January 21, 2015 / 10:00 PM / 3 years ago

Pentagon still cold to big defense mergers: Northrop CEO

Northrop Grumman Chairman and CEO Wes Bush speaks during a news conference on national security at the National Press Club in Washington December 3, 2012.Yuri Gripas

WASHINGTON (Reuters) - Even in an era of shrinking U.S. military spending, the U.S. Defense Department remains reluctant to see further consolidation among big U.S. weapons makers, Northrop Grumman Corp (NOC.N) Chief Executive Wes Bush said on Wednesday.

"I haven't seen any evidence that the department is thinking about things differently, but it will always come down to the case-by-case view of competition versus the benefit that the department would get from it," Bush told Reuters after a speech at the Brookings Institution, a Washington think tank.

Pentagon officials, who would have a role in reviewing any large defense mergers, have repeatedly said they are comfortable with the current number of large prime contractors, although they expect mergers and acquisitions among smaller players.

Bush said Northrop remained focused on augmenting its capabilities in targeted areas. "I'm excited about growing our company with what we have," he said. "We get the biggest return on the things we do inside the company."

On Tuesday, Northrop, the third largest U.S. defense contractor, announced it had hired Brett Lambert, a former top U.S. defense official and expert on mergers and acquisitions, to oversee corporate strategy.

Analysts said Lambert's hiring reflected growing pressure on Northrop to boost revenues after several big contract losses, and could help the company the navigate a future merger.

Bush declined to provide details about the company's plans. He said Lambert was a "smart guy" suited to help the company shape its strategy.

In remarks at a Brookings conference on the U.S.-Australia alliance, Bush said he thought a slew of mergers triggered by the previous downturn in the defense sector in the late 1990s had made sense.

During that time, Northrop acquired several companies including TRW, Litton Industries and Newport News Shipbuilding.. Bush said that consolidation had helped Northrop reduce costs and continue funding research and development efforts, even during the latest downturn.

Northrop has since spun off several units, including the shipbuilder, now known as Huntington Ingalls Industries Inc (HII.N).

Bush said half the company's 65,000 employees were scientists, engineers or technologists of some sort, and the scale of an organization that large offered many benefits.

Lambert, who retired in August 2013 after four years as the Pentagon's point man on industrial base issues and foreign acquisitions, has long predicted an uptick in mergers and acquisitions in the defense sector, although uncertainty about budget levels and high share prices have slowed such deals.

Reporting by Andrea Shalal; Editing by Sandra Maler and David Gregorio

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