Incoming Northrop CEO Bush faces challenges

Wes Bush is expected to bring a new urgency to fixing problems that have hurt the financial and competitive standing of defence contractor Northrop Grumman.
Bush, 48, will take over as chief executive at the maker of warships, submarines and unmanned spy planes in January. Current Chairman and CEO Ronald Sugar, 61, will stay on as an adviser until June 2010.
Those who know Bush, who earned bachelor’s and master’s degrees in electrical engineering from Massachusetts Institute of Technology, say he will move decisively to right the No. 3 Pentagon contractor’s ship-making operations and expand into new businesses as growth in US defence spending slows over the next few years.
“He’s probably one of the better people you could have during a challenging time,” said Elliot Pulham, chief executive officer of the non-profit Space Foundation.
“He’s a guy who’s open to all options and looks for a lot of alternatives and differing views when he’s making a decision,” Pulham added.
While the rerun of a bruising $35 billion (£21 billion) (R260 billion) competition against Boeing to build refuelling airplanes for the Air Force will take up much of Bush’s attention, turning around its shipbuilding division and boosting credibility with a sceptical Wall Street is also a high priority.
“It hasn’t been the smoothest sailing in the last couple of years,” said Brian Ruttenbur, a defence analyst with Morgan Keegan.
Northrop, whose US Gulf Coast ship-making operations were damaged by Hurricane Katrina four years ago, has taken some big charges to recent quarterly earnings tied to increased cost estimates to build ships.
In an interview with Reuters, Bush said improving the ship business was “a very important way” to grow the value to grow of the company.
“I think that, if Wes Bush can’t figure out how to fix the shipbuilding operations, he may decide that they’re not really a good fit with the rest of the company,” said Loren Thompson, a defence consultant with the Lexington Institute.
Decisive and demanding
Though charming and personable, Bush, the current Northrop president and chief operating officer who has been groomed for the top job by Sugar, is ambitious.
He became Northrop president in May 2006 and added the chief operating title in 2007. Before that, he was chief financial officer.
“The public Wes Bush is an unfailingly courteous and engaging person,” said Thompson. “But behind the scenes, he can be quite decisive and quite demanding.”
In some ways, Bush has already started putting a stamp on the company. Northrop Grumman reorganized into five business units earlier this year from seven, with unit chiefs reporting to Bush, Jefferies & Co analyst Howard Rubel wrote.
Bush also is credited with overhauling business development processes that have cut overhead costs, Sanford Bernstein analyst Douglas Harned said.
Still, he will have to expand the presence in unmanned vehicles, a category in which Northrop leads and work to win more defence contracts, experts said.
“Northrop Grumman has not done as well as some of its competitors in winning large competitive programs” in recent years, said Philip Finnegan, director of corporate analysis for Teal Group.
While management has been working to reverse that, still more progress is needed.
“Lockheed Martin has been very successful in moving into adjacent areas and Northrop Grumman hasn’t,” Finnegan said.
If Bush succeeds, it could send Northrop Grumman’s stock price, which has bounced back 50 % from a year low of $33.84 (R252) in March, higher in 2010, analysts said.
But in the face of slower growth, that outcome is not assured.
“It’s no longer an industry that’s going to see rapid growth,” Finnegan said. “You’re going to see companies and programs under pressure. The challenges of management dramatically change in those cases.”

Pic: Northrop Grumman warship