Analysts say Northrop's decision to no-bid four key competitions presents risks

By Marjorie Censer / June 29, 2018

Northrop Grumman over the last year has opted not to bid in four major competitions, raising questions among some analysts about the company's long-term strategy.

Last year, Northrop announced it would not bid on the Navy's MQ-25 Stingray unmanned tanker program. In a call with analysts, Wes Bush, Northrop's chief executive, said the contractor, which built the precursor technology to MQ-25, "could not put forward an attractive offering to the Navy that would represent a reasonable business proposition."

Just months later, in February, Northrop confirmed it wouldn't compete for the Air Force's T-X trainer program after examining the requirements and acquisition strategy.

Then, in April, Northrop said it opted not to participate in the GPS III satellite program or the next-generation F-35 Distributed Aperture Sensor competition, though it was the incumbent in the latter initiative.

"We believe that applying strict assessment criteria in selecting our business pursuits is critical to long-term sustained performance," Kathy Warden, chief operating officer at Northrop, said at the time during a call with analysts.

Bush said during the same call Northrop has been weighing how "individual opportunities stack up relative to our other opportunities."

"And what's the best use of our resources to go and pursue those and support the customer community?" he continued. "It is not unheard of for an incumbency position, if you will, to take a different view of the next step of any activity. To some extent, the experience that we had on X-47B, everyone thought, well, we're a shoo-in on MQ-25. Why don't we just go do that? And when we looked at that deal, we said, 'I don't think so.'"

Each opportunity, Bush added, must merit Northrop's investment and "the application of our broad set of resources."

He has also highlighted growth in the company's classified work. During the same April call, Bush said Northrop sees a "trend in the direction of additional restricted activities."

"How much, what percentages -- it's not something that we go into detail on," he said. "But I do see that as a longer-term trend."

A Northrop Grumman spokesman declined to comment for this story.

Byron Callan of Capital Alpha Partners told Inside Defense earlier this month he's concerned the decisions indicate Northrop may not have the capacity and workforce to take on all of these programs. The company in 2015 scored a significant win by beating out a Boeing-Lockheed Martin team to win the Long-Range Strike Bomber program, now known as B-21.

"The point is . . . if you're not doing development work beyond the B-21, what does that say about your ability to grow and compete in the 2020s?" Callan said. "And once that B-21 program starts to mature, are you really going to be growing as fast as some of your peers?"

Steve Grundman of the Atlantic Council too noted the B-21 program may be requiring more of the company's talent and attention.

"One could imagine that the engineering resources of Northrop Grumman are pretty strapped right now," he said.

Callan said Northrop has to "get B-21 right, but . . . not taking risks can be very detrimental to long-term growth prospects."

Andrew Hunter, who heads the defense-industrial initiatives group at the Center for Strategic and International Studies, told Inside Defense the company's "disciplined strategy . . . critically depends on being able to win the contracts you do bid for -- or to win enough of them -- and to hold onto the ones that you've previously won."

Otherwise, "your business base is going to erode."