Northrop Grumman [NOC] Chief Financial Officer Jim Palmer said budget constraints and uncertainty still worry the company when looking at fiscal year 2015 and beyond, but the company is counting on a handful of programs–in particular the Unmanned Carrier-Launched Airborne Surveillance and Strike (UCLASS) system for the Navy and the Long-Range Strike Bomber (LRS-B) for the Air Force–to strengthen the company’s portfolio.
Speaking Thursday morning at Barclays 2014 Industrial Select Conference, Palmer acknowledged that “the Bipartisan Budget Agreement is helpful, it feels like we’re beginning to get back to a more normal budgeting process.” That being said, he added Northrop Grumman is eagerly awaiting the FY ’15 budget rollout and the program decisions that will be included because “ultimately all of us are a combination of different programs.”
His portfolio, which emphasizes unmanned platforms, cyber, logistics and C4ISR assets, “is well positioned, I think, to where the [Defense] Department seems to be emphasizing capabilities.”
The devil is in the details, he noted, saying that the FY ’15 budget request would likely reveal more about the timing and requirements for UCLASS and LRS-B. Palmer added that the F-35 Joint Strike Fighter currently accounts for about 5 percent of the company’s revenue, so additional clarity on the number of planes to be procured will significantly impact the company and its plans.
While Palmer said he was confident that UCLASS and LRS-B are among the most strategically important to DoD in the coming years, he was not sure how acquisition needs would stack up against personnel needs. Historically, acquisition and research and development accounts take a hit earlier than personnel during a downturn, and Palmer said it was hard to tell if that trend would hold true and, if so, what that would mean for specific programs.
“They’re going to be going through that tradeoff in the next couple years, and we’ll see how that flows procurement dollars,” he said. “Ultimately, individual program decisions are key.”
On the international market, Palmer said prospects look good for both the Global Hawk and its maritime variant, Triton. He said Northrop Grumman has been in talks with South Korea for about a year regarding the Global Hawk, which has also attracted interest from Japan. Australia could be a likely customer for the Triton.
“It feels to me like the international opportunities are better today for us than they have been in the past,” Palmer said. “We’ve been in conversations with Korea for over a year. I hate to put a timetable on it, but in terms of talking about Korea or Japan or Australia, I’d probably put them in kind of that order in terms of maybe Korea being the near term and Australia being a little farther out,” perhaps in a one- to three-year timetable.