Aspin Could Spoil Northrop Stealth Program
Northrop’s sole-source contract on the Stealth bomber will come under attack today when Rep. Les Aspin (D-Wis.), chairman of the House Armed Service Committee, will tell the House that he will offer an amendment to require competition in the multibillion-dollar aircraft program.
The threat that Northrop could now lose the production phase of the program, after more than six years of difficult research and development, is expected by securities analysts to have a “chilling” effect on Northrop investors. Competitors, meanwhile, are elated.
In a speech to be given today, Aspin will say that the proposal for a competition to produce the aircraft resulted from a lengthy examination of the program, formally known as the Advanced Technology Bomber, conducted by the committee’s staff.
The highly classified Stealth bomber would be designed for intercontinental nuclear bombing missions, in which it would be able to avoid detection by enemy radar through a combination of new technologies.
It has long been suspected that Northrop has encountered cost problems on the program, evidenced by a massive $90-million writeoff disclosed last year.
“While I cannot discuss the specifics of the ATB cost growth, it is an area of concern,” Aspin said in the speech, a copy of which was released early for publication today.
The amendment that Aspin said he will introduce next week will set aside $100 million of the program’s funds to create a competition. If the Air Force fails to implement such a competition, the amendment would require that new funding on the program be restricted after fiscal 1988.
“It is going to have a chilling effect on Northrop value,” predicted Wolfgang Demisch, First Boston aerospace analyst. “Aspin is firing a shot over Northrop’s bow. At a minimum, it adds uncertainty for this program. I am sure it is not going to be well received by the investment community.”
The provision for restriction of funds if the Air Force does not establish a competition was seen as particularly important by aircraft industry executives.
“This is very significant,” said Sam F. Iacobellis, president of the Rockwell International’s North American Aircraft unit and a major competitor of Northrop’s. “If I were Northrop, I would be worried.”
Iacobellis said Rockwell would be keenly interested in bidding for Stealth production. “I have got a 1-million-square-foot plant across the runway from Northrop,” Iacobellis noted.
Northrop spokesmen were unavailable for comment.
Aspin said his amendment “mandates” that the secretary of defense establish a means to provide “ongoing competition for production of the ATB.” A specific formula for such competition was not set. Aspin suggested, for example, that two producers could divide annual orders on the basis of competitive bidding.
The Air Force plans to buy 132 of the aircraft--a relatively small number to be split between two producers. But Iacobellis said competition could still drive down costs.
“If you don’t have competitive pressure, you hire more people, you pay more for them and they sit around with nothing to do,” he said.
