Northrop Grumman excels in manufacturing military aircraft. So why would you want to do something you're not good at?
13 years ago Military aerospace and shipbuilding giant Northrop Grumman (NOC -0.10%) The company made a strategic decision to abandon its shipbuilding division and focus instead on its aerospace business. Units that were rejected during spin-off, huntington ingalls (HII -0.22%)'s market capitalization was valued at approximately $2.5 billion, leaving the rest of Northrop Grumman's market capitalization at approximately $14 billion.
Today, Northrop Grumman has a $70 billion defense business worth five times what it was 13 years ago.Huntington Ingalls stock is also doing well, but rising a bit. few It's worth more than 5 times more. With that in mind, Northrop Grumman may not have necessarily needed to separate its shipbuilding division, but at least it didn't suffer from the decision. And Northrop might have done a little better without the shipbuilding business than it would have done with it.
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So why is Northrop Grumman returning to military shipbuilding today?
Northrop Grumman: Navy Drone Pilot
That's exactly what Northrop is trying to do. In a widely publicized announcement earlier this month (strangely The U.S. Defense Advanced Research Projects Agency has completed full-scale sea trials of a new large unmanned submarine called Manta Ray, built by Northrop Grumman for DARPA. Announced. . ”
Shaped like a manta ray with an oval body and two outstretched fins, the manta ray looks about 40 feet wide at its widest point and about 40 feet at its longest point. DARPA describes the ship as a “new class of long-endurance, long-range, payload-capable UUV” equipped with “multiple sizes and types of payload bays to enable a variety of naval mission sets.” are doing.
There is no mention of what those missions will be.
However, Northrop Grumman itself has dropped hints that Manta will operate in “marine environments inaccessible to humans,” suggesting that the vessel is designed for deep-sea operations. It seems there is. In fact, Northrop points out that manta rays are energy-efficient vessels that can “moor to the ocean floor and hibernate in a low-power state.”
Some media commentators have suggested that manta rays may be designed to remain dormant and undetected on the deep ocean floor until they are activated and given a mission. More specifically, some say the Manta's stealthy design and long durability meant it was created to “scan the oceans for Russian and Chinese submarines.”
What does this mean for Northrop Grumman?
Assuming these speculations are accurate, it's clear why the US Navy needs a few Manta Rays in its fleet, and why DARPA is asking defense contractors like Northrop to build them. (In addition to Northrop, privately held Packmar Technologies also won a $55 million contract to build its own Manta Ray.)
What is less clear is why Northrop Grumman would dive back into naval waters for such a pittance. Assuming Northrop earns as much as $55 million for Manta, that's only 0.1% of the $40 billion in contract value Northrop collects each year, according to S&P Global Market Intelligence data.
So why change policy now?
Thirteen years ago, Northrop Grumman apparently decided that military shipbuilding wasn't a profitable enough business and its time would be better spent building airplanes. In recent years, the company has diversified further into space systems, acquiring one rocket maker (Orbital ATK), partnering with another (Firefly Aerospace), and doing pretty well overall.
company did Last year, the company found itself in a rather difficult situation as its aviation division fell into an operating deficit due to cost overruns in developing the B-21, a new stealth bomber for the Air Force. But still, Northrop's remaining businesses helped smooth out losses, and Northrop ended 2023 with a sizable profit of $2.1 billion.
Choose your lane, Northrop Grumman
It seems to me that Northrop's problem is that whenever one of its business units starts to hit hard times, management overreacts and wanders in new directions. Thirteen years ago, while the division was still dealing with losses from hurricane damage to its Gulf Coast shipbuilding facilities, it made the decision to throw the Huntington Ingalls overboard. After 13 years, Northrop may be teetering. return It entered the shipbuilding industry as a way to diversify the risk of overbidding on aircraft contracts.
Not to knock Manta or anything like that, but it looks like a really nice drone, but the Northrop Grumman might be better if you could “choose your lane”. Focus on one business to be successful, and when a problem arises in that business, resolve the problem instead of getting distracted and letting it fester into something else entirely.
