Pentagon canceled Northrop’s classified satellite program due to ‘budgetary concerns’

Northrop Grumman’s classified satellite program was canceled because the Pentagon didn’t have enough money to pay for it, the company said.  

“On the restricted program, there's very little I can say given the nature of that program, except to say that the Air Force canceled that program largely due to budgetary concerns and prioritization, but the requirement likely does still exist and so we will see how that plays out over time,” CEO Kathy Warden told investors Thursday during the company’s first quarter earnings call.  

The cancellation sliced about $1.6 billion off Northrop’s “unfunded backlog”—that is, prospective orders whose funding has yet to be appropriated, according to the company. Bloomberg first reported that the canceled program was intended to develop a military communications satellite for the Space Force. 

While details are scarce, the cancellation of the program may be part of the Pentagon’s pivot from buying large, exquisite satellites to putting hundreds of small, cheap satellites on orbit. 

Warden also told investors the company isn’t going to compete to build cheap, non-survivable drones. This follows news from Wednesday that the Air Force did not pick Northrop to develop the next phase of its collaborative combat aircraft program. The service chose Anduril and General Atomics instead of the defense primes in the running: Northrop, Lockheed Martin, and Boeing.

“We are not looking to compete in [the] more commoditized part of the market that’s very low cost and not-survivable systems. That's just not our business model, and we know that. So we'll remain disciplined in where we invest in the pieces of the market that we pursue, but we think that what we provide is still highly relevant,” Warden said. 

The company is “obviously disappointed” it wasn’t selected for the CCA contract, but Warden noted the program is a continuous competition, and said Northrop will look to see how it can enter the program in the future.  

“We haven't learned anything at this point that fundamentally changes our strategy in autonomy, but we'll monitor how the CCA program progresses and incorporate any learnings that we have into those future opportunities,” Warden said. “And for us…this phase of the program was relatively small, we didn't have it assumed in our plan, so there's no impact to the guidance that we shared this morning for the [aeronautics system] sector.” 

The company also recently lost a huge competition to Lockheed to build the Missile Defense Agency’s next-generation interceptor. The agency accelerated their decision to pick a finalist because of budget constraints, Warden said. 

Still, the company will have plenty of cash coming in from the Sentinel program, building new intercontinental ballistic missiles for the Air Force. However, because of massive cost overruns and delays, the nearly $132 billion program is now being reassessed under the Nunn-McCurdy Act. 

Northrop isn’t halting any work while the Nunn-McCurdy process is carried out, and Warden remained confident that the program will be recertified.

“It's the nation's policy, as reviewed in the nuclear posture review, to have three legs of strategic deterrence. We do expect that the program will be recertified, but the government needs to take the process seriously,” Warden said. 

“They're working through the phases of that recertification now, and as I said, we're providing support to them and stay[ing] committed and very focused on delivering the program in the meantime, not getting distracted by the activity associated with the Nunn-McCurdy, but supporting it fully,” she said.