Northrop Grumman Corp.'s Baltimore division could soon abandon the business of building airport radar systems, putting 340 local employees out of work and quitting a craft at which it has succeeded for decades.
Northrop Grumman officials say the U.S. government is to blame.
Company executives and local congressmen are lobbying to preserve Northrop Grumman's role in the air traffic control business. They have taken the unusual step of petitioning the Pentagon and the Federal Aviation Administration to reopen a $620 million contract awarded four years ago to the company's main competitor in the radar industry, Raytheon Corp.
Northrop Grumman officials say the effects of leaving the business could be profound. Northrop Grumman is the last company to manufacture air traffic control radar in the United States, and chipping away at its employee base could hurt its ability to design and build radar for military aircraft and weapons systems, they say.
The dispute also could be a symptom of a larger malady for the nation's fifth-largest defense contractor as it searches for a footing in the shrinking defense industry.
Two years after rejecting Northrop Grumman's proposed merger with Lockheed Martin Corp. to preserve competition, the Pentagon is denying it a chance to remain competitive, company officials say. As a result, Northrop Grumman could soon be forced to leave not just the air traffic control radar trade but also several other core businesses as the Pentagon promotes the very monopolies it wanted to avoid.
"People don't realize how badly the defense industry has collapsed," said James G. Roche, a Northrop Grumman vice president and head of its Linthicum-based Electronic Sensors and Systems Sector, which builds radar systems.
"We're not asking for handouts, we just want to be allowed to compete. And they're not letting us do it."
Northrop Grumman had just purchased Westinghouse Electric Corp.'s electronics plant in Linthicum when, in 1996, it lost a competition with Raytheon to build as many as 213 air traffic control radar systems for military and civilian airports.
The contract was the first step in a plan to upgrade the air traffic control network around the nation with modern, digital surveillance technology. The new systems, which cost between $2 million and $3 million each, will replace vacuum-tube systems that have been in use for 25 years or more.
Despite losing the competition, Northrop Grumman officials said they were confident that their proposed radar system would work, so they spent about $30 million designing and building it anyway. The system, called ASR-12, is in operation in several countries, including Mexico, El Salvador and Egypt.
Raytheon's winning design, called ASR-11, is just entering its production phase and has not been tested in live operation. Its development was stalled by legal challenges from Northrop Grumman in 1996 and 1997, and it is several months behind schedule.
Raytheon's system is to be built at plants in Canada and the United Kingdom. Northrop Grumman's radar is manufactured in Baltimore and assembled in Puerto Rico. The Federal Aviation Administration has said it will buy the ASR-11 from Raytheon and won't certify the ASR-12 for sale in the United States because it certifies only those systems it uses. Officials at Northrop Grumman say that decision will force them to leave the business -- locking them out of the U.S. market and denying them a chance to show foreign buyers that their radar meets U.S. standards.
"We did it the old-fashioned American way -- we believed in our product, we built it ourselves, we paid for it ourselves, we tested it and it worked," said Roche. "We find it bizarre that the FAA is so myopic as to take a position that effectively puts us out of the business and makes the taxpayers totally dependent on foreign manufacturers."
Northrop Grumman hired a team of independent attorneys to see if the Raytheon contract could be challenged. They determined it could -- that it called for construction of just three test models, and that the remaining 210 systems are up for grabs.
Kent Kresa, Northrop Grumman's chairman and chief executive officer, flew to Washington this month to meet with both of Maryland's U.S. senators to discuss the issue. And all eight of the state's U.S. House members have lobbied the FAA and Congress on the company's behalf.
The FAA's administrator, Jane F. Garvey, has denied the company's request to reopen the contract. "At this point we have a contract that was the result of a fair and open competition, and we're moving forward with it," said FAA spokeswoman Kathryn Creedy.
Northrop Grumman also has asked the FAA to certify its ASR-12 radar for sale, letting it tap into the small market for U.S. cargo airports operated by companies such as Airborne Express. In a letter to the company, Garvey said such certification would cost as much as $21 million and take several months. Company officials say it would take weeks and cost almost nothing.
Northrop Grumman has long been one of the nation's primary manufacturers of radar systems. Most of its experience is with military hardware, including surveillance and fire-control radar systems for aircraft. Still, many of the older air traffic control systems being replaced around the country also were built by Northrop Grumman.
But the industry has changed. In 1997, Raytheon bought the defense electronics business of Texas Instruments Inc. and the aerospace division of Hughes Electronics Corp., merging three of the nation's radar manufacturers into one. Northrop Grumman and Raytheon are among the few major radar manufacturers left -- with Raytheon about twice the size of its competitor.
Should it abandon the business of manufacturing air traffic control radar, Northrop Grumman would still be among the nation's top defense contractors and primary suppliers of other types of radar. The Los Angeles-based company employs about 45,000 people -- 7,000 in Maryland -- and makes radar systems for F-16 and F-22 fighter jets, airborne surveillance planes, unmanned aerial vehicles and other systems.
But to stay competitive, the company needs a broad range of products and a large pool of talent from which to draw, Roche said. The company is overmatched by Raytheon in size, he said, and losing a segment of its expertise would compound the imbalance. With the defense industry consolidating and the Pentagon moving toward large, one-supplier contracts, the problem could seep further into the company's critical businesses.
The squeeze felt within the air traffic control radar business would seem tame compared with the industry-wide constricting that could take place when the Pentagon awards its largest aircraft contract ever proposed -- for a new multi-service jet called the Joint Strike Fighter.
The Joint Strike Fighter is such a large defense acquisition -- as much as $300 billion -- that the consequences of winning or losing part of its business could determine whether companies live or die.
Northrop Grumman no longer builds airplanes as a prime contractor, but the Pentagon and Department of Justice fought the company's proposed merger with Lockheed Martin partly so that it would live to build planes in the future. Company officials have told the Pentagon that they need at least 20 percent of the Joint Strike Fighter's airframe production to remain viable as a prime contractor for airplane construction.
Pentagon officials are considering sharing the Joint Strike Fighter's construction dollars among several companies, but even that might not provide enough guarantees for Northrop Grumman.
The plane is the only new fighter aircraft the U.S. military plans to build for as long as 30 years, meaning that it also will be the prime source of work for companies that specialize in airborne radar systems. If Northrop Grumman doesn't get a share of the Joint Strike Fighter's radar contracts, company officials say, it could be forced to leave that business as well.
"The company's not going down the tubes," said Joe Nadol, an aerospace analyst for Donaldson, Lufkin and Jenrette in New York. "Air traffic control radar isn't a No. 1 franchise for them.
"But you can understand why they're saying, 'Look, you didn't allow us to merge, so you have to let us compete.'"