WASHINGTON (Reuters) - Northrop Grumman Corp (NOC.N: Quote, Profile, Research, Stock Buzz) Chief Executive Ron Sugar predicted U.S. defense spending would continue at a high rate despite escalating budget pressures and said the current world "economic meltdown" might spark additional security threats.
"The world is not getting safer. It's probably going to be even more uncertain as a result of the global economic turmoil," Sugar told the Reuters Aerospace and Defense Summit in Washington on Monday. "We're going to see more mischief, more ethnic tensions, more fights over resources."
He cited a recent report predicting social unrest in China if its economic growth rate dipped below 8 percent, adding: "It's not in anybody's interest to let this thing collapse."
Sugar said his company's order books were predictable for the next few years through fiscal 2010, given the fact that big weapons programs are generally bought over several years, but the outlook beyond that was "less clear."
"The environment is a little more uncertain today as we look longer-term for the defense industry than it's been in quite a number of years," Sugar said, citing government spending on economic bailout packages and other concerns that were putting pressure on the U.S. defense budget.
U.S. defense spending would remain at a high level in coming years, although the rate of growth would decline, said Sugar, who took over as Northrop's chief executive in 2003 and has presided over its rapid expansion through the acquisition of 14 companies in recent years.
"I don't think there's any doubt that defense spending will continue at a very high level," he told Reuters, adding that the real question would be how much funding flowed into research, development and procurement accounts.
He said the U.S. military was burning through its equipment at a much higher rate due to the wars in Iraq and Afghanistan, which would continue to fuel orders for defense companies, even if there were a slowdown in new programs.
The global economic crisis could lead to escalating problems in other parts of the world, including disruptions to food and water supplies, immigration issues and ethnic tensions, all underscoring the continued need for a strong U.S. military, Sugar said.
"You don't solve all those problems with better fighter planes, and we should talk more," Sugar said, but said President Teddy Roosevelt's famous dictum was still apt: "You only talk if you have a big stick."
Sugar welcomed President-elect Barack Obama's decision to keep Defense Secretary Robert Gates on in his position, saying the decision pointed toward a "very pragmatic, very reasoned national security process going forward."
Northrop was doing well in winning big Pentagon contracts and recently reported a record backlog of orders, Sugar said. The company's strong revenue growth may allow it overtake Boeing Co (BA.N: Quote, Profile, Research, Stock Buzz) as the Pentagon's No. 2 contractor this year.
Sugar said Northrop was well-positioned after winning several key competitions over the past year, including an order worth up to $3.74 billion from the U.S. Navy for a maritime patrol version of its high-altitude, unmanned Global Hawk, and the Navy's drive to develop an unmanned combat plane.
He said the company also won a contract worth up to $5.1 billion over seven years to design and build the Gerald R. Ford, the first of a new generation of aircraft carriers.
Another big contract expected soon is a multiyear, multibillion dollar order for nine more Virginia-class submarines that would be built by both Northrop and General Dynamics Corp (GD.N: Quote, Profile, Research, Stock Buzz), Sugar said. Navy officials have said that contract could be awarded by the end of the year. Continued...
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