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Northrop Gets Ship Contract

Defense: $2.9-billion design program for new destroyer could lead to construction funding worth $60 billion.


Northrop Grumman Corp. won a $2.9-billion contract Monday to begin designing a new generation of destroyers, beating out archrival General Dynamics Co. for what Pentagon officials described as one of the most significant Navy programs in decades.

By winning the contract, Century City-based Northrop and its partner, Raytheon Corp., will not only design the new warship, dubbed DDX, but also will give the team a leg up in garnering future contracts for other surface ships that analysts believe could represent an additional business valued at $60 billion.

The Navy wants a destroyer that would be stealthy, operate with about a third of the crew now required for similar class ships and have technologies that would be the foundation for future generations of warships. The proposed design released publicly by Northrop depicts a ship riding low in the water. It is devoid of many of the features of current destroyers and bears some resemblance to Civil War-era ironclads.

"This is a ship for the information age," said Loren Thompson, a defense analyst for the Arlington, Va.-based Lexington Institute. "It could mean tens of billions of dollars over a period of several decades. This is an impressive win for Northrop and Raytheon."

The Northrop win surprised analysts, however, because General Dynamics, along with partner Lockheed Martin Corp., was considered the favorite because it has dominated surface ship construction for the Navy in recent decades. Lockheed, for instance, has been the system integrator for a significant portion of the Navy's fleet.

Although the Pentagon announced the winner after the markets closed, investors began selling General Dynamics based on initial reports that the company had lost the contract. In trading on the New York Stock Exchange, General Dynamics fell $2.30 to $95.06 while Lockheed shares rose slightly to $61.55, up 3cents. Meanwhile, Northrop shares fell 64cents to $115.99 as Raytheon stock rose 5cents to $40.06.

While both Northrop and Raytheon executives said the Navy's decision did not come as a surprise, there was an uncharacteristic display of jubilation as the chairmen of both companies held a joint news conference shortly after the announcement.

"Raytheon is absolutely delighted," said Daniel P. Burnham. "This is a great day for Northrop," said Kent Kresa.

Still, General Dynamics was not left completely out of the picture. Because Northrop and General Dynamics are the only military shipbuilders left--Northrop acquired both Litton Industries Inc. and Newport News Shipbuilding in the last year--the Pentagon took great pains to make sure that General Dynamics would have some involvement in the development.

In announcing the award, Pentagon officials said that General Dynamics and its Bath Iron Works Shipyard would become a subcontractor to Northrop and that the shipyard would be able to compete for the production contract.

The move "will ensure BIW [Bath Iron Works] will have the ability to produce a detailed DDX design and build these ships in the future," the Pentagon said.

For Northrop, the DDX program will be lead by its Ingalls Shipbuilding Inc. unit in Pascagoula, Miss., where the company will design, produce and test a prototype. Raytheon's Electronic Systems unit in El Segundo will lead the development of the ship's electronics and weapons systems, although much of the work is expected to be carried out by engineers at its facilities in New England.

Northrop will use a decommissioned Spruance class destroyer, the Radford, to test the new technologies developed for the DDX and other future combat surface ships, the company said.

Pentagon officials said the DDX program was akin to the program to build the next generation of fighter jets, an effort that has a potential value of $200billion.

The award "marks the beginning of a new family of surface combatants," said Edward C. "Pete" Aldridge Jr., the Pentagon's chief of acquisitions. "DDX is the Joint Strike Fighter equivalent for shipbuilding."

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