Northrop Grumman executives cautioned on Jan. 26 that a cumulative loss of up to $1.2 billion is possible over the first five years of low-rate initial production (LRIP) on the B-21 Raider bomber program for the U.S. Air Force.
“At this point we don’t believe that a loss is probable. We do believe that a loss is possible,” Northrop Chief Financial Offer David Keffer told analysts during the company’s fourth-quarter earnings call.
“It’s something that we will continue to work over time,” Keffer added. “We will continue to do anything we can to mitigate inflationary pressures.”
The potential loss would reflect inflationary pressures and the impact of supply chain disruptions on the first five lots of low-rate production, of which the first lot for at least two aircraft is expected to be awarded later this year.
Northrop’s initial cost estimate is based on projections used in priced options for the B-21 engineering and manufacturing development (EMD) contract, which was awarded in 2015. The EMD contract largely uses a cost-plus-incentive fee structure, but the first five LRIP lots feature a largely fixed-price format, which exposes the manufacturer to the risk of rising prices.
The Defense Department set a firm cap on unit prices for the B-21 before approving the program to move into the acquisition phase in 2012. The cap equates to a maximum average of $690 million per aircraft over a 100-aircraft production run.
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