Giant defense firm’s chief to retire

Surprising industry observers, Northrop Grumman Corp. Chairman and Chief Executive Ronald D. Sugar said he was stepping down following a six-year tenure in which he was credited with helping turn the Century City company into one of the world’s largest defense contractors.

Sugar, 61, said he would relinquish his posts by the end of the year but continue to advise the company until his retirement in June.

Wesley G. Bush, Northrop’s president and chief operating officer, will replace Sugar, effective Jan. 1.

The announcement, which came amid prospects of a slowdown in Pentagon spending, fueled Wall Street speculation that Northrop’s board might have forced Sugar’s departure. Sugar will be leaving his post before the company’s mandatory retirement age of 65.

But Sugar told The Times that the move was voluntary and that he had been thinking about it for a while.

“I’ve had a great run,” Sugar said. “Like an athlete, you don’t want to step down too soon. But now it seems like the right time to pass the baton off.”

Bush, 48, who was being groomed for the top post, will take over a company that grew rapidly in the 1990s through acquisitions and has benefited from a surge in defense spending since the Sept. 11, 2001, terrorist attacks.

Northrop develops and makes a range of military weapons including unmanned aircraft, satellites and nuclear submarines. It is one of the largest private employers in Southern California, with 27,000 workers.

Under Sugar, Northrop sales grew from $26 billion to nearly $35 billion and the company became the nation’s second-largest defense company by revenue, trailing only Lockheed Martin Corp. Sugar -- who grew up as a whiz kid in South Los Angeles -- joined Northrop after its acquisition of Litton Industries, one of 20 companies it acquired during a decade-long spree under previous Chief Executive Kent Kresa.

When Sugar took over as CEO in 2003, he focused most of his attention on integrating the companies that had been acquired over the years and looking to expand the company internally.

Sugar’s ability to assimilate the companies into Northrop will be his legacy, said Jon B. Kutler, president of Admiralty Partners, an aerospace private equity firm in Century City.

“Taking those disparate entities and making them function within Northrop was no easy task,” Kutler said. “He was the right person for the job.”

Northrop has 120,000 employees scattered across 50 states and 25 countries, developing and building weapons and technologies that touch practically every aspect of U.S. military and intelligence operations.

But Wall Street is mixed on whether the company can steer through what is expected to be a protracted slowdown in Pentagon spending. After nearly a decade of growth, Northrop -- like other defense firms -- is facing significant turbulence.

James McAleese, a McLean, Va.-based lawyer who specializes in defense contracts, said the executive handoff comes at a key moment.

“This is a good time for a leadership transition because the defense industry is changing,” McAleese said.

In addition to the expected drawdown in Pentagon weapons spending, Northrop is going after what is expected to be one of the largest contracts for the next decade or more: a project to build a new generation of aerial refueling tankers for the U.S. Air Force.

Northrop partnered with European aircraft maker Airbus and won the $35-billion contract last year, upsetting heavily favored Boeing Co. But that award was overturned and the Air Force has been forced to hold another competition, which is ongoing.

McAleese said winning the tanker contract would be crucial for Bush to keep shareholders happy. Bush will also have to address development problems that have been plaguing the company’s shipbuilding sector, he said.

Executive changes are a growing trend in the defense industry, said Loren Thompson, a defense policy analyst for the Lexington Institute in Arlington, Va. Earlier this month, Boeing’s defense unit shook up its executive ranks.

“It’s part of the generational turnover in the industry,” Thompson said. “Companies understand that the industry is going to be tougher going forward.”

So, he said, companies are promoting executives they believe are capable of handling future challenges. “Bush has been Sugar’s right-hand man for years now. I think the company believes his time has come.”

But Bush will have some big shoes to fill, Thompson said.

“Sugar didn’t just have a plan, he had a vision,” he said. “For the most part, it panned out.”

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william.hennigan @latimes.com