Northrop Grumman Corporation Business Information, Profile, and History
Los Angeles, California 90067-2199
Northrop Grumman is a company defined by one word--technology. From under the sea to outer space and into cyberspace, Northrop Grumman technologies and products play a key role in the evolving defense environment of the 21st century.
The fully integrated battle management of the near future will take a network-centric approach, in which communications among ships, satellites, armies, aircraft and submarines will be fused into a net of interconnectivity enabled through cyberspace. Northrop Grumman today represents virtually every technology that will play a significant part in this modern era of warfare.
Since the end of the Cold War, Northrop Grumman has built a broad-based weapons capability to meet current and emerging national defense needs, including anti-terrorism and homeland security. Throughout this transformation, the company has maintained a consistent focus and strategy. As a result, Northrop Grumman is now a top-tier defense company, a full partner with its military customers and an inherent part of the country's national security.
History of Northrop Grumman Corporation
Northrop Grumman Corporation is the number three defense firm in the United States, behind The Boeing Company and Lockheed Martin Corporation. The company provides the U.S. military with nearly 60 percent of its airborne radar systems, including the AWACS system; is the number two provider of information technology to the federal government; and is the largest naval shipbuilder in the world. It is organized into six operating sectors: Electronic Systems, which includes airborne radar, navigation, electronic warfare, air defense, space, and logistics systems; Information Technology, a sector focusing on providing advanced information technology solutions for both government and commercial clients; Integrated Systems, which develops both aircraft and airframe subsystems, including airborne surveillance aircraft, such as the Joint STARS plane, and combat aircraft, such as the B-2 stealth bomber; Ship Systems, which designs and produces surface battle ships, such as guided missile destroyers and amphibious assault ships; Newport News, which builds nuclear-powered aircraft carriers and submarines; and Component Technologies, which supplies electronic and optical components and materials to the military, telecommunications, medical, and other markets.
Northrop Grumman is a somewhat unlikely survivor of the post-Cold War consolidation of the U.S. defense industry. In April 1994 the company was formed when Northrop Corporation acquired Grumman Corporation. Northrop Grumman then agreed to be acquired by Lockheed Martin in July 1997. Several months later, however, the U.S. government blocked the deal. At that time, Northrop Grumman had annual revenues of about $9 billion. Through a series of acquisitions in the late 1990s and early 2000s--most notably the purchases of Litton Industries, Inc. and Newport News Shipbuilding Inc., both completed in 2001--the company expected to report revenues of around $18 billion for 2002. During this same period, Northrop Grumman also transformed itself from primarily a producer of military aircraft to a leading defense electronics and systems integration company while maintaining and/or building positions in military aircraft and naval systems.
Jack Northrop and the Early Years of Northrop Corporation
John Knudsen Northrop, aerospace innovator and founder of Northrop Corporation, was born in 1895. He served in the infantry during World War I and was later transferred to the Army Signal Corps, which was responsible for military aviation. In the Signal Corps he developed a skill for designing aircraft and, as a result, went to work for Donald Douglas in California after the war. As a draftsman, he helped to develop the airplanes that first established Douglas's firm as a leading aircraft manufacturer.
In 1927, he went to work for Allan Lockheed, where he led the development of the Vega, the airplane that made Lockheed a major company. The Vega was one of the first airplanes to have a "stressed skin" construction, meaning that the structural integrity of the outer shell of the aircraft was sufficient to eliminate the need for a weighty frame and struts. The design ushered in a new generation in aircraft design. Amelia Earhart flew a Vega on her solo flight across the Atlantic in 1932.
Northrop formed his own company in 1928, the Avion Corporation. Here he conducted research for the first all-metal aircraft and the "flying wing," a highly efficient boomerang-like aircraft with no fuselage. Two years later, Avion was purchased by Bill Boeing's United Aircraft and Transport Corporation.
Jack Northrop created a second company in 1932 as a division of Douglas Aircraft. Established as a partnership with Douglas, the Northrop Corporation developed an airplane for the Army Air Corps called the Alpha. Similar to the Vega, the Alpha had a single shell, or "monocoque," construction. Because the plane was made of metal instead of wood, however, it was more durable and efficient. The Alpha made a new generation of aircraft possible for Douglas, namely the DC-1, DC-2, and DC-3. Northrop's engineering success with this type of airplane set a new standard for manufacturers; biplanes, double-skin construction, and airplanes made of wood were relegated to the past.
In 1938 Northrop Corporation was absorbed into Douglas Aircraft. One year later, Jack Northrop left Douglas to establish his own company, Northrop Aircraft Company. When World War II erupted, Northrop devoted much of his company's resources to the development of a flying wing bomber. This revolutionary design was greeted with great skepticism. The advantage of the flying wing was that without the "baggage" of a fuselage or tail section, the entire mass of the airplane could be employed to produce the lift needed to keep it aloft. This allowed the possibility of much greater bomb payloads. In 1940 the company flew its first experimental flying wing, designated the N-1M.
Northrop later developed the B-35 flying wing bomber and then an improved version called the B-49, which he hoped would be chosen as the primary bomber for the Air Corps. Yet the Army canceled further development of Northrop's bomber because, as reported by the Army, the B-49 was not stable enough in the air and because it required powered rather than manual controls. Northrop, however, revealed shortly before he died that the Army canceled the B-49 because he refused to merge his company with a manufacturer in Texas. Others have suggested that the Army dropped the flying wing when Northrop refused to allow other government-appointed companies to manufacture his design. Even today the real reason the B-49 was canceled is not clear.
In spite of the B-49 fiasco, Northrop contributed to the war effort in many other ways. His company built the P-61 night fighter known as the Black Widow. He also established a prosthetics department at his company for dismembered veterans. He even employed disabled servicemen either at the plant or in their hospital beds for regular pay.
In 1952 Jack Northrop retired and relinquished his presidency to O.P. Echols. In 1958 the name of the company was changed to the Northrop Corporation, and the following year Thomas V. Jones took over as president. Jones led the company into a number of diversified subcontracting arrangements. Northrop built numerous airplane and missile parts, electronic control systems, and even became involved in construction.
During the 1950s and 1960s, Northrop produced the F-89 jet interceptor and the curiously named Snark missile system. The company continued to produce its own jet fighters, including the popular F-5 Freedom Fighter. A total of over 2,200 F-5s were flown by 30 countries, including Taiwan, Iran, and South Korea. The trainer version of the F-5, the T-38, was used by the U.S. Air Force and was also the jet chosen by the Thunderbirds acrobatic flying troupe.
1970s and 1980s: Scandal and Controversy
In 1972 Jones made an illegal $50,000 contribution to the reelection campaign of President Nixon; he was fined $200,000 for this indiscretion. The scandal led to an investigation that revealed another more serious impropriety. The company admitted to paying $30 million in bribes to government officials in Indonesia, Iran, and Saudi Arabia, among other countries, in an effort to increase business.
An enraged stockholder sued the company and, as a result, won a settlement that forced Jones to resign his presidency but allowed him to remain as chairman. A further condition of the court ruling was that the board was required to seat four more independent directors, giving the non-management "outsiders" a majority. Into the 1990s, company policy held that 60 percent of the board seats had to be held by non-management personnel.
After the scandal, the company had considerably more trouble selling its products. David Packard, an assistant secretary of defense in the Nixon Administration, invited two finalists to compete for the job of producing America's next fighter jet; Northrop's F-17 Cobra competed against General Dynamics' F-16. Prototypes of the jets flew against each other in dogfights. In the end, the F-16 won the competition. The F-17, however, was later redesigned by Northrop in conjunction with McDonnell Douglas and renamed the F-18 Hornet.
The F-18 Hornet was to be produced in two versions in partnership with McDonnell Douglas. Douglas was the prime contractor for the F-18A carrier-based fighter, and Northrop was the prime contractor for the F-18L, a land-based version. Each company was supposed to serve as the other's subcontractor. A dispute erupted when McDonnell Douglas's F-18A outsold the F-18L, even in countries without aircraft carriers. According to Northrop, the company was being treated unfairly by McDonnell Douglas. The two companies brought legal action against each other, charging violation of their "teaming agreement," one of the first major competitor partnerships since World War II. In April 1985, the court settled in favor of Northrop and awarded the company $50 million. McDonnell Douglas, however, was awarded the prime contractor's role for all future F-18s, with Northrop designated as the subcontractor.
Northrop had another unpleasant experience when the Carter administration called for the development of an advanced fighter jet that was expressly intended for export. Too many foreign countries were showing interest in jets the government considered too technologically sophisticated for mass export. In response, Northrop, at its own expense, developed a less sophisticated fighter called the F-20 Tigershark. It was delivered ahead of schedule and below budget. The problem was that foreign governments still wanted the more sophisticated American jets. Northrop complained that the U.S. government was not promoting the F-20 vigorously enough. The government denied a large sale of F-20s to Taiwan because it was afraid the sale would upset mainland China. In November 1986 the U.S. Air Force selected General Dynamics' F-16 over the F-20 as its main fighter for defense of the North American continent. As a result, Northrop announced that it would halt further work on the F-20.
Controversy continued to hound Northrop into the late 1980s, particularly Jones, who left the company amid a storm of accusations in 1989, ending his 30-year tenure and leaving the company in a precarious position. Jones had racked up an enormous debt during the decade, banking on the success of two projects, the U.S. Air Force's Advanced Tactical Fighter (ATF) and the B-2 stealth bomber, which represented, by the decade's end, the company's only opportunities for growth. To fund these and other projects, Northrop borrowed heavily, increasing its debt from $215 million in 1984 to an enormous $1.1 billion by 1989.
Early 1990s: Restructuring and Purchase of Grumman
After Jones's departure, Kent Kresa, a former technology director and engineer, became Northrop's chief executive officer, assuming his post in January 1990. Shortly thereafter, the company pled guilty to 34 counts of fraud for falsifying test data on two military programs and paid a $17 million fine. Then, Kresa began effecting substantial changes in the size and operation of the company to further distance itself from the embarrassments of the 1980s. He replaced nearly half of the company's senior management, reduced the company's debt by selling its headquarters and idle production sites, and intensified the company's lobbying efforts to ensure the success of the ATF and B-2 programs, both of which seemed to be slipping away from Northrop's grip, yet represented the company's only true opportunity to arrest the financial slide begun several years earlier.
In 1991, when hopes for the future of the B-2 program were buoyed by the launching of Operation Desert Storm in the Persian Gulf, disaster again struck Northrop with the announcement by the Pentagon that it had selected Lockheed to manufacture the Air Force's ATF. Air Force Secretary Donald B. Rice noted that both Lockheed's and Northrop's supersonic stealth fighters had performed equally well, but Lockheed received the contract because of its proven track record to control costs and meet production schedules. The announcement represented a severe loss for Northrop, heaping all of the company's hopes for the future on the continued funding of the B-2 program, which accounted for 50 percent of the company's revenues.
Except for the 1992 acquisition of LTV Corp.'s Vought Aircraft Co. in a joint venture with the Carlyle Group, Northrop failed to secure a more viable and stable future for itself in the years following the loss of the AFT project. Support for the B-2 program continued to wane, and Northrop recorded a string of failed acquisitions, including unsuccessful attempts to purchase IBM's Federal Systems Division and General Dynamics' F-16 fighter business. With its debt reduced, however, and $1.3 billion in credit lines, the company continued to look for an acquisition to partly offset its reliance on funding for the B-2 program. An opportunity presented itself in early 1994, when Northrop and Martin Marietta aggressively pursued Grumman Corporation, an aerospace and electronic surveillance manufacturer with ties to the U.S. Navy. Northrop won the bidding war for Grumman, eclipsing Martin Marietta's price of $1.9 billion with a $2.17 billion offer of its own. In April 1994, Northrop absorbed Grumman, making the combination a weak third in the industry behind Lockheed and McDonnell Douglas, but a stronger, more diversified organization, nevertheless.
Early History of Grumman
Leroy Grumman left the Navy in 1920 to become a test pilot and chief engineer for Grover and Albert Loening, who manufactured an airplane called the Fleetwing. In 1923, Vincent Astor's New York-Newport Air Service Company lost one of its Fleetwings over the ocean. Cary Morgan (a nephew of J.P. Morgan) was killed in the accident, which a later investigation revealed was caused when Morgan fell asleep with his foot obstructing the pilot's controls. Nevertheless, bad publicity surrounding the accident put Astor's company out of business. Grumman and a fellow worker named Leon Swirbul purchased the airline from Astor and later transformed it into a manufacturing company, building amphibious floats for Loening aircraft.
Unlike other aircraft manufacturers who entered the business as barnstormers or hobbyists, Leroy Grumman was a graduate of the Cornell University engineering school. Leon Swirbul was a product of the disciplined military aviation program. Both men worked for the Loening brothers until 1928, when Keystone Aircraft purchased Loening Aeronautical and moved the entire operation to Keystone's headquarters in Bristol, Pennsylvania. Grumman and Swirbul decided to remain in Long Island, and in 1929 they formed their own company, Grumman Aircraft Engineering Corporation.
After building a number of experimental airplanes, Grumman Aircraft manufactured its first fighter, designated the FF-1, for the Navy in 1932. This design was improved upon in subsequent models and led to the development of the successful F4F Wildcat, Grumman's first fighter with folding wings. With folded wings, twice as many airplanes could be stored on an aircraft carrier as before. The company also manufactured a line of "flying boats" called the Goose and the Duck.
Coincidentally, a second factory for manufacturing warplanes was dedicated by Grumman on the morning of December 7, 1941, as the Japanese were bombing Pearl Harbor. At the outset of the war Grumman had an advantage over nonmilitary manufacturers because the company did not require retooling. Automobile manufacturers, for instance, had to be converted from the production of cars and trucks to battle tanks and airplanes; assembly lines for sewing machines had to be refitted to produce machine guns. Grumman's only task was to increase its output and develop new airplane designs.
During the war, Grumman developed new aircraft such as the amphibious J4F Widgeon, the TBF Avenger naval attack bomber, and a successor to the Wildcat called the F6F Hellcat. The Hellcat was developed in response to the Mitsubishi Zero, a highly maneuverable Japanese fighter with a powerful engine. Grumman aircraft were used almost exclusively in the Pacific war against Japan, and provided the American carrier forces with the power to repel many Japanese naval and aerial attacks. U.S. Secretary of Navy Forrestal later said, "In my opinion, Grumman saved Guadalcanal."
No other aircraft manufacturer received such high praise from the military. Grumman was the first company to be awarded an "E" by the U.S. government for excellence in its work. The award further increased the high morale at Grumman. The Grumman company turned out over 500 airplanes per month. To maintain that level of productivity the company provided a number of services to its workers, including daycare, personnel counseling, auto repair, and errand running. In addition, employees were substantially rewarded for their efficient work. The company had always had an excellent relationship with its employees, largely as a result of policies set down by Leon Swirbul, who oversaw production and employee relations while Grumman involved himself in design, engineering, and financial matters. By the end of the war, Grumman had produced over 17,000 aircraft.
The sudden termination of government contracts after the war seriously affected companies such as Boeing, Lockheed, and McDonnell Douglas, as well as Grumman. Many aircraft companies first looked to the commercial airliner market as an opportunity to maintain both their scale of operation and profitability. The market suddenly became highly competitive. Although Grumman manufactured commercial aircraft, it elected to remain out of the passenger transport business. Those companies that did manufacture commercial transports lost money, and some even went out of business. Grumman continued to conduct most of its business with the Navy. In addition to its F7F Tigercat and F8F Bearcat, the company developed a number of new aircraft, including the AF-2 Guardian and the F9F Panther and F10F Jaguar, Grumman's first jet airplanes.
During the 1950s, Grumman developed two new amphibious airplanes called the Mallard and Albatross; new jets included the Tiger, Cougar, and Intruder. It also diversified its product line by introducing aluminum truck bodies, canoes, and small boats. In 1958 Grumman unveiled the world's first business jet, the Gulfstream I, quickly selling 200 of them. In 1960 Grumman's cofounder Leon Swirbul died.
1960s and 1970s: Entering Aerospace and Other Industries
Grumman created a subsidiary in 1962 called Grumman Allied. The subsidiary was established to operate and coordinate all of the company's non-aeronautical business, and allow management to concentrate on its aerospace ventures. When the National Aeronautics and Space Administration (NASA) completed its Mercury and Gemini space programs, it turned its attention to fulfilling the challenge made by the late President Kennedy, namely, landing a man on the moon before 1970. The Apollo program called for several moon landings, each using two spaceships. The command modules, manufactured by McDonnell Douglas, were intended to orbit the moon while the lunar modules, built by Grumman, landed on the moon. Grumman's contract with NASA specified construction of 15 lunar modules, ten test modules, and two mission simulators. Only 12, however, were actually built.
Design problems already faced by Grumman engineers were compounded by their limited knowledge of the lunar surface. The lunar modules had to meet unusual crisis-scenario specifications, such as hard landings, landings on steep inclines, and a variety of system failures. Nine thousand Grumman personnel were devoted to the lunar module project, representing a reorientation of the company's business--Grumman had entered the aerospace industry.
The United States made its first manned moon landing in July 1969, with several more to follow through 1972. Grumman's spaceships performed almost flawlessly and represented a new and special relationship between the company and NASA. Grumman was later chosen by NASA to build the six-foot-thick wings for the agency's space shuttles. Meanwhile, Grumman Aircraft changed its name to Grumman Corporation to reflect its increasingly diverse operations.
Through the 1950s and 1960s, Grumman maintained a good relationship with the Pentagon. While that relationship continued to be good during the 1970s, it was marked by a serious disagreement over the delivery of 313 of Grumman's F-14 Tomcat fighter jets. At issue was who was to pay for cost overruns on a government-ordered project--the company or the taxpayer? Grumman was losing $1 million per F-14 and refused to deliver any more to the Navy until its losses were covered. The company pleaded its case in full-page advertisements in the New York Times, the Wall Street Journal, and the Washington Post. Grumman argued that completion of the contract under the present terms would bankrupt the company. The matter was later resolved when the Defense Department agreed to cover Grumman's losses, and the company agreed to a new contract procedure that would automatically review project costs on an annual basis and make adjustments when necessary.
Grumman's swing-wing F-14 became operational in 1973 and soon established itself as the standard carrier-based fighter jet for the U.S. Navy. Assigned to intercept attacking jets and protect carrier battle groups, the Tomcat had variable geometry wings that swept back when it was sprinting and swept out when it was landing. It could independently track 24 targets and destroy six of them at a time. F-14s performed successfully in intermittent raids and dogfights with Libyan pilots over the Gulf of Sidra.
In addition to the F-14, Grumman manufactured the E-2C Hawkeye, an early warning airborne command center able to track over 600 objects within three million cubic miles of airspace. The Israeli Air Force used E-2Cs to direct its air battles with Syrian pilots over Lebanon's Bekaa Valley in 1982. During those battles, Syria lost 92 of its Soviet-built MiGs while Israel lost only two of its jets. In the Falkland Islands War, Britain's HMS Sheffield was sunk by an Exocet missile launched from an Argentine Super Etendard attack jet. U.S. Navy Secretary John Lehman asserted that if the British had an E-2C in the Falklands, they would have had unchallenged air superiority and would not have lost any ships to Exocet missiles. Both examples illustrated the value of the Hawkeye.
The Navy's A-6 Intruder attack bomber and EA-6B Prowler radar jammer were also manufactured by Grumman, which also remanufactured 42 General Dynamics F-111 bombers for the U.S. Air Force. The new aircraft, designated EF-111, was designed to jam enemy radar surveillance "from the Baltic to the Adriatic." According to Grumman Chairman Jack Bierwirth, "it's one of the great exercises to fly this plane against the E-2C." This volley of electronic countermeasures showed the extent to which Grumman's only competition for a long time was itself.
The electronic sophistication of Grumman's aircraft invited criticism from military reformers who argued that modern weapons had become too complex and therefore unmanageable. In the 1970s, these reformers, led by Gary Hart, widely publicized this view. The ultimate success of their movement could have had disastrous effects for Grumman. Following the costly disagreement over the F-14, the company's long-term viability was threatened even more by these reformers under the Carter Administration.
Continued attempts to sell F-14s to foreign governments failed, as did lobbying efforts to sell more of the jets to the U.S. Navy. Consequently, Grumman made an effort to diversify its product line. The strategy was ambitious but failed. The company's Dormavac freight refrigerators had no market (losing $46 million), and its Ecosystems environmental management and research venture was unable to turn a profit, resulting in losses of $50 million. Furthermore, during the recession of the late 1970s, sales of the Gulfstream corporate jet faltered, leading Grumman to sell off the division, which was renamed Gulfstream Aerospace Corporation.
In 1978, Grumman acquired the curiously named Flxible bus division from Rohr Industries. Many of the buses developed cracked undercarriage components, prompting some customers (such as the City of New York) to pull all of their Flxible buses out of service. Grumman filed a $500 million suit against Rohr, alleging that details of design flaws were not revealed prior to the sale. The suit was dismissed in court. Grumman's losses in this venture approached $200 million before the entire division was sold to General Automotive in 1983 for $41 million.
1980s: Host of Troubles for Grumman
In 1981 Grumman faced a hostile takeover from LTV Corporation, a steel, electronics, and aircraft conglomerate based in Texas. Grumman's workers mobilized an enthusiastic demonstration of support for their company's resistance to LTV. Leroy Grumman, who retired from the company in 1972, raised employee morale when he voiced his support of the opposition to the LTV takeover attempt. A U.S. court of appeals later rejected LTV's bid to take over Grumman on the grounds that it would reduce competition in the aerospace and defense industries.
Leroy Grumman died in 1982 after a long illness. It was widely reported that Grumman was blinded in 1946 by a severe allergic reaction to penicillin administered during treatment of pneumonia. In fact, Grumman was not blinded. His eyesight did, however, begin to deteriorate many years later as his health began to wane.
The Grumman Corporation faced another threat when it became involved in a scandal involving illegal bribes to government officials in Iran and Japan. After the Lockheed Corporation was accused of such improprieties, the sales practices of other defense contractors such as Grumman came under scrutiny. During the investigation of Grumman, a Japanese official named Mitsuhiro Shimada committed suicide.
After the investigations subsided, the companies in question were free to concentrate all their efforts on more constructive matters. Grumman engineers, however, had something highly unconventional on their drawing boards. Grumman's chairman, Jack Bierwirth, was credited with saying, "If you don't invest in research and development, you damned well aren't going to accomplish anything." With that in mind, Grumman, in conjunction with the Defense Advanced Research Projects Agency, developed a special jet called the X-29 specifically to demonstrate the company's advanced technology. The revolutionary feature of the X-29 was that its wings swept forward, appearing to have been mounted backwards. This feature gave the X-29 superior maneuverability. To counteract the inherent instability of such a design, the X-29 was equipped with a Honeywell computer system which readjusted the canards (wing controls) 40 times a second, maintaining stable flight.
The X-29 was tested under the auspices of NASA during 1984 and 1985. Never intended for mass production, only one X-29 was built as a "technology demonstrator." Bierwirth described projects such as the X-29 as "marrying electronics with computer programming, then putting wings on it."
John Cocks Bierwirth, a former naval officer, became Grumman's chairman and chief executive officer in 1976. Regarding his mission as "essentially building the corporation of the future," Bierwirth divided Grumman's operations into nine divisions under centralized management. According to Bierwirth, Grumman's future was with aircraft, space, and electronics. Nevertheless, work on such projects as a new post office truck were designed to maintain a stable and diverse product line. Bierwirth claimed, "We think we are a good investment for people who are interested in the long term and are willing to grow with the company; Grumman is not a three month in-and-out investment."
Grumman's investments in research projects, however, did not prove as successful as Bierwirth hoped. Throughout the 1980s, with the notable exceptions of contracts for F-14 fighters and A-6 attack aircraft, Grumman was hobbled by research projects and product introductions that failed miserably. The company's diversification into the production of buses began the decade's string of failures, portending further mishaps to follow. The 851 Flxible buses purchased by New York's Metropolitan Transport Authority in 1980 were withdrawn from service three years later after repeated breakdowns, a failed venture for which Grumman paid $40 million in 1988 to settle legal claims against it. Other problems riddled the company, none larger nor more damaging in the long-term than its overwhelming dependence on government-funded military contracts. As Grumman's debt rose, exacerbated by research projects that swallowed vast amounts of cash and generated little profit, the company increasingly weakened, staggering, by the end of the decade, on untenable ground.
In 1988 the company named a new chief executive officer, John O'Brien, whose selection augured a return to more profitable days. O'Brien later became chairman but resigned in 1990 amid allegations of illegal activities. He later pled guilty to bank fraud stemming from an investigation into bribery and political corruption, adding the public relations scandal and the financial charges that followed to Grumman's host of troubles. O'Brien's replacement was Renso L. Caporali, a Grumman employee since 1959, who began steering the embattled company in a positive direction.
Early 1990s: Restructuring and the Northrop Takeover
Under Caporali's stewardship, Grumman experienced wholesale changes. The company's debt, which had risen to as high as $884 million in 1989, was trimmed 60 percent in the first three years of his tenure, payroll was reduced from a peak of 33,700 in 1987 to 21,000 by 1993, and Grumman's headquarters staff was cut by more than half. Perhaps more important, Caporali attempted to wean Grumman away from subsisting on military aircraft contracts by tapping the company's established expertise in data technology to produce tax processing systems for the Internal Revenue Service. Also, Caporali used the company's knowledge of integrating electronics and data systems. Caporali thus oversaw one of Grumman's few success stories in the past decade when the company's work on the Joint Surveillance Target Attack Radar System (JSTARS) program met with high praise in the Persian Gulf in 1991. Although Grumman could not expect to garner any profit from its involvement with the JSTARS project until 1994, the success of the project, triumphantly hailed by General Norman Schwarzkopf, was a public relations boon for a company plagued by scandals and misfortune.
Although Grumman's condition was improving, it continued to rely on the federal government for the bulk of its revenues. In 1992 Grumman derived roughly 90 percent of its $3.5 billion in revenues from the government, an alarming percentage for a market sector experiencing little growth. Seemingly entrenched in this unenviable position, Grumman, pundits speculated, either needed to acquire additional business or be acquired itself. The latter occurred, leading to a bidding war for Grumman between the Martin Marietta Corporation and Northrop Corporation, which reached its climax in April 1994, when Northrop emerged as the winner and acquired Grumman for $2.17 billion.
Mid-1990s: Emergence and Near Disappearance of Northrop Grumman
With its acquisition of Grumman, Northrop gained the electronic surveillance expertise of Grumman as well as its established ties with the U.S. Navy, which complemented Northrop's long history of conducting business with the U.S. Air Force. The newly named Northrop Grumman Corporation, under the stewardship of Northrop's CEO and chairman, Kent Kresa, represented a larger force to navigate the turbulent waters characterizing the aerospace and defense industries in the post-Cold War era.
Soon after the completion of the Northrop-Grumman merger, the new company acquired the 51 percent of Vought Aircraft Company it did not already own for $130 million. Vought was a maker of commercial airplane parts. Northrop Grumman also eliminated about 8,650 jobs from its workforce in the wake of the merger.
To reduce its dependency on its largest program, the B-2 stealth bomber, the company began seeking ways to increase its position in defense electronics and systems integration activities. In early 1996 Northrop Grumman spent $2.9 billion for the defense and electronic systems business of Westinghouse Electric Corporation. This acquisition was followed by the purchase of Logicon, Inc. in August 1997 for about $750 million. Logicon was a leading provider of defense information technology and battlefield management systems.
Unfortunately, Raytheon Company beat out Northrop Grumman in the bidding for the defense businesses of Texas Instruments Inc. and Hughes Electronics Corporation, both of which were acquired by Raytheon in 1997. Boeing and Lockheed Martin were also bulking up around this same time, leaving Northrop Grumman and its $9 billion in revenues a distant fourth among defense contractors--Boeing having revenues approaching $50 billion, Lockheed generating $28 billion in sales, and Raytheon's revenues moving past the $20 billion mark. Northrop Grumman was clearly in a vulnerable position, and it was widely anticipated that the company would soon change from acquirer to acquiree, with Raytheon a likely suitor. It was Lockheed Martin, however, that took on that role, and in July 1997 Northrop Grumman agreed to be acquired by Lockheed in a deal initially valued at $11.6 billion.
Somewhat unexpectedly, the merger ran into antitrust difficulties. In March 1998 the U.S. Department of Justice filed a lawsuit to stop the combination on antitrust grounds. One of the main concerns of the government was the vertical integration that Lockheed would gain from the deal, given that Northrop Grumman was a major Lockheed subcontractor. The government also wanted to ensure that there were an adequate number of manufacturers of military aircraft and wanted to prevent Lockheed from dominating certain market segments, such as radars and jamming devices for planes and submarines. The lawsuit was scheduled to go to trial in September 1998, but in the face of the Justice Department's demand for the divestment of $4 billion in operations, Lockheed decided to terminate the merger in July 1998. In the aftermath of this latest turn of events and in an effort to survive as an independent company, Northrop Grumman launched a two-year restructuring program later in 1998 that would eliminate 10,500 jobs in its defense and aircraft operations and add 2,500 employees to its Logicon subsidiary.
Late 1990s and Beyond: Increasing Focus on Defense Electronics and Systems Integration
With Kresa still at the helm, Northrop Grumman adopted a new strategy in the late 1990s of focusing the company increasingly on cutting-edge areas of the defense industry, including electronics and systems integration. Acquisitions played a key role in the company's shifting emphasis. In 1999 the company purchased the information systems division of California Microwave, Inc., which was involved in supporting communications and intelligence systems of the U.S. Department of Defense. Northrop Grumman also bought Ryan Aeronautical, a unit of Allegheny Teledyne Incorporated, that year. Ryan manufactured pilotless aircraft (aerial drones), including the Global Hawk, a high-altitude, long-endurance reconnaissance drone capable of providing real-time intelligence imagery. By the early 21st century, Northrop Grumman was one of the world's leading producers of high-end aerial drones. Acquisitions in 2000 included Comptek Research, Inc. and Federal Data Corporation. Northrop Grumman's newfound focus also led to the divestment of Vought Aircraft, which was sold to the Carlyle Group in July 2000 for $1.2 billion. The company now had three main sectors: systems integration, defense electronics, and information technology.
Continuing a most remarkable comeback, Northrop Grumman in December 2000 reached an agreement to acquire Litton Industries, Inc., which reported revenues of $5.59 billion for the fiscal year ending in July 2000. Completed in April 2001, the deal involved about $3.8 billion in Northrop Grumman stock, with Northrop also agreeing to assume $1.3 billion of debt. Northrop gained significant synergistic operations through the acquisition, including Litton's navigation, guidance, and control systems; marine electronics operations; electronic warfare systems; and an information systems unit that concentrated on networking systems integration. Adding Litton also meant that Northrop Grumman would add two more sectors to its existing three: an electronic components segment, which made connectors, circuit boards, and other devices used in the military, telecommunications, and other industries; and a ship systems segment, builder of guided missile destroyers, amphibious assault ships, and other vessels for the U.S. Navy.
Northrop Grumman's acquisition spree continued in the later months of 2001. The company acquired an electronics and information unit of GenCorp Inc. for $315 million. The unit specialized in space-based sensors that provided early warning of missile attacks as well as ground systems for processing data from space-based platforms. These operations became part of Northrop Grumman's space systems division. Northrop Grumman also bested General Dynamics in the battle for control of Newport News Shipbuilding Inc., maker of aircraft carriers and submarines for the U.S. Navy. Upon completion of the acquisition in November 2001, Northrop Grumman became the world's largest maker of naval ships and the number three defense contractor in the United States, trailing only Boeing and Lockheed Martin. The value of the deal was about $2.6 billion, which included the assumption of $500 million in debt. Newport News was set up as Northrop Grumman's sixth operating sector. The acquisition spree had saddled Northrop Grumman with a hefty debt load, so the company in November 2001 completed offerings of common stock and other securities, raising about $1.45 billion in the process, with the bulk of the proceeds going to reduce debt.
Kresa's string of acquisitions had positioned Northrop Grumman as an unlikely survivor of the post-Cold War defense industry consolidation, with revenues projected to reach $18 billion by 2002. In the wake of the events of September 11, 2001, the company seemed to be perfectly positioned to be a key contractor for the U.S. military. By focusing the company's operations on cutting-edge areas--electronics, information technology, command and control systems--Kresa had anticipated the increased need for intelligence gathering and precision operations in the post-Cold War era. At the same time, Northrop Grumman maintained or acquired significant positions in more basic areas of the military, such as aircraft and naval ships, and so had the potential to benefit from any general military buildup.
Principal Subsidiaries: Allied Holdings, Inc.; California Microwave, Inc.; Comptek Research, Inc.; Federal Data Corporation; Grumman International, Inc.; Grumman Ohio Corporation; IRAN - Northrop Grumman Programs Service Company; Logicon Commercial Information Services Inc.; Logicon, Inc.; Logicon International, Inc.; Mocit, Inc.; NGC Denmark ApS (Denmark); Northrop Grumman Aviation, Inc.; Northrop Grumman - Canada, Ltd.; Northrop Grumman Electronic Systems International Company; Northrop Grumman Electronic Systems International Company (U.K.); Northrop Grumman Electronics Systems Integration International, Inc.; Northrop Grumman Field Support Services, Inc.; Northrop Grumman Foreign Sales Corporation (Barbados); Northrop Grumman International, Inc.; Northrop Grumman International Services Company, Inc.; Northrop Grumman ISA International, Inc.; Northrop Grumman Overseas Holdings, Inc.; Northrop Grumman Overseas Service Corporation; Northrop Grumman Space Operations, L.P.; Northrop Grumman Tactical Systems, LLC; Northrop Grumman Technical Services Corporation; Northrop International Aircraft, Inc.; Park Air Electronics, Inc.; Perceptics Corporation; Remotec, Inc. (96%); Sterling Software Inc.; Sterling Software Weather, Inc.; Xetron Corporation.
Principal Operating Units: Electronic Systems; Information Technology; Integrated Systems; Ship Systems; Newport News; Component Technologies.
Principal Competitors: The Boeing Company; Lockheed Martin Corporation; Raytheon Company; General Dynamics Corporation; Honeywell Aerospace Solutions; BAE Systems; European Aeronautic Defence and Space Company N.V.; United Technologies Corporation.
- Key Dates:
- 1929: Grumman Aircraft Engineering Corporation is founded.
- 1939: Jack Northrop forms Northrop Aircraft Company, beginning work on a "flying wing" bomber.
- 1958: Northrop Aircraft changes its name to Northrop Corporation.
- 1969: Grumman Aircraft changes its name to Grumman Corporation.
- 1981: A U.S. court of appeals blocks an attempted hostile takeover of Grumman by LTV Corporation.
- 1994: Northrop acquires Grumman for $2.17 billion, forming Northrop Grumman Corporation.
- 1996: Company acquires the defense and electronic systems business of Westinghouse Electric Corporation for $2.9 billion.
- 1997: Northrop Grumman agrees to be acquired by Lockheed Martin for $11.6 billion; Logicon, a leading provider of defense information technology and battlefield management systems, is acquired.
- 1998: Merger with Lockheed falls apart, following U.S. government opposition on antitrust grounds; Northrop Grumman subsequently focuses increasingly on cutting-edge areas of the defense industry, including electronics and systems integration.
- 2000: Vought Aircraft is sold to the Carlyle Group for $1.2 billion.
- 2001: Litton Industries, Inc. is acquired for $3.8 billion in stock and $1.3 billion in debt; Newport News Shipbuilding Inc., maker of aircraft carriers and submarines for the U.S. Navy, is acquired for $2.6 billion.
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