Northrop Grumman shares B-21 roadmap during year-end earnings call

By Shelley K. Mesch  / January 26, 2023

Northrop Grumman remains on track for a flight test of the Air Force's B-21 Raider later this year and is anticipating a low-rate initial production purchase of five of the bombers, executives said during the company's year-end earnings call Thursday.

Northrop has kept costs under the Air Force’s independent cost estimates for B-21, CEO Kathy Warden said, which was $550 million per unit in 2010 dollars or $692 million for 2022 dollars. The expected purchase would be the first of five LRIP blocks to run through the end of the decade, and the Air Force plans to acquire a total of at least 100 of the bombers, she said.

“We’re continuing to work with our customer [to address] macroeconomic risks and enhance efficiency in the program,” Chief Financial Officer Dave Keffer said. “As we’ve described in our [financial report], we do not believe that a loss on the LRIP phase is probable, and therefore no such loss is reflected in our results or guidance.”

The company’s fourth-quarter results were better than expected, Warden said, as the company won more contracts than previously anticipated.

In light of the positive quarter, Northrop has adjusted its 2023 outlook to expect sales above $38 billion, up from the $37 billion figure the business had shared during its October earnings call, Warden said.

Northrop’s space systems segment saw the largest growth for the year compared to 2021, according to the financial results, with a sales increase of 16% to $10.6 billion. The company anticipates the space systems segment will remain a driver of growth for years to come, Warden said.

Aeronautics and defense systems both saw declines in sales in the past year, dropping 6% and 3%, respectively, compared to 2021. Keffer attributed the stagnation to the retirement of legacy platforms and systems. Those segments are expected to “return to growth in 2024,” he said.

Northrop is also positioning itself to increase sales internationally both with armaments and munitions that are currently in production and with future systems.

“We clearly saw increased demand in 2022,” Warden said, “and we continue to expect to grow our international business over the next several years.”

One potential option for future sales for Northrop is the Army’s Integrated Air and Missile Defense Battle Command System. Warden said several countries have expressed interest in ICBS, which is on track to declare initial operational capability in April.

Inflation has put pressure on every program, Warden said, citing B-21 as the most notable example because of its scale and the contract having been awarded years ago in 2015. To combat the macroeconomic challenge, the company is digitally enabling its business and manufacturing to streamline processes and improve productivity, she said.

Additionally, Warden said there have been positive conversations with customers when it comes to inflation and the effects it has on innovation, capability and capacity.

“I think many of them now understand that shifting too much risk to industry doesn’t support that investment nor does it deliver the capability they need in a timely fashion,” Warden said. “So, with that, I think we’re going to see less fixed-price development going forward. And specifically relating to inflation, industry broadly is pushing back on accepting long-term, fixed-price contracts right now.”

Previous labor-shortage pains have been alleviated somewhat, she said.

“We noted in the third quarter of last year that we were starting to see labor trends change in a favorable way, our hiring had improved, our retention dramatically improved,” Warden said. “We saw that continue in the fourth quarter.

Employment declines in technology sector jobs -- such as mass layoffs in recent weeks -- may have helped the application rate at Northrop, Warden said, but she also pointed toward the company’s high-profile programs.

“I’d also like to think it’s due to the reputation of our company as being a technology innovator and the successes that we were able to showcase last year,” Warden said. “James Webb [Space Telescope] and the unveiling of B-21 really spiked interest in applications for employment at our company.”