Northrop CEO forecasts ‘more consolidation’ for defense sector

By: Joe Gould

WASHINGTON ― The drive to rapidly develop defense technologies will spur more industry mergers and acquisition activity over the next two decades, and create new entrants in the realm of cyber and artificial intelligence, Northrop Grumman CEO Kathy Warden said Tuesday.

“As a result, I believe the industry will look different in terms of its composition. There'll be more consolidation,” Warden said in a wide-ranging interview through the Center for Strategic and International Studies. She also foresaw increased government-industry collaboration.

“There will also be more new entrants, and so it's hard to say there will be fewer players, but the ones that exist today will likely continue to consolidate as we have seen in recent years and we've seen in other cycles,” she added.

New firms will adapt commercial AI and machine-learning applications for military surveillance as well as command and control, Warden predicted.

The executive's comments came after the new deputy defense secretary, Kathleen Hicks, said at her confirmation hearing this month that she is concerned by consolidation in the defense-industrial base and that competition is needed for the U.S. military to maintain an edge over China and Russia. Hicks' office will review deals that involve national security issues.

“Extreme consolidation does create challenges for innovation,” Hicks said. “We need to have a lot of different, good ideas out there. That's our competitive advantage over authoritarian states like China, and Russia. And so if we move all competition out, obviously that's a challenge for the taxpayer, but it's also a challenge in terms of the innovation piece.”

The U.S. faces a new space race, and the Biden administration should continue work to compete in that domain, said Warden, whose firm saw sales growth last year driven by its space division. Her comments also come in the wake of the Biden administration's affirmed support for Space Force, the military service created under the Trump administration.

“Many nations are demonstrating the capability to both operate in space but also have anti-satellite capability, so what we need to focus on is putting in place the norms and technologies that allow us to have freedom of operation in the space domain,” Warden said.

Last month, Northrop reported that its Space Systems segment led the company in sales for both the fourth quarter of 2020 and for the full year. The segment was driven by a higher volume on classified programs as well as the Next-Generation Overhead Persistent Infrared and NASA Artemis programs.

A ramp-up for the Ground Based Strategic Deterrent, launch vehicles and hypersonics programs drove the company's Launch & Strategic Missiles sales. Northrop won a $13.3 billion contract in September from the U.S. Air Force to build the GBSD, which replaces the aging Minuteman III intercontinental ballistic missile system.

President Joe Biden is expected to launch a review of the nation's expensive nuclear modernization portfolio. Reportedly, the GBSD program could cost U.S. taxpayers as much as $110.6 billion.

Warden defended the country's current track on nuclear modernization and said America's triad of nuclear weapons is “very important to keeping the peace.” More broadly, Warden offered a message that seemed calibrated to the new administration, saying the aerospace and defense industry provides platforms like the F-35 fighter as “an aid to diplomacy” and interoperability among allies.

“It's hard for anyone to say what would have happened had we not had ICBMs over the last 50 years,” she said, “but lots of very smart statesman, military personnel and civilians alike have studied this through multiple nuclear posture reviews and come out believing that the best posture for our nation is continuing to move forward with the modernization of all three legs of our triad.”

https://www.defensenews.com/2021/02/09/northrop-ceo-sees-more-consolidation-for-defense-sector/