Northrop Grumman Corp. (NOC:US) dominated U.S. defense contracts in June, winning 34 percent of Pentagon spending as the value of all awards climbed from a year earlier.
Northrop, the No. 5 U.S. contractor, received $13.9 billion in awards announced by the Defense Department last month, which had a maximum value of $40.9 billion, according to data compiled by Bloomberg. The Falls Church, Virginia-based company received up to a maximum $9.9 billion for maintenance on the B-2 bomber and $3.64 billion for planes, among the three largest June contracts.
The monthly total, almost triple May’s $13.7 billion and 7.3 percent higher than June 2013, included a contract valued at as much as $7.9 billion to United Technologies Corp. (UTX:US) for combat rescue helicopters. The major awards pushed the monthly total ahead of the previous June for just the second time in seven months, reflecting the impact of federal budget cuts under a process known as sequestration.
“There’s nothing smooth about the way defense contracts are awarded,” said defense consultant Loren Thompson, an analyst for the Lexington Institute, an Arlington, Virginia-based research group. “They tend to ebb and flow unpredictably. Overall, the secular trend is gradually downward. There’s nothing on the horizon today that would lead to a reversal of that trend.”
While major awards continue to flow to the largest contractors, the spending reductions are hurting smaller companies, said Mark Amtower, a partner at Amtower & Co., a consulting firm in Clarksville, Maryland, specializing in contracting.
“The impact is very, very real,” Amtower said. “Big firms are taking money they would have spent with subcontractors and keeping it in-house. They’re shoring up the walls to make up with loose change what they’re losing in big bucks.”
June’s largest contract, announced by the Air Force on June 3, will provide Northrop as much as $9.9 billion over 10 years to maintain and modernize the B-2 stealth bomber. The first order was for $26.6 million with no guarantees total spending will reach the maximum amount.
“Northrop Grumman is pleased to continue to partner with the Air Force under this new contract to provide the B-2 bomber with cost-effective and critical modernization and sustainment activities,” said Randy Belote, a company spokesman.
The No. 2 contract went to Hartford, Connecticut-based United Technologies’ Sikorsky division for a long-delayed program to replace the Air Force’s aging fleet of combat rescue helicopters. The contract announced June 26 has a maximum value of $7.9 billion with the work completed by June 2029 if all options are exercised.
Northrop received the month’s third-biggest award, a $3.64 billion multiyear deal for 25 E-2D Advanced Hawkeye planes, which the Navy announced June 30. The work is expected to end by August 2021. Northrop said subcontractors include Bethesda, Maryland-based Lockheed Martin Corp., (LMT:US) London-based BAE Systems Plc and New York-based L-3 Communications Holdings Inc. (LLL:US)
The contract provides “a lower cost for taxpayers,” said Bart LaGrone, a Northrop vice president.
A dozen contractors, including Booz Allen Hamilton Holding Corp. (BAH:US) and closely held Alion Science & Technology Corp., both based in McLean, Virginia, shared the month’s fourth-biggest award. The contract, announced June 5 by the Air Force with a maximum value of $3 billion, is for weapons systems research and development. The contract is for one year with four one-year options and doesn’t include any guarantees the companies will receive the allocated money.
Boeing Co., (BA:US) based in Chicago, received June’s No. 5 contract, $1.94 billion announced June 30 for F/A-18E and EA-18G aircraft for the Navy and the government of Australia. The completion date is December 2016.
The Pentagon is required to announce contracts of at least $6.5 million.
Amtower said he expected Pentagon spending to pick up in the final three months of the fiscal year that ends Sept. 30.
“People will have to get rid of the money,” Amtower said. “The final quarter of the year is when they figure out where every last unspent dollar is and they have their priority list queued up as to where their money will go.”
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