Northrop Corporation - Company Profile, Information, Business Description, History, Background Information on Northrop Corporation

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Los Angeles, California 90067-2199

History of Northrop Corporation

The Northrop Corporation manufactures aircraft, including bombers and fighter jets that are sold to the U.S. military. Having absorbed the Grumman Corporation, another military aircraft provider, in April 1994, Northrop sought to recover revenues in the wake of some lost contracts in the mid- and late 1980s. Northrop's founder, Jack Northrop, worked as an engineer at various aviation companies in the United States for nearly 20 years before starting his own company. Donald Douglas said of Jack Northrop in the 1940s that "every major airplane in the skies today has some Jack Northrop in it." Douglas's observation remains true even in the last quarter of the twentieth century. Northrop's many discoveries and innovations are commonly used in jetliners manufactured by Boeing, McDonnell Douglas, Lockheed, and Airbus, as well as the company he founded.

John Knudsen Northrop was born in 1895. He served in the infantry during World War I and was later transferred to the Army Signal Corps, which was responsible for military aviation. In the Signal Corps he developed a skill for designing aircraft and, as a result, went to work for Donald Douglas in California after the war. As a draftsman, he helped to develop the airplanes that first established Douglas's firm as a leading aircraft manufacturer.

In 1927, he went to work for Allan Lockheed, where he led the development of the Vega, the airplane that made Lockheed a major company. The Vega was one of the first airplanes to have a "stressed skin" construction, meaning that the structural integrity of the outer shell of the aircraft was sufficient to eliminate the need for a weighty frame and struts. The design ushered in a new generation in aircraft design. Amelia Earhart flew a Vega on her solo flight across the Atlantic in 1932.

Northrop formed his own company in 1928, the Avion Corporation. Here he conducted research for the first all-metal aircraft and the "flying wing," a highly efficient boomerang-like aircraft with no fuselage. Two years later, Avion was purchased by Bill Boeing's United Aircraft and Transport Corporation.

Jack Northrop created a second company in 1932 as a division of Douglas Aircraft. Established as a partnership with Douglas, the Northrop Corporation developed an airplane for the Army Air Corps called the Alpha. Similar to the Vega, the Alpha had a single shell, or "monocoque," construction. However, because the plane was made of metal instead of wood, it was more durable and efficient. The Alpha made a new generation of aircraft possible for Douglas, namely the DC-1, DC-2, and the DC-3. Northrop's engineering success with this type of airplane set a new standard for manufacturers; biplanes, double-skin construction, and airplanes made of wood were relegated to the past.

In 1939, Jack Northrop left Douglas to establish his own company called Northrop Aircraft. When World War II erupted, Northrop devoted much of his company's resources to the development of a flying wing bomber. This revolutionary design was greeted with great skepticism. The advantage of the flying wing was that without the "baggage" of a fuselage or tail section, the entire mass of the airplane could be employed to produce the lift needed to keep it aloft. This allowed the possibility of much greater bomb payloads. In 1940, the company flew its first experimental flying wing designated the N-1M.

Northrop later developed the B-35 flying wing bomber and then an improved version called the B-49, which he hoped would be chosen as the primary bomber for the Air Corps. Yet the Army cancelled further development of Northrop's bomber because, as reported by the Army, the B-49 wasn't stable enough in the air and because it required powered rather than manual controls. Northrop, however, revealed shortly before he died that the Army cancelled the B-49 because he refused to merge his company with a manufacturer in Texas. Others have suggested that the Army dropped the flying wing when Northrop refused to allow other government-appointed companies to manufacture his design. Even today the real reason the B-49 was cancelled is not clear.

In spite of the B-49 fiasco, Northrop contributed to the war effort in many other ways. His company built the P-61 night fighter known as the Black Widow. He also established a prosthetics department at his company for dismembered veterans. He even employed disabled servicemen either at the plant or in their hospital beds for regular pay.

In 1952, Jack Northrop retired and relinquished his presidency to O. P. Echols. In 1958, the name of the company was changed to the Northrop Corporation, and the following year Thomas V. Jones took over as president. Jones led the company into a number of diversified subcontracting arrangements. Northrop built numerous airplane and missile parts, electronic control systems, and even became involved in construction.

During the 1950s and 1960s, Northrop produced the F-89 jet interceptor and the curiously named Snark missile system. The company continued to produce its own jet fighters, including the popular F-5 Freedom Fighter. A total of over 2200 F-5s were flown by 30 countries, including Nationalist Taiwan, Iran, and South Korea. The trainer version of the F-5, the T-38, was used by the U.S. Air Force and was also the jet chosen by the Thunderbirds acrobatic flying troupe.

In 1972, Jones made an illegal $50,000 contribution to the re-election campaign of President Nixon; he was fined $200,000 for this indiscretion. The scandal led to an investigation that revealed another more serious impropriety. The company admitted to paying $30 million in bribes to government officials in Indonesia, Iran, and Saudi Arabia, among other countries, in an effort to increase business.

An enraged stockholder sued the company and, as a result, won a settlement that forced Jones to resign his presidency but allowed him to remain as chairman. A further condition of the court ruling was that the board was required to seat four more independent directors, giving the non-management "outsiders" a majority. Into the 1990s, company policy held that 60 percent of the board seats had to be held by non-management personnel.

After the scandal, the company had considerably more trouble selling its products. David Packard, an assistant secretary of defense in the Nixon Administration, invited two finalists to compete for the job of producing America's next fighter jet; Northrop's F-17 Cobra competed against General Dynamics' F-16. Prototypes of the jets flew against each other in dogfights. In the end, the F-16 won the competition. The F-17, however, was later redesigned by Northrop in conjunction with McDonnell Douglas and renamed the F-18 Hornet.

The F-18 Hornet was to be produced in two versions in partnership with McDonnell Douglas. Douglas was the prime contractor for the F-18A carrier-based fighter, and Northrop was the prime contractor for the F-18L, a landbased version. Each company was supposed to serve as the other's subcontractor. A dispute erupted when McDonnell Douglas's F-18A outsold the F-18L, even in countries without aircraft carriers. According to Northrop, the company was being treated unfairly by McDonnell Douglas. The two companies brought legal action against each other, charging violation of their "teaming agreement," one of the first major competitor partnerships since World War II. In April 1985, the court settled in favor of Northrop and awarded the company $50 million. McDonnell Douglas, however, was awarded the prime contractor's role for all future F-18s, with Northrop designated as the subcontractor.

Northrop had another unpleasant experience when the Carter administration called for the development of an advanced fighter jet that was expressly intended for export. Too many foreign countries were showing interest in jets the government considered too technologically sophisticated for mass export. In response, Northrop, at its own expense, developed a less sophisticated fighter called the F-20 Tigershark. It was delivered ahead of schedule and below budget. The problem was that foreign governments still wanted the more sophisticated American jets. Northrop complained that the United States government wasn't promoting the F-20 vigorously enough. The government denied a large sale of F-20s to Taiwan because it was afraid the sale would upset mainland China. In November of 1986 the U.S. Air Force selected General Dynamics' F-16 over the F-20 as its main fighter for defense of the North American continent. As a result, Northrop announced that it would halt further work on the F-20.

Controversy continued to hound Northrop into the late 1980s, particularly Jones, who left the company amid a storm of accusations in 1989, ending his 30-year tenure and leaving the company in a precarious position. Jones had racked up an enormous debt during the decade, banking on the success of two projects, the U.S. Air Force's Advanced Tactical Fighter (ATF) and the B-2 stealth bomber, which represented, by the decade's end, the company's only opportunities for growth. To fund these and other projects, Northrop borrowed heavily, increasing its debt from $215 million in 1984 to an enormous $1.1 billion by 1989.

After Jones's departure, Kent Kresa, a former technology director and engineer, became Northrop's chief executive officer, assuming his post in January 1990. Shortly thereafter, the company plead guilty to 34 counts of fraud for falsifying test data on two military programs and paid a $17 million fine. Then, Kresa began effecting substantial changes in the size and operation of the company to further distance itself from the embarrassments of the 1980s. He replaced nearly half of the company's senior management, reduced the company's debt by selling its headquarters and idle production sites, and intensified the company's lobbying efforts to ensure the success of the ATF and B-2 programs, both of which seemed to be slipping away from Northrop's grip, yet represented the company's only true opportunity to arrest the financial slide begun several years earlier.

In 1991, when hopes for the future of the B-2 program were buoyed by the launching of Operation Desert Storm in the Persian Gulf, disaster again struck Northrop with the announcement by the Pentagon that it had selected Lockheed to manufacture the Air Force's ATF. Air Force Secretary Donald B. Rice noted that both Lockheed's and Northrop's supersonic stealth fighters had performed equally well, but Lockheed received the contract because of its proven track record to control costs and meet production schedules. The announcement represented a severe loss for Northrop, heaping all of the company's hopes for the future on the continued funding of the B-2 program, which accounted for 50 percent of the company's revenues.

Except for the 1992 acquisition of LTV Corp.'s Vought Aircraft Co. in a joint venture with the Carlyle Group, Northrop failed to secure a more viable and stable future for itself in the years following the loss of the AFT project. Support for the B-2 program continued to wane, and Northrop recorded a string of failed acquisitions, including unsuccessful attempts to purchase IBM's Federal Systems Division and General Dynamics' F-16 fighter business. With its debt reduced, however, and $1.3 billion in credit lines, the company continued to look for an acquisition to partly offset its reliance on funding for the B-2 program. An opportunity presented itself in early 1994, when Northrop and Martin Marietta aggressively pursued Grumman Corporation, an aerospace and electronic surveillance manufacturer with ties to the U.S. Navy. Northrop won the bidding war for Grumman, eclipsing Martin Marietta's price of $1.9 billion with a $2.17 billion offer of its own. In April 1994, Northrop absorbed Grumman, making the combination a weak third in the industry behind Lockheed and McDonnell Douglas, but a stronger, more diversified organization, nevertheless.

With Grumman's experience and contacts with the U.S. Navy complementing Northrop's somewhat embattled relationship with the U.S. Air Force, the consolidation of the two appeared to produce a more stable corporate entity. Before their union, however, both companies were heavily dependent on government-funded contracts to fuel their growth, a characteristic that remained after their consolidation. Consequently, the future growth of Northrop Grumman Corporation rested on the federal government's appetite for military aircraft and hardware.

Principal Subsidiaries: Northrop Services, Inc.; Northrop Worldwide Services, Inc.; Wilcox Electric, Inc.

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Further Reference

Dade, George C., and George Vecsey, Getting Off the Ground: The Pioneers of Aviation Speak for Themselves, New York: Dutton, 1979.Deady, Tim, "Future of Northrop Hangs in Balance of Proposed B-2 Cuts," Los Angeles Business Journal, August 6, 1990, p. 1."For Northrop, a Shot at Survival," Business Week, April 18, 1994, p. 52.Schine, Eric, "Northrop's Biggest Foe May Have Been Its Past," Business Week, May 6, 1991, p. 30.Wrubel, Robert, "Stay of Execution; Iraq May Save Northrop's B-2 Bomber, but the Defense Contractor's Problems Run Deep," FW, September 4, 1990, p. 4.

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