Northrop Drone’s Development Cost to U.S. Navy Rises 25%

The cost to develop Northrop Grumman Corp. (NOC)’s reconnaissance drone for the U.S. Navy has increased by at least 25 percent, or $720 million, according to Navy estimates and congressional investigators.

As development costs have risen to at least $3.9 billion, the scheduled dates to begin production and then deployment of the Triton drone have each slipped by more than two years, according to a Senate committee.

The Senate Appropriations Committee said in its report on funding defense programs in fiscal 2015 that it “is concerned with the cost and schedule breaches over the past few years” and is “troubled by software development delays” for the 70-aircraft, $15.3 billion program.

That’s at odds with the assessment of Wes Bush, chairman and chief executive officer for Falls Church, Virginia-based Northrop. He told analysts on an earnings conference call last week that the drone program “is moving along very well.”

The MQ-4 Triton is based on Northrop’s Global Hawk unmanned aircraft. The new drone is designed to work in tandem with Boeing Co. (BA)’s P-8A manned maritime patrol aircraft to survey 360-degree swaths of ocean and terrain with radar and electro-optical and infrared sensors. It can fly 24-hour missions as high as 60,000 feet, with a maximum range of 9,950 nautical miles without refueling.

“Contract cost growth was associated with technical challenges associated with system integration and developmental testing prior to first flight in 2013,” Sean Burke, the Triton program’s deputy manager, said in an e-mailed statement. All of those issues have been resolved, he said.

Delays Outlined

The projected start of initial production has been delayed by 31 months to December 2015 from the original goal of May 2013. The target date to declare an initial squadron of the drones ready for combat has slipped to April 2018 from December 2015, according to Navy documents. The projected start of full-rate production -- the most lucrative phase for a contractor -- has slipped to January 2018 from December 2015.

Citing the delays and cost increases, the Senate appropriations panel blocked the Navy’s $37.4 million fiscal 2015 request for the early purchase of production parts and cut $60 million from the service’s $498 million research request.

“Northrop Grumman and the Navy are developing the world’s most sophisticated unmanned, broad-area maritime surveillance capability,” Randy Belote, a company spokesman, said in an e-mailed statement. “Before Triton enters its production phase, we are committed to ensuring that it meets or exceeds its performance requirements through a rigorous development phase. We are confident that the Triton program will enter” its initial production phase in 2016.

Navy Budgets

Continued delays and cost increases could subject the program to reductions or cancellation as the Navy struggles to pay for new classes of vessels, a replacement for the Ohio-class nuclear missile submarine program and its model of the F-35 fighter, all in a time of declining defense spending.

So far, the drone program’s setbacks haven’t triggered a notification to Congress that the program has exceeded cost thresholds established by the 1982 Nunn-McCurdy law, which submits a program to an intensive scrutiny and certification process to explain why it shouldn’t be canceled.

Burke said the Navy won’t discuss what financial penalties Northrop is incurring under its “cost-plus incentive fee” contract, such as lost or withheld dollars, because of the delays.

‘Quality Problems’

The Triton is among the programs in Northrop’s aerospace systems unit that the company is counting on to boost sales. The unit’s second-quarter sales decreased 4.2 percent from the same quarter a year earlier “due to lower volume for unmanned and space programs,” the company said in releasing earnings on July 23.

The U.S. Government Accountability Office said in a preliminary assessment that the drone program was marred by “quality problems with the wing’s development and delays” with flight-management software.

Bush said on his earnings call that “we’ve had some, some really good recent progress completing the initial flight test program and we’re looking forward getting into” low-rate production “as we get into next year.”

“We’re seeing great interest in” the capabilities of Triton and Global Hawk from Korea, Japan, Australia and other countries, Bush said.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editors responsible for this story: John Walcott at jwalcott9@bloomberg.net Larry Liebert, Stephanie Stoughton

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