Ron Sugar interviewed on CNBC from the Paris Air Show
Ronald D. Sugar
Chairman and Chief Executive Officer,
Northrop Grumman Corporation
On Monday, June 18, 2007, Northrop Grumman Chairman and Chief Executive Officer Ronald Sugar appeared on CNBC from the Paris Air Show. Below is a transcript of the interview.
Ross Westgate, co-host: It's the first day of the Paris Air Show. Our man there on both the ground and in the air is CNBC's Guy Johnson and he joins us now.
Guy Johnson reporting: Francois Fillon is the new French prime minister. He's been here in the last few minutes. He's been looking around at exactly what the European aerospace industry has to offer. One of the things that obviously is top of the agenda at this point in time is the new tanker program which Airbus has teamed up with Northrop Grumman to compete for a big contract over in the United States. Now, this was Boeing's contract, but that obviously ran into trouble when it had problems relating to the way that contracts were put through.
You remember that scandal really overtook Boeing for really quite some time. That was a big deal. Waiting to see whether or not that contract goes to the Americans or whether it gets split or whether actually EADS and Northrop Grumman can win it.
Now, earlier on, I spoke to the CEO of Northrop Grumman, that is Dr. Ron Sugar, and that was the first question I put to him, whether or not they felt they had a chance of getting this contract done.
Dr. Ronald D. Sugar: We're in it to win. We're teamed with a wonderful partner, EADS. We're using the Airbus 330 as a basic airplane and we're putting Northrop's military knowledge to work in terms of converting it to an Air Force tanker.
Our friends at EADS were able to bring three tankers here to the show: the MRTT (Multi-Role Tanker Transport) tanker that the Australians had, which is sitting there parked on the ramp right next to the C17. It's a great-looking tanker. They also have a couple of other 310 tankers that are here that are actually in active service.
So, we believe our chances are very good, we think it's a superior airplane and that we're going to give the United States Air Force a wonderful offering to choose from.
Johnson: Some are suggesting that with the election of Mr. Sarkozy, an Atlanticist who will be viewed more favorably in Washington, your chances have actually improved.
Sugar: Certainly we're all watching the politics over here in Europe. We are encouraged by Mr. Sarkozy's position, his pro-American stance. Clearly, the military cooperation between the United States and France has been very strong irrespective of the various political issues that have come up from time to time. I think there's a great respect between the militaries. And, the fact is, we really are on the same side on the war against terrorism.
Johnson: Let's just talk a little bit about whether or not that contract could be split, because that is another story that's doing its rounds, as well, that you and the Boeing team could end up pretty much half and half.
Sugar: Today the procurement has been set up as a winner-take-all and as a result we're basically proceeding on the basis that we're in it to win the whole thing. If at some point in time the Air Force or the American Congress determined that there may be a value to splitting the order and providing continuous competition over the next 25 or 30 years – after all, they're going to be buying probably 300 or 400 of these things over time – we'll obviously support those plans, but today, we're in it to win the whole thing.
Johnson: You're the number-three defense contractor in the United States; BAE Systems is a company that is going through a big scandal at the moment concerning procurements in the Middle East. Is that having any impact in the United States at this point on the way the contracts may go in the future, or is it really putting a big rock in the mill pond?
Sugar: Certainly it's a large story in the UK, a big story in Europe. I would say it hasn't gotten as much attention in the United States. As you know, the American defense industry is very highly scrutinized, highly regulated, and for many years there have been continuing efforts to reform procurement. As a contractor team, as a contractor industry base, we're very conscious of the issues of ethics, procurement and integrity, and we work closely with the government to improve that over time. So, while we're all taking note and watching, I would say that we're not seeing any changes or significant difference in direction in American contracting.
Johnson: Will you tell me very quickly about how you foresee defense spending going forth from here? It seems to be sort of slowing down in the United States. Is there a pickup elsewhere that could compensate?
Sugar: Let me say that, to the contrary, there has not been a slowdown. We're seeing a combined defense proposal of about $620 billion, and, to contrast that, just before 9/11, it was probably in the 300, 400 range. So, there has been a tremendous change and, in fact, as you look at the projection for '08 over '07, the proposed budget is actually going to go up as well.
We would expect that it will probably level off in the next year or two, but in fact you can't predict much beyond that because it will depend upon the threat, not only the real threat in the world, but the threat as perceived by the American Congress. I don't think anybody out here sees the world getting safer anytime soon. I don't expect that the United States is going to make any significant reductions in its defense spending anytime soon.
Westgate: Right. CEO of Northrop Grumman, Dr. Ronald Sugar, talking to CNBC's Guy Johnson at the Paris Air Show.
