Northrop Grumman will lose $1.17 billion on the first lot of the B-21 Raider’s low-rate initial production and will likely take charges on the next four lots, the business announced in its year-end earnings call today.
“During the fourth quarter of 2023, we again reviewed our estimated profitability on the LRIP phase of the program,” CEO Kathy Warden said during the call, “and we now believe it is probable that each of the first five LRIP lots will be performed at a loss.”
Northrop blamed the losses on changes to the macroeconomic environment since the engineering and manufacturing development contract was signed in 2015 with five LRIP options.
The first LRIP contract was awarded in December following the first flight test of the new stealth bomber.
The LRIP loss will be spread over several years, Warden said. Northrop has “absorbed this effect” and has not changed the outlook for free cash flow for the coming years.
Northrop expects smaller charges for lots two through five, Chief Financial Officer Dave Keffer said.
“While we can’t get into much detail because that would involve lot sizes and quantities and other classified details, clearly the implication is that there’s modest growth from lot one to future lots on average,” Keffer said.
Congress appropriated $60 million to B-21 advanced procurements in fiscal year 2023 for inflation relief, but Warden said, “We have yet to work through what that relief may be.”
She isn’t confident in future relief, she said.
“Through conversations and the right budget environment, we’ve actually lowered those expectations for inflation relief,” Warden said. “At this point, our focus is on executing the program and finding opportunities in the performance on the program while we continue to work with the government to see if there is any inflation relief opportunity.”
Warden also addressed the LGM-35A Sentinel intercontinental ballistic missile program’s critical cost estimate growth, which triggered a notification to Congress and further Defense Department review under the Nunn-McCurdy law.
“It’s important to note that the cost growth is primarily driven by estimates for the command and launch facility build out, which is part of the military construction and procurement phases of the program,” Warden said.
There will likely be a delay in initial operational capability, Warden said, but that delay in schedule would not have caused the breach. The cost growth came from “design decisions,” she said, rather than added cost from the delay.
The delays and cost breach have not “materially impacted” Northrop’s profitability outlook for the program, she said.
“Those are Air Force cost estimates and they include a significant amount of scope that is outside of the industry team execution,” she said. “Nonetheless, we will help to inform those discussions that are ongoing during the review.”
Elsewhere within the company, the weapons systems segment -- which accounted for 7% of the company’s sales -- is expected to grow faster than the overall rate for the business, Warden said, due to continued global demand.
Northrop is the prime contractor on both the standard and extended range variant of the Advanced Anti-Radiation Guided Missile as well as the Stand-in Attack Weapon. It is also a supplier for propulsion systems, warheads, fuzes and cannons for other munitions programs.