Chinese Stealth Drone Makes First Flight

According to state-run media, the Lijian, or “Sharp Sword,” combat drone made its first flight of about 20 minutes on Thursday.

Military Suppliers Push for Europe-Made Drone

The proposal, a joint effort of EADS, Dassault Aviation and Finmeccanica, is intended to reduce dependence on U.S. and Israeli manufacturers.

Defense Minister May Become a Liability for Merkel

Angela Merkel’s long-time friend, Defense Minister Thomas de Maizière, is fighting for his political survival because of a deepening scandal over the expense of Germany’s failed effort to develop a surveillance drone.

As Wars End, a Rush to Grab Dollars Spent on the Border

Major military contractors are competing for billions of dollars expected to be spent to secure the border with Mexico if an immigration bill passes Congress.

U.S. Navy Sea Based Missile Defense Advances to Shore

In the early 1990’s in a response to Iraq’s use of Scud missiles during Desert Storm the U.S. military, led by the then Ballistic Missile Defense Organization (BMDO), now the Missile Defense Agency (MDA), began investing in defenses against shorter range threats. Previous efforts had been oriented to defending the United States from the large the Intercontinental Ballistic Missile (IBCM) based in the Soviet Union. All three of the major services had programs but the focus was on U.S. Army and Navy missile systems.

The Navy began developing 2 different systems that mirrored the Army’s path. Both involved modifying their current primary long range air defense system, AEGIS. This utilized large phase arrayed radars and the STANDARD Missile-2 (SM-2) interceptor. The AEGIS radars and other systems had originally been developed by General Electric (GE) but by the mid-1990’s had transitioned through Martin Marietta to Lockheed Martin (LMT). The SM-2 was produced by Hughes Missile Systems and Raytheon (RTN) but ultimately Raytheon acquired the whole business.

First, the missile, radars and command and control systems would have capability added to defense against shorter range missiles but still maintain their air defense mission. The Army was doing the same thing with their Patriot surface-to-air missile system. Secondly, a dedicated missile utilizing an exo-atmospheric kill vehicle would be developed. That meant the missile would not be able to engage air breathing targets but much longer ranged missiles.

By the early part of this century the air defense capable version, SM-2 Block IVA, had been cancelled due to budget and schedule issues. The long range SM-3, though, continued development and testing. It has proved successful including being able to intercept and destroy a failing satellite in 2008. The system has entered production and several cruisers and destroyers have been modified to utilize it. The Navy has continued development and the new SM-6 missile has just entered production at a new factory in Huntsville, AL.

The MDA has also decided as a way to supplement the current Ground Based Mid-Course System based in Alaska to develop “AEGIS Ashore”. This places the radars, other systems and missiles in trailers and containers that can be set up in different places and even moved around as necessary.

This program made a major step forward recently with the build up of the first test set that will be installed ultimately at the Pacific Missile Range Facility (PMRF) in Kauai, Hawaii for testing. Once that system is moved a second one will be installed at the main AEGIS production and development center in New Jersey. Ultimately the first set will be set up in Eastern Europe.

Originally the Bush Administration had planned on an expansion of the Alaskan ground based system into Poland and other parts of Eastern Europe. This was cancelled by the Obama Administration and AEGIS Ashore substituted. There is also plans to utilize AEGIS ships to provide missile defense converge of parts of NATO in Europe.

AEIGS Ashore is just one part of the continued Navy and U.S. investment in missile defense as it includes upgrades to the AEGIS radars, C2 systems and steady development of the STANDARD Missile. All of this will be to the advantage of key contractors like Lockheed and Raytheon. Further developments of a new radar, the Air and Missile Defense Radar (AMDR) also include bidders like Northrop Grumman (NOC) so as the program develops there will be chances of contract wins and work for other contractors. These efforts could also flow into the AEGIS Ashore or its replacement system in the future.

Northrop Grumman-Developed Multifunction Advanced Data Link Achieves Successful Flight Test Milestone for F-35 Program — Press Release

Fifth-generation data link allows coordinated tactics and engagement in high-threat environments

SAN DIEGO, April 23, 2013 /PRNewswire/ — The Multifunction Advanced Data Link (MADL) waveform developed by Northrop Grumman Corporation (NYSE: NOC) was successfully demonstrated in a Lockheed Martin F-35 Lightning II joint strike fighter program flight test, validating an eight-year development effort to advance communication among fifth-generation aircraft.

MADL is a high-data-rate, directional communications link. It allows coordinated tactics and engagement to bring significant operational advantages to fifth-generation aircraft operating in high-threat environments. MADL is a key capability provided by Northrop Grumman’s F-35 integrated communications, navigation and identification (CNI) avionics.

The F-35 CNI avionics flying onboard two Lockheed Martin F-35 aircraft established the MADL link between two airborne platforms for the first time. Data passed between aircraft via MADL was correlated with data from other F-35 sensors by Lockheed Martin’s fusion system to form a simplified situational awareness picture on the cockpit displays.

“During the flight tests, MADL functioned reliably with excellent range at multiples of required specifications while demonstrating ability to network fifth-generation fighters,” said Mike Twyman, vice president and general manager of the Defense Systems division for Northrop Grumman Information Systems. “This success is a significant achievement for the F-35 program and enabling joint aerial concept of operations.”

The MADL flight test is an important element of Lockheed Martin’s F-35 Block 2 software release, which provides advanced mission systems capability at Edwards Air Force Base, Calif., and other training and operational locations. At Edwards, MADL joined the CNI Link-16 and Variable Message Format network waveforms already in flight test on F-35 aircraft.

Northrop Grumman’s integrated CNI system provides to F-35 pilots the equivalent capability of more than 27 avionics subsystems. By using its industry-leading software-defined radio technology, Northrop Grumman’s design allows the simultaneous operation of multiple critical functions while greatly reducing size, weight and power demands on the advanced fighter. These functions include Identification Friend or Foe, automatic acquisition of fly-to points, and various voice and data communications, including MADL, which was approved by the U.S. Department of Defense Joint Requirements Oversight Council for use on all low-observable platforms.

As a principal member of the Lockheed Martin-led F-35 industry team, Northrop Grumman performs a significant share of the work required to develop and produce the aircraft. In addition to developing and producing the CNI system, Northrop Grumman produces the center fuselage; designed and produces the aircraft’s radar and electro-optical subsystem; develops mission systems and mission planning software; leads the team’s development of pilot and maintenance training system courseware; and manages the team’s use, support and maintenance of low-observable technologies.

Northrop Grumman is a leading global security company providing innovative systems, products and solutions in unmanned systems, cybersecurity, C4ISR, and logistics and modernization to government

Northrop Grumman Announces Centers of Excellence in Florida, California and New York — Press Release

FALLS CHURCH, Va., March 4, 2013 /PRNewswire/ — Northrop Grumman Corporation (NYSE: NOC) announced today it is designating five centers of design and integration excellence in support of its Aerospace Systems sector’s manned aircraft, unmanned systems and electronic attack businesses. In addition, the company announced plans to close an Information Systems sector facility in Dominguez Hills, Calif.

“Consolidating these centers of excellence will improve our strategic alignment with our customers’ need for increasingly innovative and affordable products, services and solutions,” said Wes Bush, chairman, chief executive officer and president of Northrop Grumman. “We continuously examine our operational capacity to determine how we can leverage it in the most efficient and cost-competitive manner. Given the current budget environment, it is imperative that we act to enhance future performance, innovation and affordability for our customers.”

The Manned Aircraft Design Center of Excellence will be located in Melbourne, Fla., and will include aircraft design work currently being performed at the company’s Bethpage, N.Y., facility. The B-2, F/A-18 and F-35 programs will remain in Palmdale, El Segundo and Redondo Beach, Calif., respectively.

The company’s Unmanned Systems Center of Excellence will be located at its Rancho Bernardo facility in San Diego, Calif. Two programs will transition to that center: the MQ-4C Triton program from Bethpage, N.Y., and the NATO Airborne Ground Surveillance program from Melbourne, Fla.

An Electronic Attack Center of Excellence will be located in Bethpage, N.Y., and will include the Aerospace Systems’ Electronic Attack program team.

The company has designated two Aircraft Integration Centers of Excellence, one in Palmdale, Calif., and the other in St. Augustine, Fla. Current integration activities in Moss Point, Miss., and New Town, N.D., are not included in this transition.

The company will close its Dominguez Hills, Calif., facility as part of its long-term effort to reduce facilities and costs. This facility supports the development and integration of C4I networked communications capabilities and solutions, and mission support work for the Information Systems sector. This work will be transitioned in phases to other company facilities beginning in 2013. Northrop Grumman also announced plans to complete the closure of its Electronic Systems sector’s Norwalk, Conn., facility, including radar test range operations.

Northrop Grumman is a leading global security company providing innovative systems, products and solutions in unmanned systems, cybersecurity, C4ISR, and logistics and modernization to government and commercial customers worldwide. Please visit www.northropgrumman.com for more information.

SOURCE Northrop Grumman Corporation

Army to Upgrade Training Centers with Northrop Grumman

The U.S. Army operates 3 training and readiness centers to aid in preparing American and allied troops for deployments. These are the National Training Center (NTC) at FT Irwin in California, the Joint Readiness Training Center at FT Polk, Louisiana; and the Joint Multinational Readiness Center (JMRC) in Germany. All 3 offer simulated terrain and features along with the ability for the units to engage others and pretend enemies. The U.S. has pioneered this concept of training over the last several decades.

Part of the centers ability are complex communications systems that gather data about activities and allow it to be displayed and analyzed to help units learn what they did and how to do it better. Northrop Grumman (NOC) has just been awarded a contract to upgrade the Combat Training Center Instrumentation System (“CTC-IS”) at the 2 U.S. facilities.

The 6 year contract did not have a value provided.

NTC and JMRC were originally set up to provide training against units using Soviet doctrine and equipment. Their missions have evolved since 1991 with focuses on low intensity conflict and the struggles in Iraq and Afghanistan. As the type of engagements and missions of the U.S. military continue to change the 2 bases also will change. Investment in better and more capable communication and data collection will also make them better sites for training.

Ground Combat Vehicle Decision to be Delayed

It is being reported that the Army has decided to delay the Ground Combat Vehicle (GCV) six months. This is being done most likely in response to the current budgetary situation with the potential sequestration cuts.

The Defense Department has done a good job awarding current contract options this past few months to get things on contract to limit the effects of sequestration on existing work. Unfortunately new contracts will be affected as there may not be as much money available to award later this year. GCV may be in that situation. Delaying it several months should get you into Fiscal Year 2014 with a better handle on what money you have and allow the budget to prioritize funding.

Sequestration may force across the board cuts in all defense appropriations and limit the ability of new, large contracts to be awarded for the remainder of this Fiscal Year.

Two teams of contractors were awarded development contracts by the Army for the M2 Bradley replacement in 2011. One of those designs will be selected to go into Engineering, Manufacturing & Development (EMD) and ultimately into full production. This may still be several years into the future. These were to General Dynamics (GD) and to a team of BAE Systems and Northrop Grumman (NOC). The bid by the 2 prime contractors on the cancelled Future Combat System (FCS) the last attempt to build a Bradley replacement, Boeing (BA) and SAIC (SAIC), was not accepted.

Photo from UNC -CFC-USFK’s flickr photostream.

South Korea Interested in Global Hawk

It is being reported that South Korea has requested to purchase 4 of Northrop Grumman’s (NOC) long range, strategic Unmanned Aerial Vehicle (UAV), the Global Hawk. With supporting parts, services and other items the contract is estimated at around $1.2 billion. Congress will have to approve the sale.

The Global Hawk conducts long range surveillance and intelligence data collection missions. It is currently used by the U.S. Air Force and will also support European and U.S. Navy missions. The Global Hawk has been in service since the early part of this century and has flown thousands of hours of missions in support of Iraq and Afghanistan. The system has consistently been upgraded with new sensors and other equipment over time.

In their original 2013 budget the Obama Administration had proposed reducing the number of Global Hawks that they planned to buy as well as retire some others. Congress fought this proposal questioning the rationale of continuing to use manned U-2/TR-1 aircraft for these missions.

This contract will follow on to a European order for 5 and the annual buys by the U.S. Air Force and Navy to support their programs.

Contenders for New Presidential Helicopter Lining Up

Earlier this century the Pentagon started a program managed by the Navy and Marine Corps to replace the existing helicopters used to transport the President. Currently a mix of Sikorsky, part of United Technologies (UTX), made VH-3 and VH-60 aircraft are used. Some of them are now over 40 years old. It was felt that a new system was needed that was more efficient, capable and equipped with modern communication equipment. This was the VH-71 program.

The VH-71 planned to use an aircraft from Augusta Westland modified by prime contractor Lockheed Martin (LMT). The program was to proceed in two stages with a few aircraft bought early to test and integrate modifications. This proceeded with several aircraft purchased and modified. The problems arose as the requirements for the second effort changed considerably over time leading to schedule and cost growth. By 2009 the program was several billion dollars over budget and was cancelled by the Obama Administration as part of their defense reforms.

A draft RFP was released this week for the new program. It plans to save money and manage schedule by requiring the use of an existing, in production aircraft which will be modified. It is requesting that the bidders plan to minimize changes to expensive parts of the aircraft such as the power train, transmission, structure and rotor system. A communication system is being developed separately that will be integrated onto the new aircraft.

The VH-71 suffered as the requirements meant new major systems had to be developed and integrated to meet power, range and hovering capability requirements. The RFP is for 23 aircraft at a cost of just under $1 billion with the first ones entering service in 2020.

Currently teams made up of Sikorsky and Lockheed and Augusta Westland and Northrop Grumman (NOC) are interested. Boeing (BA) may propose after doing analysis as to whether their large CH-47 or V-22 tilt rotor aircraft may meet the requirements.

The VXX program is aggressive in that it hopes to contain cost, schedule and technical creep. As the VH-71 program indicated it may be hard to do this. With the expected defense cuts coming up the contract is very attractive not only due to its size but also the prestige. As with other large aviation programs the winner may also expect several decades worth of support contracts which could be worth billions.

Photo from dailymatador’s flickr photostream.

Northrop Grumman Outlines E-2D Progress Ahead of Early Warning Event — Press Release

LONDON, November 28, 2012 /PRNewswire/ –

Programme leaders from the US Navy and Northrop Grumman Corporation have detailed the progress on the E-2D Hawkeye in an exclusive interview ahead of the company’s involvement in Defence IQ’s 12th Annual Airborne Early Warning event taking place in Paris from January 22 – 24. Listen to the full interview at http://www.airborneearlywarning.com.

Bart LaGrone, Northrop Grumman Aerospace Systems vice president for the Airborne Early Warning and Battle Management Command and Control (AEW/BMC2) programmes, and the new USN programme manager for the E-2D, Captain John “Chet” Lemmon, confirmed that initial test and evaluation of the aircraft had been completed and that the current contract is for provision of 20 E-2Ds to the Navy, with other foreign sales under consideration.

“Northrop Grumman has been the lead sponsor for this AEW conference since its inception more than a decade ago,” said Lagrone.

“As the global leader in Airborne Early Warning and Battle Management Command and Control Systems, we at Northrop Grumman feel this forum facilitates a free exchange and advancement of ideas by bringing together subject matter experts representing numerous communities from various countries; the attendees can be guaranteed an intense two day experience.

“I believe the E-2D Advanced Hawkeye is built on an incredible legacy and I believe Defence IQ and their hosting of the AEW conference is a great way to kick off another milestone in Airborne Early Warning.”

The conference website also hosts a range of new resources for those interested in the subject, as well as the latest agenda featuring senior commanders from the Royal Navy French Navy, Brazilian Air Force, and Swedish Air Force, among others. For more information on the Airborne Early Warning agenda, you can download the full programme here.

Bookings for Airborne Early Warning can be made by visiting the site, by e-mailing [email protected], or by calling +44(0)20-7368-9300.

Joint Strike Fighter Update – Training and FMS

As the Pentagon and Lockheed Martin (LMT) continue to negotiate the latest production buy for the F-35 Joint Strike Fighter (JSF) the program continues its path towards completing development, testing and begin fielding. With the recent, unexpected change in leadership for Lockheed one of the issues that has come up is the focus on the JSF program. On Tuesday the Assistant Secretary of Defense for Acquisition, Technology and Logistics (OSD(AT&L)), Mr. Frank Kendall, made clear that the company needs to concentrate on continued delivery of the aircraft and not worry about its short term business goals.

The program overall continues to make progress in different areas including completion of the Operational Utility Evaluation of pilot training Thursday. This means that the data collected through the process of teaching 4 pilots over the last six weeks will be reviewed by the Air Force Training Command (AFTC) eventually leading to approval of the program allowing formal training to begin.

In related matters a group of Royal Air Force and Royal Navy maintainers continue their training at Eglin AFB now supported by 2 British owned aircraft. The U.K. is one of the major overseas partners in the F-35 program and will also begin instructor pilot training this month.

In other Foreign Military Sales (FMS) related F-35 news both Japan and Denmark agreed to have companies there begin making components for the aircraft. As part of the overall program many of the other nations buying the fighter will contribute components from their domestic suppliers. In Japan up to 40% of their version of the aircraft will be produced domestically. Northrop Grumman (NOC), who produces fuselage and other assemblies for Lockheed, signed an agreement with a Danish composite manufacturer to provide items like doors, panels and skin assemblies. This is a follow on agreement to one signed in 2007.

The F-35 remains the most expensive acquisition program in history and a key part of U.S. modernization plans. Despite its struggles with schedule, testing and cost it continues to see investment in it by the U.S. and its partners. While there may be near term haggling about the price it is expected that the next production batch will be on order by the end of the year. As more aircraft are delivered training will continue to increase in amount and complexity.

Photo from MultiplyLeadership’s flickr photostream.

Defense Industrials Continue 2012 Trends, Preparing For Rocky 2013 — Seeking Alpha

Here is a post I wrote for Seeking Alpha about the latest quarterly earnings of the 5 big defense contractors.

Northrop to Support HII Ship Construction

Last year Northrop Grumman (NOC) spun off its shipbuilding division into a new company, Huntington Ingalls Industries (HII). This meant that the company was no longer building ships for the U.S. Navy. HII assumed the yards owned by NOC in Louisiana and Mississippi and the current contracts.

That does not mean that Northrop no longer is part of the military shipbuilding program though. It was just recently awarded a contract to provide a component for a new amphibious warship under construction by HII. The approximately $50 million contract will provide the Machinery Control System (MCS) to HII for installation on the new ship.

The Navy is building a new class of LHA ships to supplement existing LHA’s of the Tarawa class and the LHD ships of the Wasp class. These new LHA will combine features of both previous class ships and carry helicopters, V-22 tiltrotors and landing craft. They will be able to support Marine units and transport them to shore. The new LHA-6 America class ships also have the capability to support the F-35 Joint Strike Fighter providing a measure of ground attack and air defense capability.

Boeing Posts Better-Than-Expected Profit and Raises Forecast for a 3rd Time

The aircraft maker increased deliveries of commercial and military airplanes, with the biggest revenue gains coming from the growing demand for new passenger planes.

Northrop Grumman Continues DTS Support

The Defense Travel System (DTS) is the on line system the Pentagon uses to manage travel. It is designed to aid the traveler in booking their flights, hotels and other arrangements. After the trip it then helps prepare their claim and file it. It is tied to their government credit card.

As can be imagined DTS is a large, complicated system processing 1,000′s of transactions a day. This all used to be done by hand and then after a scandal in the late Eighties when the costs to do this were calculated different, more automated systems were developed. Several years ago the Defense Department standardized on DTS.

Northrop Grumman (NOC) was just awarded a one year extension to their contract managing the system. The contract is valued at over $28 million and is the 15th year the company has worked with DTS.

DTS illustrates that the Pentagon spends a great deal of its budget on things like personnel, benefits and administrative costs. This is why the current plans to help reduce defense spending see reductions in the number of troops and changes to how healthcare and retirement are payed for.

AMDR Work Continues, Northrop Announces Testing Success

The U.S. Navy is in the process of developing the successor to the SPY-1 radar and combat system that makes up part of the AEGIS Weapon System mounted on cruisers and destroyers. Originally designed to deal with a large number of aircraft and anti-ship missiles the system has been modified to address the ballistic missile threat to the United States. The new radar program is called the Air and Missile Defense Radar (AMDR) and is currently in development.

In 2010 3 different contracts were awarded to U.S. defense contractors Northrop Grumman (NOC), Raytheon (RTN) and Lockheed Martin (LMT) to develop a version of the radar. The goal is later this year to move forward with another contract to complete development and engineering with a goal of selecting one provider. The new radar will go on ships like the DDG-1000 and new DDG-52 ships as they are built.

All 3 contractors have experience with Navy ship building, radars and missiles. In August Lockheed announced that it had already submitted their proposal for the next step of the program. Now today Northrop is showing its system and its testing. They also turned in a proposal this summer for the next phase.

Their AMDR system has completed some of its initial range testing including Near and Far field in Maryland. The testing has been successful demonstrating the capabilities of their design.

The AMDR program once it completes development and goes into production will replace the SPY-1 in the role of air as well as missile defense. While the Navy program for new ships remains in flux after 2013 due to the potential reductions in the U.S. defense budget it represents a huge program as it will be used for decades requiring further development, support and production.

Lockheed is the current contractor for the SPY-1 through acquiring Martin Marietta who had purchased the original developer and producer, General Electric (GE), defense work in this area.

Lawrence Mead Jr., Aerospace Engineer Who Helped Design A-6 Bomber, Dies at 94

Mr. Mead, an executive at Grumman, led the design team for the A-6 Intruder, which became the Navy’s primary attack bomber.

Northrop Upgrading B-1 Radars

Modern combat aircraft have become like ships in that they now serve for several decades receiving incremental refits and upgrades. Even while new systems are being developed and deployed older designs get new electronics, engines and munitions that enhance their effectiveness and usefulness.

The U.S. Air Force has done this consistently with their bomber force which consists of B-52 aircraft first delivered in the 1950′s, the 1980 built B-1 and the stealth B-2 delivered in the 90′s. A new bomber design is being developed but for the last eleven years of fighting in Iraq and Afghanistan it has been existing aircraft flying the missions.

Northrop Grumman (NOC) has just delivered the first kit to upgrade the B-1′s radar and it has already been installed on an aircraft. The Radar Reliability and Maintainability Program (RMIP) has so far been worth $161 million for the company. So far 60 kits have been purchased along with spares, support and test equipment.

The RMIP replaces portions of the existing AN/APQ-164 radar in order to make it more reliable and easier to maintain. The goal is to reduce repairs, improve availability and reduce maintenance requirements which should save money overall.

Northrop developed the kit prior to the award of the production contracts. There are close to 100 B-1 in U.S. inventory which means up to 40 more kits would be purchased if all of the aircraft will be updated.

Seeking Alpha – Survey of Defense Earnings for Last Quarter

I wrote an article at Seeking Alpha on this week’s earnings reports.

After Its Founder’s Death, Speculation About Cubic Corp.

The military contractor is planning a secondary stock offering, and analysts have taken notice.

Despite Recent Progress Lockheed Martin Faces Some Challenges

Lockheed Martin (LMT) remains the largest defense contractor in the United States as well as globally. It is responsible for the biggest military acquisition program in the history of the world – the F-35 Joint Strike Fighter (JSF) as well as several other major aircraft and hardware systems. The company has consistently done well with its earnings and maintained a high dividend.

The Lockheed stock seems attractive right now. Price as of 29 June was $87.08. It has outperformed the market by 6 percent over the last year, its P/E is a little above 10 and it pays a dividend of $4.00 a year. The major defense contractors like LMT or Northrop Grumman (NOC), Raytheon (RTN) and General Dynamics (GD) have consistently increased their dividend over time. The companies have also focused on reducing their costs to boost profit margins as well as make them more competitive with the Pentagon when it comes to price meaning as long as defense spending remains fairly consistent there should be increases in earnings and profit as these trends continue.

Lockheed has moved to reduce its workforce especially those in the middle management or overhead positions. It has also when possible adjusted its pension plans and negotiated new contracts with its unionized workers to lower personnel costs when possible. It’s most recent quarter set it apart from its competitors as the company had both growth in earnings and revenue. Most others had seen earnings up but on a revenue drop as their efforts to reduce overhead and cost of providing their products helped.

As the Pentagon continues to execute its Fiscal Year (FY) 12 budget plans new contracts are competed and awarded with Lockheed winning their fair share of them. Yet the future of defense spending is clouded with uncertainty due to the plans for FY13 spending caused by sequestration. Sequestration is automatic budget cuts of up to $100 billion a year in defense spending due to the failure of the Obama Administration and Congress to reach a budget deal last year. All acknowledge that these cuts would have a severe effect on the military, its contractors and the U.S. economy in general yet without changing the current law they will occur.

Lockheed just finally settled a major strike by its Dallas-Fort Worth aircraft assembly workers. This lasted over two months and was driven by Lockheed’s request for them to cut their pension plans. These workers make the F-35 and the F-16 fighters which are a large portion of Lockheed’s portfolio. The key part of the new contract as stated in the press release is “The agreement compensates union members fairly while allowing Lockheed Martin Aeronautics to be competitive for new contracts and respond to customer demands for greater affordability in defense products.” The settlement of this action will allow Lockheed to focus on delivery of the aircraft.

Other then the potential budgetary issues facing the industry as a whole Lockheed does raise some concerns. It has a large debt and pension obligation due to a large workforce and a more traditional defined benefit plan. The Pentagon recently announced that due to concerns with Lockheed Earned Value Management System (EVMS), which tracks cost and schedule data, it will now withhold up to 5 percent of payments. This is the maximum penalty that may be applied. The EVMS for the F-35 is the major concern which is a program that faces scrutiny of its costs and schedule from Congress. If Lockheed cannot get its system into compliance then it faces a potential hit to its earnings and profits as the F-35 program is so large.

Congress has already made some moves to keep parts of the budget recommended for cuts by the Obama Administration. (http://seekingalpha.com/article/566861-defense-contractors-aided-by-congress-keeping-money-in-defense-budget) It may be expected that these will continue. Sequestration is designed to prevent Congress from doing this which is why all are focused on ways to prevent it or minimize the effect on defense spending. Too many jobs, and votes, are affected by it. That does not mean that there will be success in preventing the reduced spending. The U.S. deficits are recognized as too high and something must be done.

Lockheed stock due to its current price, dividend and their large contracts should probably continue outperform the market over the next few months. Until the full effects of sequestration or efforts by Congress to minimize cuts to defense spending are identified there should be no major movement of the price. If the worst case happens and the U.S. faces cuts to defense spending in the range of $50-100 billion a year Lockheed should at least see some short term pain. If the plan is changed and defense spending is protected then this stock along with the other defense industrial stocks should see some increase. This, though, won’t occur until 2013 and the stock like most of its competitors really remains a dividend buy only.

Northrop Continues to Win Global Hawk Business

Northrop Grumman (NOC) is the producer of the Global Hawk strategic Unmanned Air Vehicle (UAV). This is used by the U.S. Air Force for long range reconnaissance and collection missions. It was developed in the late Nineties. Currently it has been produced in different blocks with different capabilities.

The Obama Administration in their 2013 budget has proposed ending production of the Block 30 and mothballing the entire existing fleet of such systems and relying on the manned U-2/TR-1 platform. This proposal, though, has not been well received by the Congress and the plan may not be accepted. Even with this proposal the newer blocks would continue to be used and be produced. The Navy is also buying the Global Hawk as part of their Broad Area Maritime Surveillance (BAMS) program.

Northrop also received two recent contracts for the program that indicate it will continue for several more years.

First, NATO ordered 5 of the systems to provide ground surveillance. This contract is estimated at close to $1.7 billion. NATO already jointly operates Boeing (BA) E-3 AWACS aircraft and C-17 transports so the Global Hawks would be a similar proposition. The mission would be similar to that of the E-8 Joint STARS manned system which tracks enemy vehicle and troop movements and positions.

The Air Force also continues its program to make progressive improvements to the Global Hawk with a contract to develop new radars and sensors. This is worth $51 million but if new sensors are developed has the potential for much more revenue as they are produced and integrated into the aircraft.

The UAV will become increasingly more ubiquitous in use performing many missions currently done by manned aircraft. The U.S. is investing in long range, persistent reconnaissance UAV’s. The Global Hawk despite budget proposals will continue to perform its missions for the next few decades.

Navy Orders USS Tripoli from Huntington Ingalls Industries

The U.S. Navy continued its investment into new amphibious warfare ships by awarding a contract to Huntington Ingalls Industries (HII) for LHD-7. The USS Tripoli will follow its sister ship, USS America, onto the ways in the near future. The value of the contract is for over $2 billion.

Currently the Navy is building two major amphibious ship classes. The LSD-17 class San Antonio ships and the bigger, more capable LHA class. The America and Tripoli are numbered sequentially with the Tarawa class built in the Seventies. Due to the need to support the bigger tilt rotor V-22 aircraft the America and Tripoli are designed for maximum aircraft capability and do not have a well deck for landing craft. That has been corrected in future ships of the class.

The LHA provide the ability to support large number of helicopters and V/TOL aircraft as well as carry Marines and their support equipment. The ones with a well deck allows landing craft to be loaded and deployed. They also offer hospital and C2 capabilities for operations.

The LHA and LHD ships followed the LPH class of helicopter carriers that went into service in the Sixties and saw extensive use in Vietnam. The new Tripoli name comes from one of those class ships although the Navy has operated several other ships in honor of the Marine service in North Africa against the Barbary Pirates.

HII is the ship building division of Northrop Grumman (NOC) that was spun off into a separate company. It builds amphibious warfare ships, destroyers as well as nuclear submarines at yards in Mississippi and Virginia.

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