Pork on the Coburn Chopping Block: Northrop Grumman

Mary Katharine Ham
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Posted: May 01, 2006 3:01 PM

Up next is a doozy-- $500 million as a "business disruption" bailout for Northrop Grumman, a defense contractor.

That's half a billion, folks, for business disruption due to Hurricane Katrina, in the shipbuilding division of their business. Let's lay aside for a moment whether the American taxpayer should be footing the bill for business disruption when NG has insurance to cover those things, and just deal with whether NG is suffering from business disruption.

From the ACU (via Andy Roth):

Northrop closed today at $67.24, up $0.34 on the day. Its capitalization is $23.84 billion. By contrast, at the time of Katrina, Northrop’s market capitalization was about $19.15 billion. Thus, since Katrina, Northrop’s market cap has exploded by $4.69 billion, or a whopping 24.5% in just seven months.

And this company needs a $500 million bailout? Its ship building division, to which the money is earmarked, reported 1Q06 sales of about $1.1 billion and a profit margin of 6%. That is down only slightly from the 7.1% margin the division posted in 1Q05.

I went to an Ending Earmarks Express press conference (pictures at that link) to highlight this pork today. While there, Pete Sepp of NTU dealt with the insurance question:

"If the earmark does become law, we're virtually ensuring that the insurance company will never pay out...Let's all grow up, here. Leave this stuff out of the budget. Get back to the essentials."

He added that bailing NG out when it's clearly not suffering is transferring the risk of doing business from the business and insurance companies to the American taxpayer. Businesses and insurance companies take on risks because they stand to gain a reward by putting things at risk. The American taxpayer had no such chance.

This makes no sense. American taxpayers-- invited into the investment process just a leetle too late to make it worth their while. If your financial advisor offered you this deal, um, you would really need to check the sign on the door again, because chances are he ain't a financial advisor.

And, transferring risk from insurance companies to the American taxpayer means fewer insurance companies will feel the need to insure such things, so the pricetag on this kind of activity only gets higher and higher, as the federal government has to pay more and more bailouts.

As if $500 million weren't high enough.

Keep up the fight, folks. Even if you think the government should be doing this kind of stuff, this is most certainly not emergency spending.