronics operations bought from General Instrument and shipbuilder Avondale Industries—as well as Newport News Shipbuilding. The following year, Northrop Grumman completed a hostile takeover of TRW Inc., another conglomerate with significant of military operations.

In 2006 Northrop Grumman agreed to purchase Essex Corp., a provider of signal, image and information processing for military and intelligence agencies. In 2008 a partnership between Northrop Grumman and the European company EADS was chosen by the U.S. Air Force for a $35 billion contract for aerial refueling tankers. Soon thereafter, Northrop scored another coup when it received a $1.2 billion contract for an unmanned Navy spy plane. But the refueling tanker contract was successfully challenged by rival bidder Boeing, and the competition is being redone from scratch.

Financial information

Stock ticker symbol:

NOC

Total revenue:

$32 billion

Fiscal year:

2007

Net Income:

$1.8 billion

Fiscal year:

2007

Major lines of business/segments:

Here is how Northrop Grumman’s 10-K describes its business segments:

Information & Services

Mission Systems – Mission Systems is a leading global systems integrator of complex, mission-enabling systems for government, military, and business clients. Products and services are focused on the fields of Command, Control, Communications, Computers and Intelligence (C4I), strategic missiles, missile and air defense, airborne reconnaissance, intelligence management and processing, and decision support systems.

Information Technology – Information Technology is a premier provider of IT systems engineering and systems integration for the DoD, national intelligence, federal, civilian, state and local agencies, and commercial customers.

Technical Services – Technical Services is a leading provider of logistics, infrastructure, and sustainment support, while also providing a wide array of technical services including training and simulation.

Aerospace

Integrated Systems – Integrated Systems is a leader in the design, development, and production of airborne early warning, electronic warfare and surveillance systems, and battlefield management systems, as well as manned and unmanned tactical and strike systems.

Space Technology – Space Technology develops and integrates a broad range of systems at the leading edge of space, defense, and electronics technology. The segment supplies products primarily to the U.S. Government that play an important role in maintaining the nation’s security and leadership in science and technology. Space Technology’s business areas focus on the design, development, manufacture, and integration of satellite systems and subsystems, electronic and communications payloads, and high energy laser systems and subsystems.

Electronics

Electronics is a leading designer, developer, manufacturer and integrator of a variety of advanced electronic and maritime systems for national security and select non-defense applications. Electronics provides systems to U.S. and international customers for such applications as airborne surveillance, aircraft fire control, precision targeting, electronic warfare, automatic test equipment, inertial navigation, integrated avionics, space sensing, intelligence processing, air traffic control, air and missile defense, communications, mail processing, biochemical detection, ship bridge control, and shipboard components.

Ships

Ships is the nation’s sole industrial designer, builder, and refueler of nuclear-powered aircraft carriers and one of only two companies capable of designing and building nuclear-powered submarines for the U.S. Navy. Ships is also one of the nation’s leading full service systems providers for the design, engineering, construction, and life cycle support of major surface ships for the U.S. Navy, U.S. Coast Guard, international navies, and for commercial vessels of all types.

Additional descriptive data

Link to full list of subsidiaries:

Subsidiaries

Specialized Information

Links to federal contract rankings in U.S.:

2008 Washington Technology: Prime Federal Contractors (ranks #3)

Ranks # 66 in Iraq/Afghanistan War Contracts (Center for Public Integrity, 2007)