Lasting post-Iraq defense need: Northrop

By Andrea Shalal-Esa and Jim Wolf

WASHINGTON (Reuters) - Northrop Grumman Corp (NOC.N: Quote, Profile, Research, Stock Buzz), maker of everything from submarines to unmanned aircraft, is well placed to benefit from strong military modernization needs after Iraq stabilizes, Chief Executive Ronald Sugar said on Monday.

"We didn't position the company to fight the war in Iraq. We positioned the company to provide the equipment long-term necessary for intelligence, long range strike, and force projection. Those are unchanging, immutable needs," Sugar told the Reuters Aerospace and Defense Summit in Washington.

He said the U.S. Navy and U.S. Air Force "are very much in need of strategic investment, much of which as been siphoned off" to fund the war in Iraq.

"The threat in the maritime world is increasing," Sugar said. Other nations are adding resources, submarines" and current federal spending plans were insufficient to meet the stated U.S. goal of a 313-ship navy in coming decades.

Sugar said the Navy might need "a few billion" dollars more to meet its shipbuilding targets and sustain its growth. Any additional spending on shipbuilding could boost revenues for Northrop, one of the Navy's two major shipbuilders.

Air Force Secretary Michael Wynne has said the Air Force will need an additional $20 billion a year beyond its current budget to meet modernization needs for years to come.

Sugar said: "There's an extensive amount of replacement to be done."

Northrop was the No. 3 defense contractor in the Pentagon's most recent rankings, after leader Lockheed Martin Corp (LMT.N: Quote, Profile, Research, Stock Buzz) and No. 2 Boeing Co (BA.N: Quote, Profile, Research, Stock Buzz).

"The Iraq war is not a significant driver and has not been a significant driver to our revenues," Sugar said. He said special "supplemental" budget war-funding probably accounted for only one to two percent of Northrop sales.

He said he did not expect any decline in defense spending, even if Democrats win the White House in 2008.

"One of the things I don't stay awake worrying about is whether the next president of the United States of either party will realize the need for a strong military defense," he said.

"I don't hear any of the dozen or two dozen (presidential) candidates on both sides of the aisle saying what we need to do is draw down our military and make the nation weak," he added.

Sugar lauded the Air Force's handling of the high-profile competition between a Northrop-EADS (EAD.PA: Quote, Profile, Research, Stock Buzz) team, on one side, and Boeing on the other, to replace aging U.S. aerial refueling tankers, a potential $100 billion market over coming decades.

"It's been a good process," he said.

Aerospace analyst Richard Aboulafia of the Teal Group told the Reuters summit Boeing has a 55-percent chance to win that competition, compared with 15 percent for Northrop-EADS.  Continued...