Commercial, Military

Despite Surprise Leadership Announcement, Analysts See Positives At Northrop Grumman

By Calvin Biesecker, Defense Daily | July 13, 2018
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Northrop Grumman's Scaled Composites assemble TERN parts

Technicians at Northrop Grumman subsidiary Scaled Composites perform key steps in assembly of first TERN air vehicle. Photo courtesy of Scaled Composites

Northrop Grumman made a surprise announcement Thursday evening that Chairman and CEO Wes Bush will step down from the CEO role next year and be succeeded by Kathy Warden, the company’s current president and chief operating officer (COO), who has been groomed to take over leadership of the company.

Prior to becoming president and COO on Jan. 1 of this year, Warden led Northrop Grumman’s $11.4 billion Mission Systems sector, overseeing programs that include cyber, self-protection and targeting, air and missile defense.


Kathy Warden, president and chief operating officer of Northrop Grumman, will become president and CEO on Jan. 1, 2019. Photo: Northrop Grumman

Kathy Warden, president and chief operating officer of Northrop Grumman, will become president and CEO on Jan. 1, 2019. Photo: Northrop Grumman

“The smooth performance of the Mission Systems segment under Ms. Warden’s leadership should provide some reassurance,” Sheila Kahyaoglu, an aerospace and defense analyst with the investment banking firm Jefferies, said in a client note Thursday evening. She added that even though Warden doesn’t have the “major program experience” that is resident in Northrop Grumman’s Aerospace Systems segment, “during her tenure operational performance within mission Systems has been solid.”

Seth Seifman, J.P. Morgan’s aerospace and defense analyst, also in a client not on Thursday night noted that Warden was the “heir apparent” but that Wes Bush’s departure was unexpected.

“Nevertheless, Bush’s strategic decisions have proven highly successful and so there is a basis to think the CEO transition might be among these as well,” Seifman said. “Moreover, there is a clear path forward for Northrop in the coming years.”

The clear path forward includes guiding the Air Force’s B-21 stealth bomber program from development to production and integrating Orbital ATK, which was acquired in June, Seifman said. He added that winning the Ground Based Strategic Deterrent is a “key upside opportunity” for the company.

Northrop Grumman is competing against Boeing [BA] for GBSD and a decision is expected from the Air Force in 2020 on a winner.

Seifman expects that in the near-term, Northrop Grumman’s capital deployment priority will be on de-leveraging following the acquisition of Orbital ATK.

Bush became CEO of Northrop Grumman on Jan. 1, 2010, following the surprise announcement in Sept. 2000 that then Chairman and CEO Ron Sugar would retire at the end of the year. Sugar was 61 at the time and Bush is 57. The company’s mandatory retirement age for its executives that are vice presidents and above is 65.

Warden, 47, joined Northrop Grumman in 2008 from General Dynamics [GD]. She joined GD as part of the company’s 2003 acquisition of Veridian, which had capabilities in information technology, chemical, biological and nuclear detection, intelligence, surveillance and reconnaissance, and systems engineering. Warden also was with General Electric [GE] working on commercial industries, according to her biography on Northrop Grumman’s website.

Warden oversaw the acquisition of Orbital ATK, which now makes up the company’s Innovation Systems sector, and is responsible for its integration. Before leading Mission Systems for two years until Dec. 2017, Warden headed the company’s Information Systems sector for three years.

Under Bush’s leadership, the company has taken a disciplined approach to the programs it bids, making sure that there is an attractive return on investment relative to other opportunities. Warden, on the company’s first quarter earnings call in April, was in lockstep with Bush on this approach.

She said then that these criteria are “critical to long-term, sustained performance.”

Warden, effective immediately, has been elected to Northrop Grumman’s board and will become CEO effective Jan. 1, 2019. She will retain the title of president too. Bush will remain as chairman until July 2019.

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