(NOC) Northrop Grumman’s Global Hawk Lives

Defense contractor Northrop Grumman Corporation’s (NOC) much touted unmanned aerial vehicle (“UAV”) Global Hawk received a new lease of life with Pentagon’s chief weapons buyer Ashton Carter asserting its need to the U.S. congressional defense committees. Global Hawk is an unmanned aerial vehicle used by the U.S. Air Force and Navy as a surveillance aircraft.

In a letter to the U.S. congressional defense committee Mr. Carter advocated that although the Global Hawk program exceeds budget and has fallen short in performance tests there are no better alternatives.

The alternatives to the Global Hawk like Lockheed Martin Corporation’s (LMT) U- 2 “Dragon Lady” spy plane, The Boeing Company’s (BA) RC-135 Rivet Joint reconnaissance plane and another UAV from Northrop’s stable the broad area maritime unmanned system (“BAMS”) fared below Pentagon’s expectations both in terms of cost and effectiveness.

The trepidations over the fate of the Global Hawk drone came under the spotlight owing to a May 2011 report by Pentagon weapons tester which found that the drone was “not operationally effective for conducting near-continuous, persistent” intelligence, surveillance and reconnaissance missions that it was designed to conduct.

Earlier the $12.4 billion reconnaissance drone program bogged down with cost over-runs was rumored to be a hot favorite candidate for possible termination. The program was expected to cost only $5.3 billion for 63 drones in 2001. However, as of now the Global Hawk program has been restructured to only 55 drones.

The steep rise in costs led to the naysayers’ expecting the implementation of the Nunn–McCurdy law leading to the cancellation of the program. The amendment introduced by Senator Sam Nunn and Congressman Dave McCurdy is designed to curtail cost growth in U.S. weapons procurement programs.

The law requires cost growth of more than 15% to be notified to the U.S. Congress. The law also stipulates termination of programs whose total cost grew by more than 25% over the original estimate, unless the Secretary of Defense submits a detailed explanation justifying the increase.

Based in Los Angeles, California, Northrop Grumman Corporation is one of the leading defense contractors in the U.S. The company supplies a broad array of products and services to the U.S. DoD, including electronic systems, information technology, aircraft, space technology and systems integration services.

We maintain our Neutral rating on Northrop Grumman. The quantitative Zacks #3 Rank (short-term Hold rating) on the stock indicates no clear directional pressure on the shares over the near term.

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