Northrop Grumman shocked press and analysts this week with a lukewarm response on its US Air Force T-X trainer bid, but the company might be better positioned to lose the competition rather than eat away at its bottom line, says one Washington-based analyst.
It’s possible that Northrop chief executive Wes Bush is looking to hold back a price-aggressive bid by Aerospace Systems management in an effort to protect the company’s operating margins, defense analysts Jim McAleese writes this week. In a 25 January earnings call, Bush announced Northrop was assessing the USAF’s request for proposals, despite the fact that the company has designed an aircraft specifically marketed to the trainer competition.
Northrop’s operating margins held at 11%, according to the company’s 26 January fourth quarter earnings report. If the USAF trainer competition turns into a price-shootout, as many analysts have speculated, Northrop could damage its tenuous margins.
The Aerospace Systems segment launched an aggressive bid on the USAF’s next-generation bomber, but, unlike the B-21, the trainer programme doesn’t represent a must-win for Northrop. As Bush watches the B-21’s programme execution, he might also take a lesson from the exquisite and expensive aircraft programme, according to McAleese.
“It is also highly-probable that Aerospace Systems’ initial performance on B-21 program-execution, will ultimately determine whether CEO Bush supports the necessary ‘eye-wateringly-aggressive-pricing’ that will be required to win the $16 billion T-X contract award in late 2017,” he says. “If Aerospace Systems is performing poorly on B-21, then expect CEO Bush to force higher-unit-pricing in T-X best and final offer, even if it results in Northrop being successfully ‘out-bid’ by another offeror, such as Boeing/Saab or Lockheed.”
Meanwhile, Raytheon dropped out of the competition this week, following a tiff with its Italian partner, Leonardo. Raytheon will not enter the competition with another partner, but Leonardo did not close the door on the competition.
"Leonardo is evaluating how to leverage on the strong capabilities and potential of the T-100, in the best interest of the U.S. Air Force," Leonardo says in a 25 January statement.