When aerospace is under Washington's wing

By Steven Pearlstein
Friday, January 8, 2010; A14

As someone who proudly roots for the home team, my instincts would normally be to celebrate Northrop Grumman's decision to move its corporate headquarters to the Washington area. Along with recent moves by Hilton, CSC, SAIC and Volkswagen USA, Northrop's hints at the increasing importance of government in the operation of the global economy while confirming how attractive and convenient Washington has become as a place for highly paid executives to live and work.

While Northrop will go through the motions of allowing Maryland and the District to shower it with tax breaks and other emoluments to win the bragging rights that come with any Fortune 500 headquarters, the only purpose of the competition is to get a better deal from Virginia, where it intended to move all along.

Northrop is already the state's largest private employer, with 8,000 engineers and programmers in Reston and Herndon and 17,000 workers at the giant Newport News shipyard. And the company's logo already sits atop a prime office tower in Rosslyn, where Northrop occupies five floors for its lobbyists and contract officers, who can simply look out the windows to keep tabs on their customers on Capitol Hill and in the Pentagon.

Northrop's decampment completes the retreat of the aerospace industry's top echelon from Southern California, where it all began. There, Jack Northrop actually got his start leading the design team for Allan Lockheed's Vegas, the plane that Amelia Earhart would fly across the Atlantic. A few years later, Northrop got the idea of creating an all-metal plane designed in the shape of a "flying wing," launching his own company, which he sold two years later to Bill Boeing, who hadn't yet moved to Seattle.

By 1932, Northrop was launching a joint venture with Donald Douglas to produce an airplane for the Army Air Corps, the Alpha, that would eventually lead the way to the DC-3. When the venture was finally folded into Santa Monica-based Douglas Aircraft, Northrop launched his third company, which today is Northrop Grumman.

In the decades since, the aerospace industry has morphed into the defense industry, which since the Cold War has gradually consolidated into a handful of look-alike conglomerates, each capable of making airplanes, ships, satellites, rockets and missiles, and the electronics needed to operate them.

The entrepreneurial engineers and flyboys of the early years, and the swashbuckling executives of the Cold War, have largely given way to button-down corporate managers -- General Dynamics' last two chief executives have been a lawyer and a former utility executive, while the heir apparent at Lockheed Martin is a former partner at the accounting firm Ernst & Young. And while they all keep one eye on their government customers, the other is fixed permanently on Wall Street, where investors now expect double-digit earnings growth.

Along with all those changes, the industry's center of gravity has shifted toward Washington. With fewer, bigger companies vying for fewer, bigger contracts, competition has as much to do with politics and marketing as it does with having the best technology. And with so many contract awards now challenged by the losers and so many programs plagued by cost overruns, top executives are devoting increasing amounts of time and attention to government officials and processes. It was surely not lost on Wes Bush, the new Northrop chief executive, that the two biggest and most profitable competitors in recent years are headquartered in Bethesda (Lockheed) and Falls Church (GD). Can Raytheon be far behind?

While all this is great for the Washington economy, I wonder, however, whether it's really good for America. What made the American aerospace and defense industry the best in the world was its knack for taking risks, thinking big and delivering a steady stream of innovative gee-whiz products. But if you talk to people who have been around the industry for a while, you get the sense that too much of that innovative edge has been lost. Some of that is the inevitable result of downsizing and consolidation, and some of the blame can be laid at the feet of a customer that seems to care more these days about reducing risks, cutting costs and adhering to proper procedure. But it only makes matters worse when top executives remove themselves far from the front lines, explaining that what matters most is marketing and finance.

"They've forgotten what made us great," a former Northrop executive told me Thursday. "If you really valued innovation, if you cared about quality and reliability and systems engineering, then you'd say: 'Don't come to Washington. Stay close to the people who are actually designing and producing. Challenge them, inspire them, lead them. The rest will take care of itself.' "

Final story: In the 1940s, Jack Northrop developed an innovative new bomber for the Army Air Corps based on his "flying wing." For reasons that were never clear, the Army secretary ordered Northrop to sell his design for the B-49, along with his company, to rival Consolidated Aircraft of Texas. Northrop refused, the government terminated his contract and ordered that the two prototypes be chopped up for scrap. Fast-forward 40 years. The Air Force signs a contract with Northrop Corp. to build the B-2 bomber, which remains today unrivaled in its ability to simultaneously fly fast, deliver payload and avoid detection by enemy radar. The B-2 is based on Jack Northrop's design.

Moral: It's good to be close to your customer -- just not too close.

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