U.S. Navy still sees savings on its version of Northrop drone

Reuters News
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Posted: Feb 03, 2012 1:28 AM
U.S. Navy still sees savings on its version of Northrop drone

By Andrea Shalal-Esa

WASHINGTON (Reuters) - The U.S. Navy still hopes to find cost savings on its version of Northrop Grumman Corp's unmanned Global Hawk spy plane, despite concerns that the Pentagon's decision to scrap the Air Force model will eliminate promised economies of scale.

Neither the Navy nor the Air Force are providing many details until the Pentagon's fiscal 2013 budget is released on February 13, but the Navy says both military services will continue to look for synergies on the unmanned aircraft programs.

U.S. Navy spokeswoman Captain Cate Mueller declined comment on whether cancellation of the Air Force's Global Hawk Block 30 aircraft would raise the per-plane cost of the Navy's Broad Area Maritime Surveillance (BAMS) program.

But she said the Navy and Air Force still jointly planned to base the BAMS and Global Hawk planes at overseas locations to eliminate redundant efforts and boost operational flexibility. Those plans would be reviewed when final budget decisions on the Global Hawk program were officially released, she said.

"Additional synergy initiatives continue to be reviewed by a joint Navy/Air Force Synergies Working Group, which will generate cost savings for both programs," she added.

Current plans call for the Navy to buy a total of 70 BAMS planes, including two test aircraft.

The Air Force had been slated to buy a total of 31 Global Hawk Block 30s, which fly at 60,000 feet and can stay aloft for 24 hours, in addition to 13 earlier versions and 11 next-generation Block 40s. The new plan calls for 10 fewer Block 30 aircraft, with the rest of those models to be put in storage.

The Air Force had planned to buy a total of 31 Global Hawk Block 30 aircraft for a total of about $2 billion. Fourteen have been delivered and have been used to gather intelligence over Iraq, Afghanistan and Libya, and for surveillance after natural disasters in Japan and Haiti.

The U.S. Congress has the final say and some lawmakers have already questioned the decision, especially given the U.S. military's shifting focus to the Asia-Pacific region, where the Global Hawk's long reach would be a big asset.

Analysts also wonder about the impact of the decision on the economies of scale that were promised when the Navy chose the Northrop drone to replace its P-3 spy plane.

Loren Thompson, an analyst with the Lexington Institute, said the Air Force had made a budget-driven decision "but nobody thought through the consequences for the joint force."

Analyst Byron Callan at Capital Alpha Partners said he expected some "howling" from lawmakers but predicted the Pentagon would prevail in the end, with any cost increases on the associated programs staying in the single-digit range.

DECISION "THOROUGHLY ANALYZED"

Cheryl Irwin, a spokeswoman for the Pentagon, said the cancellation decision -- and any consequences for other related programs -- had been "thoroughly analyzed." She declined further comment until after the fiscal 2013 budget is released.

Northrop Chief Executive Wes Bush told analysts on Wednesday the company was disappointed by the decision and was taking its concerns directly to the Pentagon.

"We will be working with the Pentagon to discuss alternatives that will ensure more cost-effective transition into production for the other programs that are based on Global Hawk," Bush said on a conference call. He declined to elaborate.

Industry experts say the Air Force could face hundreds of millions of dollars in termination fees for cancelling the program, which the Pentagon already restructured last June.

At the time, Ashton Carter, the Pentagon's acquisition chief, said the planes were needed for national security and blamed cost increases on unfunded requirements, additional needs for spares and support equipment, and an unrealistic schedule.

Carter, now deputy defense secretary, told reporters last week the Block 30 version had been axed because it had "become too expensive in a resource-constrained environment."

The company is trying to avoid a break in production at its Palmdale, California facility, where some 2,700 employees work on the overall program. It was not immediately clear how many workers would be affected by the program cancellation.

The last four Global Hawk Block 30 aircraft are in testing or final stages of production at the plant and there are no Block 40 planes in production anymore.

The Navy's fiscal 2012 budget called for three planes to be ordered in fiscal 2013, and four each year in 2014-16. That means the factory could be idle for some time between orders.

The Air Force has retired the first generation Block 10 airplanes, but still flies some Global Hawk Block 20 models.

The planes alone sell for about $30 million each, or around $65 million, including sensors and ground stations.

(Reporting By Andrea Shalal-Esa)