UPDATE 1-Northrop Grumman sees 'outstanding' prospects

(Adds Air Force tanker, earnings goal, background)

By Jim Wolf

WASHINGTON, May 30 (Reuters) - Northrop Grumman Corp (NOC.N) Chief Executive Ronald Sugar on Friday termed "outstanding" the arms maker's long-term prospects and predicted it would keep a $35 billion U.S. Air Force refueling aircraft program despite a formal challenge from losing bidder Boeing Co (BA.N).

In webcast remarks, Sugar said the diversified military contractor's sales target for 2012 is $42 billion, up from the $33 billion in sales estimated for this year.

Los Angeles-based Northrop Grumman aims to boost its operating margin to 10 percent by 2012 compared with roughly 8 percent projected for 2008.

The earnings per share target in 2012 is $8, up from a projected $4.90 to $5.15 in 2008, Sugar said.

Such targets are challenging but the company is committed to them and "the long-term outlook for Northrop Grumman continues to be outstanding," he told an investor conference in New York hosted by Sanford C. Bernstein & Co..

The company builds warships, missile defense components, satellites and other hardware used by armed forces in the United States and overseas.

Northrop Grumman has not seen anything in the Air Force's process for selecting a mid-air refueling aircraft "that leads us to believe the GAO (Government Accountability Office) would reverse it," Sugar said.

The U.S. Air Force said on Feb. 29 it was skipping Boeing in favor of a team made up of Northrop Grumman Corp and Airbus parent EADS (EAD.PA) to start a new fleet of tankers for mid-air warplane refueling.

Boeing filed a formal protest to the GAO, saying it believed its modified 767 tanker represented a better value than the larger Airbus A330 derivative picked by the Air Force.

Beside stating confidence in the GAO outcome, Sugar said nothing in legislation now making its way through Congress "would appear to stop the program or prevent its funding or to somehow overturn it and direct it to the other contractor."

James McNerney, Boeing's chief executive, told the same conference on Thursday that his company hoped the GAO would find in its favor but noted such protests "are denied more often then they are sustained."

The Air Force plans to buy tankers in three phases, starting with a batch of 179 aircraft valued at up to $35 billion.

The GAO is due to make its recommendations to the Air Force by June 19.

Although complications could still pop up in Congress, "we're looking forward to resuming work on this very important program on June 19th," Sugar said. (Reporting by Jim Wolf, editing by Gerald E. McCormick and Dave Zimmerman)