Rising B-21 production costs lead to $1.6B charge for Northrop

WASHINGTON — Northrop Grumman reported a nearly $1.6 billion pre-tax charge on the B-21 Raider program in the last quarter of 2023, as the stealth bomber moved into its low-rate initial production phase.

The charge was mainly caused by higher-than-expected production costs and macroeconomic disruptions, company officials said in an earnings call with investors Thursday. The B-21′s charge included $143 million in cost growth on the first LRIP lot, they said.

The Air Force plans to field a fleet of at least 100 of the Northrop-made bombers, beginning in the mid-2020s. The B-21 is designed with the latest stealth technology and intended to penetrate deep into enemy territory for strike missions, even against adversaries with the latest radar and air defenses.

The B-21 program has been relatively successful and on schedule so far. It was publicly rolled out in December 2022, and almost a year later, moved into the flight testing phase at Edwards Air Force Base in California. The Pentagon was impressed enough with the results of the B-21′s ground and flight tests to start production late last year.

But throughout 2023, Northrop Chief Executive Officer Kathy Warden repeatedly warned investors that losses were likely as the B-21 moved into production — losses that are now starting to materialize.

She said the Northrop was “disappointed” by the charge and how its initial assessment of how the LRIP conditions shook out, but emains confident that it can deliver on the company’s outlook going forward.

The B-21 charge caused Northrop’s aeronautics sector to record a loss of nearly $1.3 billion for the quarter, and the company as a whole reported a net loss of $535 million.

The results for all of 2023 were somewhat more positive. The aeronautics sector lost $473 million, while the company overall saw $2.1 billion in earnings.

Warden said the Air Force last year provided about $50 million in inflation relief funding on the initial LRIP lot — but cautioned investors not to get their hopes up for future relief.

Northrop is trying to work with the government to see if there are any further opportunities for further inflation relief, Warden said. Given the Pentagon’s tightening budgets, however, Warden said the company is tempering its expectations.

Now that Northrop has the production and ground test of the first B-21 under its belt, “we have a lot more information today than we did at this time last year,” CFO Dave Keffer said on the call.

Northrop also has most of the suppliers for the Raider program under contract, and has almost finished negotiating with the rest, and latest productivity estimates. The stabilizing economy and inflation also will help, Keffer said.

Sentinel nuclear missile

Warden also said the company will work with the Pentagon over the next few months to look for ways to bring costs down on the LGM-35A Sentinel nuclear missile.

The Air Force notified Congress last week that the intercontinental ballistic missile program’s costs had grown by at least 37%, triggering a critical Nunn-McCurdy breach and an automatic review. The Pentagon will now review the program and perhaps restructure it. A Nunn-McCurdy breach could also lead to a program being cancelled, but the Air Force has ruled that out.

Air Force officials have repeatedly called Sentinel one of the most complicated acquisition programs it has ever undertaken — but one that it has no choice but to complete.

Lt. Gen. Richard Moore, the Air Force’s deputy chief of staff for plans and programs, said at a Center for Strategic and International Studies panel Wednesday that the 1970s-era Minuteman III ICBMs were only originally expected to last about a decade and are well past their expected lifespan.

Moore said repeatedly the Air Force is committed to Sentinel and that it will make the necessary tradeoffs to pay for it.

“Sentinel is going to be funded,” Moore said. “There is not a viable service life extension program for Minuteman III. Extending it for some lengthy period of time, that’s not a viable option.”

Warden said the Pentagon’s review of the Sentinel program will likely last several months. She noted that the Air Force has attributed the bulk of the cost growth on Sentinel to its command and launch segment. This is a complex process that involves the construction of more than 400 new launch facilities, laying of thousands of miles of fiber optic networks, thousands of miles of utility tunnels, and obtaining real estate easements from hundreds of landowners.

The cost growth estimates on Sentinel included inflation since 2020, the last time the program’s projected costs were estimated, Warden said.

During the most recent three years of Sentinel’s engineering and manufacturing development phase, Warden said Northrop has brought on engineers, matured the system’s design, and achieved milestones such as successful static fire tests of the solid rocket motors for Sentinel’s first two stages.