Northrop Halts Work on F-20 Fighter Plane : Firm Unable to Find Any Buyers for Jet; Will Take $250-Million Charge in ’86

After investing $1.2 billion of its corporate funds and relentlessly battling U.S. government policy, Northrop said Monday that it will cut off spending on its unsuccessful F-20 jet fighter program at the end of this year.

The announcement essentially closes the books on a unique and risky initiative that Northrop had hoped would demonstrate the feasibility of a commercial approach to government contracting.

“The F-20 is an edifice to private enterprise in the defense business,” observed aerospace analyst Paul Nisbet of Prudential-Bache Securities. “The lesson is, don’t go spending your own money on weapons that politics can influence.”

Northrop initiated the F-20 program in 1980 on the basis of U.S. foreign policy that encouraged the development of special weapons for U.S. allies. But then, bowing to opposition from China, the Reagan Administration barred Northrop from selling the F-20 to it most important potential customer, Taiwan. It never sold a single F-20.

Reduce Profits to $14 Million

Northrop said it would charge $250 million against its 1986 income, an increase of about $50 million over what it had planned to spend on the F-20 this year. The additional provisions will be needed to terminate contracts with subcontractors and suppliers.

The additional charges on the F-20 will reduce Northrop’s 1986 profits to $14 million, or 35 cents per share, Nisbet estimated, but they also clear the way for the firm to earn record profits next year when it will finally be clear of the F-20 burden. Nisbet estimated that Northrop will earn $237 million next year.

A Northrop spokesman said the company remains willing to resume work on the F-20 if a foreign customer can be found who is willing to fund it, but analysts dismissed the possibility that the F-20 will attract any customers at this point.

The decision to stop the F-20 project comes only two weeks after the Air Force rejected a Northrop bid to sell 270 of the fighters for continental air defense. The Pentagon instead selected General Dynamics’ F-16, the nemesis of the F-20 in sales competitions at foreign airfields around the world.

When it lost its sales bid two weeks ago, Northrop said it would lay off 2,000 workers at its Hawthorne-based aircraft division. That appeared to seal the fate of the program.

Over the six-year history of the F-20, Northrop Chairman Thomas V. Jones has demonstrated a virtual iron will in his support of the aircraft, continuing to pour money into the program after numerous obstacles had seemingly robbed it of any probability of success.

“In aerospace, it often pays to be stubborn, but it didn’t turn out that way in this case,” said Wolfgang Demisch, an aerospace analyst at First Boston. “Without Tom Jones, the company would have thrown in the towel sooner, but you have to wonder whether Northrop would be where it is today without Tom Jones.”

Indeed, despite the failure of the F-20, Jones has emerged in the last decade as the architect of Northrop’s transformation from a supplier of low-technology weapons to minor foreign powers to a leader of the U.S. military aircraft industry.

Northrop is the prime contractor of the Advanced Tactical Fighter and the stealth bomber, the two most important Air Force weapons programs. It is also a contractor on the Navy’s Advanced Tactical Aircraft and the Navy’s F-18, which gives it a large share of Navy business. The firm builds the fuselage of the Boeing 747 commercial transport as well.

David J. Smith, analyst at the Sanford C. Bernstein brokerage, said recently that Northrop could emerge as the leading defense contractor of the 1990s, which would represent a spectacular rise. Last year, the firm was ranked as only the 25th-largest defense contractor.

A Northrop spokesman said Monday that the one existing F-20 test aircraft will be put into “ready storage,” meaning it could easily resume its flight status.

One aerospace executive suggested, less than seriously, that Northrop give the airplane to Chuck Yeager, the legendary test pilot who became synonymous with the F-20 program through television and newspaper advertisements. Yeager frequently flew the plane and even arrived at an Air Force Assn. convention in Las Vegas one year in an F-20.

In addition, the F-20 became widely known to the public through its appearance in various advertisements, appearing in BMW automobile ads, AC Delco television ads and a long-running series of newspaper ads. The jet also appeared in the movie “Starman.”