Deal to Boost Southland Aerospace

By JAMES FLANIGAN

Dec. 22, 2000 12 AM PT

TIMES SENIOR ECONOMICS EDITOR

Northrop Grumman’s proposed acquisition of Litton Industries would boost Southern California by giving the region a powerhouse in defense contracting once again, analysts said Thursday.

Northrop, already a leader in defense electronics, would become a prime contractor in modern warfare by acquiring Litton’s shipbuilding operations in Mississippi and Louisiana. Today’s naval ships become platforms for sophisticated electronics and information systems that can stand offshore and guide weapons and conduct surveillance, military analysts say.

Northrop and Litton together “become a first-tier contractor and systems integrator rather than just a supplier of electronics,” said defense analyst Loren Thompson of the Lexington Institute, an Arlington, Va., research organization.

The combination with Litton, if approved, would make Northrop a leader in information technology (IT) for the Defense Department. Defense-related information technology is a rapidly growing field ranging from routine records management and data analysis to classified work on electronic security programs.

Northrop has been a leader in classified IT work since it acquired Logicon in 1997. Litton, which has built its IT capabilities in recent years with the acquisition of firms named PRC and TASC, brings significant IT capabilities to Northrop, said Jon Kutler, president of Quarterdeck Investment Partners, a Los Angeles firm specializing in defense related investments.

Uniting the two companies would reinforce Southern California’s position as a leader in high-tech defense systems. Gradually over the years, this region has seen major manufacturing operations for aircraft, spacecraft and missile systems depart. Meanwhile, Lockheed and McDonnell Douglas were acquired by companies headquartered elsewhere, and Rockwell International sold key operations and eventually moved its headquarters out of the area.

But compensating for those losses has been Southern California’s growth as a center for sophisticated defense and space electronics, with Hughes’ satellite operations, Boeing’s space division, and the continuing electronics strength of TRW, Northrop, Litton and divisions of many other companies.

The combination of Northrop and Litton is “good psychologically for Southern California,” said Kutler. If Litton’s electronics business, which has been reported as up for sale, were bought by another firm, some work would undoubtedly leave this area, Kutler said.

As Northrop headquarters in Century City and Litton’s in Woodland Hills unite, some staff cuts would result. But the combined firm looks ahead to growth, Northrop Chairman Kent Kresa said Thursday. He projected revenues of $15 billion in 2001 growing to $18 billion in 2003.

“We’re going to be growing and we’re open to hire,” Kresa told a news conference.

Shipbuilding would be a new activity for Northrop Grumman, a developer of aircraft including the B-2 bomber, F-14 fighter and generations of planes dating to the P61 and Navy Hellcat fighters in World War II.

Litton has owned the Ingalls shipbuilding yard in Pascagoula, Miss., since the 1960s and acquired the Avondale shipbuilding operation outside New Orleans in 1999. Building the ships and the electronics would give Northrop leadership in “what the Navy calls network-centric warfare,” Thompson said.

Also, analysts say, the Ingalls yard is the most modern of all shipyards serving the Navy, which include those of Newport News Shipbuilding in Virginia and Bath Iron Works in Maine, a division of General Dynamics.

In information technology, both Northrop’s and Litton’s operations include electronic security services, an increasingly important field as attacks become more frequent on sophisticated data systems and strategic weapons.

The proposed acquisition marks a recovery to prominence for Northrop, whose proposed merger with Lockheed Martin was scuttled by the Pentagon in 1998. The Defense Department disapproved of the merger because it feared that defense consolidation had reduced competition and efficiency in military contracting.

Still, with cutbacks in the B-2 bomber program, in which Northrop has only been allowed to manufacture 21 of what was originally envisioned as more than 100 aircraft, the Los Angeles firm was seen as a subcontractor in a defense industry led by far larger prime contractors Boeing and Lockheed Martin.

Now, Northrop stands potentially as a strong No. 3 defense contractor, with unique capabilities in electronics and information technology.

Litton Industries was one of the original conglomerate companies in the 1950s and ‘60s, growing from a beginning in inertial guidance systems for military aircraft to a diversified giant with operations in machine tools, microwave ovens, cash registers, oil exploration and office furniture.

In recent decades, Litton has reorganized operations, focusing on defense electronics and shipbuilding, while building its presence in information technology capabilities which it would now bring to Northrop if the acquisition goes through.

* AEROSPACE ACQUISITION

Northrop Grumman agreed to buy Litton Industries for $3.8 billion. A1

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

By Air and by Sea

Northrop Grumman’s acquisition of Litton would create a

$15-billion-a-year defense contractor with 80,000 employees.

Northrop Grumman

Headquarters: Century City

Chairman, chief executive and president: Kent Kresa

Key fact: Nation’s fifth-largest defense contractor

Employees: 44,600

Key operations: