Wall Street interrogates Northrop CFO on tanker

Northrop Grumman CFO Jim Palmer desperately tried to avoid making news on the KC-X program while appearing this morning in New York at the Credit Suisse First Boston 2009 Aerospace & Defense Conference. Palmer mostly succeeded.

Asked to explain the strategy behind CEO Wes Bush’s letter yesterday to the Pentagon, Palmer parried.


“I think first of all we don’t intend to negotiate here in public … We did issue a letter to DOD yesterday that outlined our concerns. They are well aware of those issues. I don’t want to comment too much more than what has already been in the press. We will have to wait until the final RFP to make a final decision. Based on where we are today, if there are not any changes it is our conclusion that we can not compete for this program.”

But Palmer’s Wall Street audience didn’t so easily let him off the hook. Northrop’s letter took issue with the DOD’s plan to make KC-X a firm fixed price contract. So, Palmer’s questioner asked, could KC-X be DOD’s attempt to adopt a new paradigm for acquisition policy, and could Northrop’s rejection be construed as an industry-wide rejection of that policy? Palmer:


“I think you have to ask that question to someone else. I don’t know. I can’t speak for anyone else. I can only speak for Northrop Grumman.”

Still undaunted, a third tanker interlocutor asked how the US Air Force could write requirements that don’t favor either one or the other competitor, since both bidders are stuck with offering only existing platforms? Palmer seemed to want to dodge the question initially, but concluded by conceding the point.


“I don’t know. In a way, unlike any other development program, where you essentially are desinging from scratch, here we have a program that is based on an existing platform, so to some extent those existing platforms have an impact or govern what you can do with those platforms. So, to a certain extent, yes, it is governed by what you can do with those platforms.”



 

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2 Responses to Wall Street interrogates Northrop CFO on tanker

  1. Jimmy W 2 December, 2009 at 7:39 pm #

    So you need a split-buy. That’s the only politically acceptable outcome. Why is the air force resisting?

    Another way you can do “fixed-price” is to make it a subscription service model. Sadly we can’t lease the planes anymore.

  2. CD Rates 28 December, 2009 at 9:09 pm #

    Do you have a blog feed I can subscribe to? I looked around but couldn’t find it, thanks in advance.

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