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Aviation History
1996
1996 - 2573.PDF
BUSINESS ANALYSIS Electronic leg-up James Roche recasts aircraft maker Northrop Grumman into 21st century electronics house. RAMON LOPEZ/BALTIMORE NORTHROP Grumman's $3 billion acquisition of West-inghouse's defence-electron ics business unit earlier this year has given the US aerospace firm "the fourth leg of the stool" upon which Northrop Grumman intends to evolve into a premier defence and civil-electronics man ufacturer and systems integrator. Dr James Roche, installed as a corporate vice-president and gen eral manager of the Baltimore- based Electronic Sensors and Systems division (ESSD) six months ago, says that the second "leg" was created when aircraft manufacturer Northrop Grum man was formed with Northrop's purchase of systems integrator Grumman in 1994. In the same year, Northrop Grumman com pleted the acquisition of Vought Aircraft, a major producer of mili tary and commercial aero- structures. With Grumman and Vought under its belt, Roche says that the company set about finding the "fourth dimension of the strat egy" through the acquisition of a major US electronics maker. Subsequently, Northrop Grum man took advantage of Westing- house Electric's move to sell its Baltimore, Maryland-based de fence-electronics and air-traffic- control (ATC) equipment op erations to help pay for a recent $5 !4 billion purchase of CBS, the US television network company. Roche says that Northrop had had its eye on Westinghouse for four years, and it was decided that the CBS deal gave Northrop the chance ".. .to make a major run on Westinghouse's defence unit". Aerospace analysts expected a short bidding war for the unit, but Nor throp Grumman instead launched a successful pre-emptive strike. Kent Kresa, the firm's president and chief executive, says that the Westinghouse deal provided the •ir 1 'W^5^ •* • ' ^^w ir i £\' •^'Sn' v. lifer; ^ 1 Dr James Roche "...critical mass needed to remain competitive". The acquisition strengthened the company's core defence-electronics business and expanded the customer base domestically and internationally. The former Westinghouse unit was left intact as Northrop Grumman reorganised into five major operating divisions: Military Aircraft Systems, Commercial Aircraft, Data Systems and Ser vices, Electronics and Roche's ESSD. Consolidation of the US defence industry has allowed Northrop Grum man to hedge its bets and diversify its portfolio. One-third of sales involved electronics and inte gration work after the Grumman deal. With the latest acquisition, half of all sales involve electronics. The goal is for a 60:40 division favouring electronics/systems integration by the turn of the century, says Roche, who previously managed the inte grations of Grumman and Vought Aircraft. Meanwhile, Northrop Grum man's non-defence business is on the upswing largely because of Westinghouse's successful ATC radar activities, and the firm wants its international business to repre- "We like the fact that Northrop Grumman is balancing its business... What we believe we have now is a well-rounded aerospace company" sent one-quarter of total annual sales by the end of the century. "We like the fact that Northrop Grumman is balancing its busi ness...What we believe we have now is a well-rounded aerospace company," says the 2 3 -year veteran of the US Navy, who retired with the rank of captain and is a former Pentagon, State Department and Capitol Hill staffer. Roche believes that the US defence industry is in for another round of consoli dation. Although not now on the prowl, Northrop Grumman ' will not let a good defence-electron ics deal go by. "We are now pay ing down our debt. When we accomplish that, we will be back in the game," he promises. Roche, who earned a doctorate in business administration from Harvard University, joined Nor throp Grumman in 1984 and rose to his current position in March. The firm is reviewing its portfo lio to determine what is necessary, and Roche says that divestitures are being considered. "We are looking across the whole company to see if there are things worth divesting... stuff not core or managerial dilu- "The goal is for a 60:40 division favouring electronics/systems integration by the turn of the century." five, that is, taking too much time for the return you get," he says. The goal is to divest $200-$400 million worth of business over the next 18 months, which is insignifi cant considering that Northrop Grumman expects S8 billion in sales this year and $10 billion in 2000. Candidates include the firm's newly acquired marine and under sea-systems units and Northrop Grumman's data-services and truck-body businesses. The deal did not include West inghouse's airship business, and Roche says "...we were delighted that Westinghouse did not try to make it part of the package". Some aerospace analysts expect ed major layoffs with the West inghouse deal, but Roche says that ".. .no one has been fired by virtue of this acquisition". He warns that there may be "some efficiency con solidation over time". Not all in Roche's domain is glowing, however. The US Air Force recently picked Raytheon over Northrop Grumman ESSD to provide the US military and the US Federal Aviation Administration with the next-generation airport surveillance radar. The Digital Airport Surveillance Radar (DASR) programme in cludes production of up to 213 radars up to the year 2007, worth as much as $62 0 million. Roche says that a contract win was "critical." The snubbing repre sented a bitter pill for Northrop Grumman to swallow considering it was the incumbent supplier with ' the ASR-9 radar, and the firm has • filed an official protest with the US General Accounting Office. "Northrop Grumman remains convinced that the company's DASR offering provided the best value fbr the US Government and should have been selected...We do not understand the basis for the selection given that we met or exceeded all requirements for the system," says the firm. • FLIGHT INTERNATIONAL 25 September- 1 October 1996 25
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