A review initiated this month by anti-trust regulators into Northrop Grumman’s [NOC] compliance with terms of the government’s approval last year allowing the company to acquire Orbital ATK isn’t expected to impact the Air Force’s acquisition plans for a new strategic nuclear missile system, the company’s top executive said on Thursday.
Northrop Grumman in its third quarter earnings filing with the government disclosed that the Federal Trade Commission is conducting a civil investigative inquiry “requesting certain information relating to a potential issue of the company’s compliance” with terms of the agency’s order, which requires Northrop Grumman to allow Orbital ATK’s solid rocket motors to available to other companies.
The issue relates to the Air Force Ground Based Strategic Deterrent (GBSD) program, for which Northrop Grumman looks like it will be the sole bidder after Boeing [BA] said over the summer it would drop out of the competition, charging that its competitor has an unfair advantage given its ownership of a solid rocket motor business. Northrop Grumman’s acquisition of Orbital ATK gave it one of two solid rocket motor companies in the U.S.
The unfair advantage that Boeing alleges is based on the fact that it has to subcontract for the solid rocket motors, which is among the reasons it says it can’t compete on cost. Boeing’s choices for a solid rocket motor subcontractor include Northrop Grumman and Aerojet Rocketdyne [AJRD], the only other supplier of these rockets in the U.S. Boeing is also concerned that if Northrop Grumman’s solid rocket motor unit would be part of its team, there is the potential leakage of some of the intellectual property in its GBSD design.
“We do not currently expect any change to the Air Force acquisition strategy as a result of this inquiry,” Kathy Warden, chairman, president and CEO of Northrop Grumman, said in response to an analyst’s question during the company’s third quarter earnings call. “They do plan to award next August, so there is some time. Our proposal is due in December. So obviously we will continue to monitor that but right now we do not see any impact.”
In its 10-Q filing Thursday with the Securities and Exchange Commission, Northrop Grumman says it is “working to respond” to the FTC’s request.
“We believe the company has been and continues to be in full compliance with the Order, but we cannot predict any potential impact on the pending competition,” Northrop Grumman said.
Boeing has asked the Air Force to include the company and Northrop Grumman together in a so-called “national team” for GBSD.
Boeing was pleased with the FTC disclosure.
“One of the factors in Boeing’s decision not to bid for the U.S. Air Force’s Ground based Strategic Deterrent program was our concern about Northrop Grumman’s compliance with a 2018 Federal Trade Commission order that prohibits it from discriminating in the sale of solid rocket motors,” a company spokesman said in a statement. “Northrop Grumman has now acknowledged that the FTC is questioning its compliance with that order. We stand ready to support the FTC inquiry.”
Warden told analysts her company hasn’t received any pressure from the government to “engage in a national team.” She added that Northrop Grumman’s GBSD team has a national footprint.
The GBSD system will replace aging silo-based Minuteman III intercontinental ballistic missiles. Boeing built the current fleet of Minuteman III ICBMs. The life-cycle cost estimate of the GBSD program is around $100 billion.