Litton May See Benefit From Competitor's Shipbuilder Deal.

Northrop Grumman Corp. officials seemed less than pleased by last week's announcement that rival General Dynamics Corp has agreed to buy Newport News Shipbuilding Inc., and that the Navy and Pentagon are unlikely to oppose the $2.1 billion deal, but industry analysts said the sale could actually mean more business for Northrop.

If the deal goes through, as is expected, General Dynamics would have a monopoly on constructing nuclear-powered aircraft and submarines.

That dominance, said industry analysts, could mean that Northrop's just-acquired Litton shipbuilding unit would see a disproportionately higher share of future contracts to build so-called surface combatant ships.

"In a strange way, it may be a positive for Litton," said Jon Kutler, president of Quarterdeck Investment Partners Inc. "If the Navy approves this deal, they can't afford to put all of their eggs in the General Dynamics basket and will need to help Litton maintain their position in surface combatants. This strengthens (Litton's) position in the nonnuclear-powered ships."

Indeed, the deal would seem to dissect the military shipbuilding industry into two distinct suppliers.

"There's very little competition between Litton and Newport News," said Paul Nisbet, a defense analyst for JSA Research Inc. "So (Northrop) shouldn't be that concerned about the combination of General Dynamics and Newport News. There's no competition for the nuclear-powered ships and there hasn't been for years. Litton does not have a nuclear ship or submarine capability."

General Dynamics of Falls Church, Va., agreed to pay a reported $2.1 billion for the Newport News, Va-based company two years after the Pentagon and Navy rejected an earlier $1.8 billion bid from General Dynamics, which was coupled with a promise to slash costs at Newport News.

Officials at Century City-based Northrop and its Woodland Hills-based Litton unit seemed less than pleased by General Dynamics' April 25 announcement. They issued a terse prepared statement asserting they are looking forward to the Pentagon's review of the deal.

"We were surprised at the announcement because on two separate occasions, the government has objected to the combining of shipbuilders for competitive reasons," said Northrop. spokesman Bob Bishop. "Northrop Grumman is assessing the announcement and will have an opportunity to present its views to the government as the antitrust review proceeds." He declined to comment further.

Some analysts have asserted that Northrop would be better off unloading its recently acquired beleaguered shipping operation, which includes the Ingalls Shipbuilding operation in Pascagoula, Miss.

But Kufler said the sale of Newport News would all but nullify that option because the only logical buyers for Litton's shipbuilding operation would be General Dynamics or Newport News, and once combined, they would be precluded from doing that on antitrust grounds.

"A GD-Litton deal wouldn't be possible after this deal because you'd basically be down to one shipyard," he said. "The Pentagon wouldn't agree with it. It's surprising they let it go down to two shipbuilders."