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Northrop Drone Cost Rises 25% on Order Cut, Air Force Says

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April 12 (Bloomberg) -- The average cost for one of Northrop Grumman Corp.’s Global Hawk drone aircraft has risen more than 25 percent because the U.S. Air Force cut the order by about 14 percent in its 2012 budget request, Michael Donley, the service’s top official, said in a letter to lawmakers.

After reviewing the $11.1 billion Global Hawk program last year, the Air Force said the per-plane cost had increased 11 percent to $100.8 million since the program began in 2000. Donley, the Air Force secretary, didn’t give the new cost per plane in his letter, dated April 6.

“The primary driver of this average procurement unit cost increase is the fiscal year 2012 budget decision to decrease the Global Hawk procurement quantities from 77 to 66 aircraft,” Donley said. More details will be provided in the so-called selected acquisition report to be released soon, Donley said.

The primary reason for the cost increase is the “reduction of Block 40 quantities from 22 to 11 aircraft due to budget pressures,” Northrop spokesman Randy Belote said in an e-mail. Block 40 refers to the current batch of drones being bought by the Air Force.

Other factors include the addition of “two sensor depot centers, increased spares, and initial operational test and evaluation costs,” Belote said.

Marilyn Thomas, an Air Force budget official, told reporters Feb. 14 during a fiscal 2012 budget briefing that the 11 aircraft were cut because of cost increases and “performance of the program.”

Japan and Libya

The Global Hawk is a high-altitude unmanned surveillance plane powered by a single Rolls-Royce Group Plc engine. It has a cruising speed of 310 knots. The U.S. has deployed the drone over Japan to monitor nuclear radiation and over Libya to assist in the international mission to enforce a no-fly zone and protect civilians.

The cost increase of more than 25 percent would trigger the 1982 Nunn-McCurdy law, which requires the Pentagon to certify to Congress the program’s importance to national security and to justify why it shouldn’t be canceled.

Last week’s notification to Congress marked the fourth time the program has breached the Nunn-McCurdy limit, according to data compiled by the U.S. Government Accountability Office for Senator Tom Carper, a Delaware Democrat.

Northrop fell 11 cents to $62.84 in New York Stock Exchange composite trading. The shares have gained 6.9 percent this year.

To contact the reporters on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net; Gopal Ratnam in Washington at gratnam1@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net