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Northrop Grumman and Boeing have laid out their future predictions and 2022 observations at the Cowen’s 44th Annual Aerospace/Defense & Industrials Conference this week.
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The two-day conference features fireside chats and presentations regarding the Pentagon, Congress, and specific defence industrial policy and program issues, held in Virginia from 15 to 16 February.
Northrop Grumman corporate vice-president and chief financial officer Dave Keffer, speaking at the conference, said there is continued international growth as the Russo-Ukraine war reverses defence spending declines from previous years.
“There was a surge in demand this time last year and we expected to see an 18 to 24 month cycle for that. We are approaching the 12-month point, are starting to see order activity and resulting sales growth.”
The increased threat environment from the conflict has almost halted a modest decline in defence systems sales and Northrop expects that decline to level off later this year and into the future. Countries are now seeking orders for sensor and shooter systems for battlefield management and missile defence; with Poland highlighted as a flagship party quickly adapting to the situation, according to Keffer.
“There was 3 per cent organic sales growth in 2022 (quarter four sales increase of 16 per cent to $10 billion),” he said.
“Demand for our products remains very strong and there are opportunities to accelerate sales options over time. We understand the (US) president’s budget will have defence growth, but that remains to be seen.”
Keffer said he expects full production for the US Army’s Integrated Battle Command System later this year, increased demand for next generation air platforms and opportunities for Northrop to develop Next Generation Interceptor and Stand-in Attack Weapon missile (SiAW) projects.
Northrop had its fair share of defence industry challenges last year including supply chain inflation, fixed price issues with the B-21 program, and skilled hiring issues.
“We are looking to drive efficiencies and work with our customers to address any impacts,” he said.
“There was hiring labour market pressure last year, we had a net hiring improvement in the latter half of 2022 by 7 per cent increase in head count in a difficult year for labour hire.
“We have the engineering manufacturing phase executing now for the B-21. The engineering and development phase has gone exceptionally well, and this will be a critical and unique capability for the threat environment over the next couple of decades.
“(However) the work for these phases was priced many years ago as a fixed price option … we are [in] discussions with [the] US government to address the unique macro environment.”
Keffer said the upcoming LGM-35 Sentinel Ground Based Strategic Deterrent program would not be as impacted, because it had not yet been priced and would be influenced by only the latest production costs.
“We’re in a unique period at the moment with a high capital period easing by the middle of the decade. In the second half of decade we have programs moving to production and creating strong cashflow.”
Boeing executive-vice president and chief financial officer Brian West said the company is celebrating turning a positive cash flow for the first time since 2018.
Last year was an important milestone in the recovery of the aviation industry and Boeing is seeking to run 400 to 450 deliveries for 737 aircraft this calendar year, he said.
“Deliveries are due to accelerate later this year, we plan to increase from 31 to 38 deliveries a month later this year. The factory space, tooling and labour is there."
“Traffic in the transatlantic is back to pre-COVID levels, we expect transpacific and Asia to recover next which will bode well for our product line-up.
“It’s good for the flying public, good for airlines and good for Boeing. Job one right now is helping airlines in China to return to service and our customers in that market.
“The supply chain continues to have parts shortages, it’s not stable and predictable but hiring is better and we have resources we are deploying into our suppliers to help them.
“(Overall) all indicators bode well, long- term demand is good and over time, we expect to stabilise.”
