Air Force Settles Northrop Claim for $80 Million

Northrop Grumman Corp. will receive up to $80 million by March 1 in a settlement announced Wednesday with the U.S. Air Force on contract claims related to the Joint Surveillance Target Attack Radar System aircraft.

The settlement includes $76.9 million plus about $3 million in interest, which will be paid within 90 days by the U.S. Treasury’s Judgment Fund, said Maj. Chet Curtis, an Air Force spokesman. Los Angeles-based Northrop will book the nearly $80 million as revenue once it’s received, company officials said.

The settlement is a key step to returning the nearly $1-billion program to profitability. It has lost money since 1997 and no profit is projected through 2000 because of manufacturing problems. Restoring Joint STARS profitability is crucial to Northrop keeping its promise to increase its operating margin to 9% or higher by 2001 from about 6.5% today, company officials have said.

“I view it as a positive because it resolves one of several issues that have concerned investors but it shouldn’t be a material change to earnings models,” said Byron Callan, a defense analyst for Merrill Lynch & Co.

Northrop Grumman and the Air Force were negotiating over a $195-million company claim for so-called equitable adjustments to the Joint STARS program. Northrop claimed it spent its own money to comply with Air Force requirements that Northrop insists were beyond the scope of its contracts.

Northrop said in a statement that it didn’t expect to take a charge for the difference between what it claimed and what it will receive, The company also said it “remained comfortable” with the current analyst consensus range of $7.05 to $7.30 for 2000 earnings per share.

Despite the good news about the settlement, Northrop faces a 24%, or $140-million, overrun on its contract to produce the third batch of two top airborne surveillance aircraft, according to internal U.S. Air Force documents.

Northrop is producing the two Joint STARS aircraft under a $655.9 million contract that runs through January 2001. The fixed-priced contract requires the company to absorb overruns; the company estimates it will cost $796.7 million to complete the job.

Northrop shares rose 42 cents to close at $55.38 on the New York Stock Exchange.