Northrop Grumman is working to mitigate cost burdens for the low-rate initial production phase of the B-21 Raider bomber, which is under a fixed-price contract negotiated in 2015 and doesn’t take recent inflation into account, Chief Financial Officer Dave Keffer said Wednesday.
Northrop’s year-end earnings report noted a “possible” but not “probable” loss on one or more of the LRIP lots. Keffer said during the Cowen Aerospace/Defense and Industrial Conference that the company is doing what it can to mitigate potential losses.
“It’s unique in our portfolio in having been priced that long ago and being in a meaningful scale,” Keffer said. “That’s why, through the macroeconomic pressures over the last couple of years, we determined it was appropriate based on the set of conditions we’re looking for to note the potential risks.”
The company is “working every day” internally and with suppliers to reduce production costs, Keffer said, adding that Northrop is also working with the Defense Department to cut back on potential losses.
“I don’t think there is a playbook for government or industry to manage through situations like this, and we’re addressing it in real-time,” Keffer said. “As I mentioned, our focus is really on executing well on the program, performing as efficiently as we can, and then we’ll work with the customer to address any impacts that they deem appropriate, but it would be preliminary for me to try to predict exactly how those discussions might go.”
Northrop still has the opportunity to negotiate LRIP costs for another of its major defense programs in development, the Sentinel nuclear missile. That contract will be influenced by “the latest macroeconomic conditions and cost projections for production in the coming years as opposed to the past years,” according to Keffer.
Northrop also sees growth potential in its space systems portfolio, Keffer said. Northrop won a prototype contract with the Space Development Agency for its Tranche 1 Tracking Layer, and the business is positioning itself to win awards for future tranches, he said.