Big brother is watching


  • Business
  • Saturday, 11 Jan 2003

By SETH LUBOVE

THE 2001 Gene Hackman flick Behind Enemy Lines was an otherwise forgettable testosterone – fuelled action thriller that featured the usual two-dimensional bad guys and predictable plot lines. But to Kent Kresa, 64, it – or at least the 30-second scene that plugged a fictional version of technology purportedly made by Northrop Grumman, where Kresa is chief executive – was the hit of the year.  

In the scene, which Northrop swears it didn't know about in advance – much less pay for – an actor playing a military technician tells Hackman that they've tracked a missing pilot's radio signal. Then, using “imagery from a Northrop Grumman relay satellite,” they downlink the data to a “processing centre in Stuttgart.”  

Now, Northrop didn't even make satellites until it closed Dec 11 on its US$10.7 billion (including debt) acquisition of TRW. But even if the plot detail is bogus, Kresa is thrilled with how the movie illustrates the way he has recast his company.  

 

Northrop as integrator  

 

Kresa sees Northrop as no mere supplier of individual weapons. It's an integrator – linking data from satellites, drones and radar to weapons mounted on fighter jets, warships and guided missiles.  

“When I saw that (scene), I said, 'My God, this is the new Northrop Grumman,'“ Kresa says. No more point-and-shoot. Targets move too quickly for that. The modern battlefield needs a hot link between the sensor and the shooter.  

Just as in Hollywood, which he overlooks from his 19th-floor office in Los Angeles' Century City, Kresa has a great script. In it he becomes chief executive in 1990 of a company that has one primary project: the bat-winged B-2 Stealth bomber, which is already riddled with cost overruns and controversy.  

Although he eventually gets the project on track, completing 21 of the menacing US$500 million planes, Kresa faces the larger challenge of what to do once the B-2 programme winds down. He could simply pay out the profits as dividends to shareholders and auction off what is left of the company.  

 

Kresa becomes the stalker  

 

Beginning in 1994 with the purchase of Grumman, followed by 15 acquisitions since then that include Litton, Logicon, Westinghouse's defence electronics business, Ryan Aeronautical and Newport News Shipbuilding, Kresa builds the company into the nation's second-largest defence company (behind Lockheed Martin), with expected 2003 sales of US$25 billion.  

No longer an also-ran making B-2s and military and commercial aircraft fuselages, Northrop now makes nuclear aircraft carriers and submarines, the Global Hawk unmanned plane, complex radar systems and many other tech-heavy military products.  

Here is the idea: A Northrop Grumman Global Hawk, buzzing at 60,000 feet, sends intelligence data to a laser-guided targeting device on the ground, which coordinates with an F-35 Joint Strike Fighter jet flying on a fuselage made by Northrop, all of it coordinated by computers and software linked together by Northrop's systems integration unit.  

Borrowing a catchphrase from the computer business, the weapons designers say that their systems are made for “network-centric warfare.” The connections are as important as the firepower at the end.  

Whether Kresa's vision will have a Hollywood ending, or Northrop will end up as yet another glorified conglomerate buried under debt, is where the story gets interesting. Despite increased military spending and talk of war with Iraq, shareholders have already had to eat a US$160 million loss for the most recent nine months (US$59 million in the third quarter), mostly because of write-offs on various programmes inherited by Northrop, along with lowered earnings forecasts for 2003 (prior to TRW). The stock is off 32 per cent from its 52-week high of US$135.  

 

Getting pieces to work together 

 

And Kresa won't be around much longer to help. The task of getting all the pieces to work together for a greater good will most likely fall to Ronald Sugar, 54, Northrop's chief operating officer and Kresa's expected successor when he retires at the mandatory age of 65, in March.  

To do that Sugar's depending on managers like Scott Seymour, one of seven heads of Northrop's primary business “sectors,” in this case, Integrated Systems. An amalgam of the original Northrop and Grumman aircraft businesses, Seymour's sector also includes the old Ryan Aeronautical (maker of the Global Hawk), which Northrop acquired in 1999 from Allegheny Teledyne for US$140 million.  

 

Synergies?  

 

Here's a small but illustrative one.  

At Seymour's El Segundo, California factory, where the company assembles fuselages for Boeing's F/A-18 Super Hornet fighter jets and wings for T-38 training jets, fluttering green, yellow and red flags are posted outside the mechanics' workstations.  

The flags are a quick, low-tech way to signal that someone needs help on a project:  

Green means okay, while yellow and red mean help.  

The idea was borrowed from Northrop's Pascagoula, Mississippi. shipyard, an acquisition that came by way of Litton. This and other gimmicks taken from the shipyard and various acquisitions have helped reduce the amount of time it takes Northrop to build an F/A-18 fuselage by 38 per cent to 160 days, an impressive time saving, considering each fuselage requires the precision drilling of 72,000 holes.  

Each hole has to be drilled exactly right to prevent fatigue in the bolts and rivets that keep the aircraft intact under the severe stress of combat flying.  

Conversely, Ship Systems, as the old Litton shipbuilding businesses are now known, has sent its folks to El Segundo to look into the plant's way of dispensing tools.  

But to get a sense of the task that Sugar faces in getting the entire company to work together as a seamless enterprise, consider what Northrop faced just getting the Litton shipbuilding businesses to work together. Although the two shipyards, in New Orleans and Pascagoula, are just 100 miles apart, they could have been on different planets for all the cooperation each offered the other.  

Both vertically integrated shipyards ran their own engineering, purchasing and back-office functions. New Orleans, known as Avondale Operations, was computerised. Much of Pascagoula still worked on paper. Pascagoula had been unionised for the prior 40 years, while New Orleans had only recently become unionised, after years of labour strife.  

 

Challenging progress 

 

“I'm not exaggerating when I say there was not much progress to integrate the two yards,” says Philip Dur (a retired Navy admiral who used to command the battle force of the US Sixth Fleet) who took over as head of Ship Systems in late 2001.  

Dur says he has made enough progress in the year since that productivity increased at least 15 per cent, while cycle times have shrunk by 20 per cent to 30 per cent.  

The relatively simple task of creating a focused identity for the entire company has also taken on new meaning as Northrop has attempted to corral its far-flung operations under the banner of Northrop Grumman. Almost to a one, the units have their own famous histories and heritages. Ryan built Lindbergh's Spirit of St. Louis. Newport News built many of the ships that won World War II.  

But although Kresa says that Northrop “honours the past,” nostalgia is an expensive distraction for a company trying to reposition itself as a cohesive electronic entity.  

 

Common ID 

 

In some cases, such as the Electronic Systems operation, the adaptation of the Northrop identity is almost complete. Formerly Westinghouse's defence electronics business, the Baltimore-based division makes an array of radar and surveillance equipment. But other than some Westinghouse emblems (barely noticeable on an employee alumni association bulletin board), there's scarcely a trace of the old Westinghouse.  

Some of Litton's old defence electronics businesses have since also been consolidated into the sector, and sector boss Robert Iorizzo takes a hard line on the issue of cooperation.  

“Does Woodland Hills (California, site of the Litton facilities) want to cooperate with Baltimore? They don't have a choice,” says Iorizzo. “I can't allow someone to say 'We did this differently at Litton.'“  

Farther south, in Newport News, Virginia, however, the integration is moving slowly. Scanning the skyline of the bustling 550-acre shipyard along the James River, you wouldn't know anything has changed. The looming cranes feature the old Newport News name with the company's historical nautical logo, as do employees' business cards (though they now also feature Northrop's name).  

Thomas Schievelbein, the lanky head of the Newport News division, cringes when the old logo is pointed out on his business card, pleading that a visitor not mention it to folks back in Los Angeles.  

That doesn't mean Schievelbein isn't doing his part. Go past the ships in various states of construction, including the newest nuclear aircraft carrier, the Ronald Reagan, and down to a new adjoining seven-story office building in the shape of a ship. Inside the Virginia Advanced Shipbuilding & Carrier Integration Centre, paid for by the state and managed by Northrop, Newport News is working with fellow Northrop divisions on various aircraft carrier integration projects.  

The group has designed a computer simulation programme, for instance, that allows Northrop's Integrated Systems aircraft division to see how a new unmanned, ship-launched drone would perform on the decks of one of the carriers built at Newport News.  

“This is the earliest that Newport News has been asked to be involved with an airplane manufacturer,” says Irwin Edenzon, a Northrop vice-president who oversees the research operation.  

 

Revenues from cooperation 

 

Whether Northrop can produce incremental revenues from the cooperation has yet to be seen. The real test will come when the company builds such projects as the Navy's DD (X), a collection of versatile next-generation destroyers, cruisers and combat ships armed to the teeth with advanced technology.  

A consortium headed by Northrop and Raytheon has been awarded a US$2.9 billion contract to design and develop the destroyer, but the contract to build about 16 of the vessels won't be decided until 2005.  

To accomplish the Navy's high expectations for the new ships Northrop will have to bring several of its newly acquired cross-disciplines to task. Already, for instance, engineers from Phil Dur's Ship Systems division, which is overseeing the DD (X), have collaborated with engineers from Scott Seymour's Integrated Systems unit, who gained experience in radar-evasion technology and composite materials from their work assembling the B-2 Stealth bomber.  

At the same time Newport News is working on the new, quieter and more efficient electric propulsion engines that will propel the ships.  

Sugar figures that Litton, which had been competing for the early-design-phase contract, might not have gotten even that far, were it not for the fact that Northrop acquired the company and helped bring new talents to the table.  

“One problem is Litton did not have management integration skills that would allow the Navy to feel comfortable,” says Sugar, who has a Ph.D. in electrical engineering. “Northrop has that skill in large-scale systems integration.”  

Down the hall from Sugar's office Kresa prepares to distance himself from the company that he brought back from the dead not once but twice, the second time after a deal to be taken over by Lockheed cratered in 1998 following antitrust objections. If he's worried that his creation will stumble once its architect has more time to pursue his passion for in-line skating along the beach and other retirement activities, Kresa isn't showing it.  

Instead, he proudly shows off a model of the Ronald Reagan that in many ways represents the larger Northrop Kresa has created in the short span of eight years. The company makes the 90,000-ton, 1,100-foot-long vessel and also has a hand in many of the planes that will line up on the decks: the F/A-18, F-14 Tomcats, E-2C Hawkeyes and many more.  

“We've got it all,” Kresa smiles.  

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