Northrop Grumman has blamed higher manufacturing costs for its B-21 Raider stealth bomber for a 49 percent drop in first-quarter profit. This is not the first financial hit from the B-21, with the manufacturer having disclosed a loss of nearly $1.2 billion on the program early last year. The latest news comes as U.S. Air Force officials state a need for 145 of the stealth bombers to cope with increasing threats to U.S. security. Currently, the program of record is for 100 of the flying-wing aircraft.
Announcing its first-quarter earnings today, Northrop Grumman confirmed the significant drop in profits as well as missed sales expectations due to changes in the B-21 program. In response to the news, the company’s shares fell by 10 percent in pre-market trading.
Previously, Northrop Grumman had already said it expected to make a loss on each of the first five low-rate initial production (LRIP) lots. Under the terms of the fixed-price contract it signed in 2015, the company has to cover costs over a certain threshold on LRIP aircraft.
Overall, Northrop Grumman’s first-quarter sales amounted to $9.47 billion, a reduction of seven percent from this time last year. The figure is also below the average of $9.92 billion that analysts had predicted, Reuters reports.
Net income now stands at $481 million, for a per-share profit of $3.32, compared with the $944 million posted a year ago, which gave $6.32 per share.
The major factor in the losses was the $477 million hit from the B-21 program.
In the wake of an earlier pre-tax charge of $1.56 billion announced in January 2024, the total losses on the B-21 program now amount to more than $2 billion.
In a conference call, Kathy Warden, Northrop Grumman’s chair, chief executive officer, and president, explained how the higher manufacturing costs had resulted from the company’s efforts to ramp up production of the stealth bomber.
The $477-million pre-tax loss was “largely relating to higher manufacturing costs” for the B-21, “primarily resulting from a process change we made to enable a higher production rate, as well as increases in the projected material cost, some of which are related to macroeconomic impacts on material prices,” Warden said.
Regarding the macroeconomic impacts, which include higher than expected inflation and other broader economic factors, Warden said this was “related to the quantity of general procurement materials, as well as the price.” She admitted that the company had “underestimated the amount of consumption of both materials as well as the price increase that we are seeing.”
Warden added that, while “disappointed” with this financial impact, the company continues “to make solid progress on the program, demonstrating performance objectives through tests, and we are progressing through the first two lots of production with significant learning behind us. We are ready to deliver to the Air Force this highly capable strategic deterrent during the quarter.”
The specifics of how Northrop Grumman has altered the manufacturing process for the B-21 were not disclosed. Warden noted that the drivers “were related to a process change, and that process change supports […] accelerated production rates.”
For this reason, Warden said, “It’s a very defined change, and we now understand and have the learning from making that change, and that’s not something we will need to do again.”
Effectively, Northrop Grumman says it’s taking a financial hit now, so that it will be better positioned to ramp up to the quantities needed in full-rate production.
On top of that, Warden reiterated that the company would have the capacity to ramp up “beyond the quantity in the program of record, which is something that we and the government decided was important for the optionality to support the scenarios that they’ve been looking at, to increase the current build rate.”
While Northrop Grumman doesn’t expect to take another financial hit of this kind on the stealth bomber, Warden did state that there “remain both risks and opportunities on the program as we complete the first five LRIPs.”
Then, once full-rate production begins, the B-21 program should become very profitable for the company.
That milestone is still some way off, however.
The first B-21 made its maiden voyage from Northrop Grumman’s facilities at the Air Force’s Plant 42 in Palmdale, California, to Edwards on Nov. 10, 2023. As we were the first to report, the first bomber, nicknamed Cerberus, is now conducting test flights from Edwards Air Force Base in California. Cerberus is one of six pre-production examples, with the other five under construction.
At this point, Northrop Grumman is working to complete the engineering and manufacturing development (EMD) phase of the program, with the company now carrying out “tests that prove out the objectives of the aircraft being met through those performance test milestones,” Warden explained. “And the government has released information as we progress through the test program to help provide some transparency that the aircraft is performing in line with the model performance and the test objective.”
With LRIP now underway, Northrop Grumman is working through the first two lots of low-rate production but has also started manufacturing long-lead components through lot four.
“We’ve built a good bit of experience now in building the aircraft,” Warden added. “As we have progressed through the build process, we made the determination working with the Air Force, to reduce risk as we scaled to the program of record, which will happen at the end of LRIP, and even to position us now to ramp above the program of record, and those manufacturing changes and associated costs that we talked about being reflective this quarter are a result of that learning in the process of scaling.”
Today’s B-21-related financial hit for Northrop Grumman comes a little over a year since it disclosed a loss of nearly $1.2 billion on the program.
At that time, the loss was attributed largely to “a change in our assumptions regarding funding to mitigate the impact of macroeconomic disruptions on the LRIP phase of the program and higher projected manufacturing costs that reflect recent supplier negotiations and our experience in completing the first aircraft.”
Before that, there were warnings back in 2023 about the potential for a major loss on the B-21, which could be up to $1.2 billion. This has since turned out to be a very accurate prediction.
“We are planning at a zero profitability” currently on B-21, Warden had said during another earnings call in October 2023.
For its part, the Air Force has revealed little about the costs of the B-21 program. At the time of the Raider’s public rollout in December 2022, the overall program cost was pegged at $203 billion in Fiscal Year 2019 dollars, with “$25.1 billion for development, $64 billion for production, and $114 billion for 30 years of sustaining and operating a fleet of 100 bombers,” according to a report from Bloomberg.
That seems likely to change, however, as the Air Force increasingly indicates a plan to buy as many as 145 B-21s. This would, of course, impact the total cost of the program as well as the unit cost of each bomber.
Speaking last month, Gen. Anthony J. Cotton, head of U.S. Strategic Command, again called for 145 B-21s, Air & Space Forces Magazine reported. Cotton also called for a reassessment of the planned numbers of nuclear-armed AGM-181 Long Range Stand-Off (LRSO) cruise missiles and that the Air Force should “pay attention” to the progress of the B-52J upgrade program.
“I, as a customer, want to see increased rates” of B-21 production, Cotton said, noting that the production rate currently envisaged was schemed “when the geopolitical environment was a little bit different than what we face today.”
It remains to be seen whether the Air Force and Congress’s hopes of the B-21 being a model acquisition program play out in reality.
There’s no question, however, that the B-21 is a hugely important program, charged with replacing B-2 Spirit stealth bombers and swing-wing B-1B Lancers. The B-21 will also be a critical part of the U.S. military’s nuclear deterrent triad for years to come and will herald valuable new capabilities above and beyond traditional ‘bomber’ roles, as you can read more about here.
While the losses disclosed today by Northrop Grumman are bad news in the short term, the company will be confident that, once the predicted high startup costs are mitigated and as production ramps up, the program will become highly profitable.
Contact the author: thomas@thewarzone.com