NORTHROP 1 OF 2 BIDDERS FOR U.K. PACT.

Byline: Evan Pondel Staff Writer

The United Kingdom Ministry of Defence said on Friday it had selected Northrop Grumman Corp. as one of two bidders for a spy aircraft contract potentially valued at more than $1.2 billion.

Two years ago, Northrop Grumman and three other contractors began helping Britain develop intelligence systems, surveillance and reconnaissance programs. Northrop and Paris-based Thales are now vying for the second phase of a contract known as Watchkeeper.

Two other bids, led by Lockheed Martin Corp. and BAE Systems, were eliminated from the race, according to the Ministry of Defence.

``We are confident the Ministry will look at the merits of each bidder's proposal,'' said James Hart, a spokesman for Century City-based Northrop Grumman.

A winner is expected to be announced by 2004. The contract will most likely be paid over the span of 10 years, Hart said.

Northrop Grumman is evaluating several unmanned systems to meet the requirements of Watchkeeper. Among those is Fire Scout, an unmanned vehicle that resembles a helicopter.

Fire Scout has the ability to take off and land on any aviation-capable warship, carry out surveillance missions and find tactical targets.

Although it is a viable war tactic, the U.S. Department of Defense decided not to allocate funding for the Fire Scout in January 2002, according to Paul Nisbet, analyst with JSA Research Inc in Newport, R.I.

``Still, these unmanned systems are strong for Northrop. They're gaining some influence overseas as well,'' Nisbet said. ``But Northrop's recent movement in the U.K. is not that significant when you calculate the $1.2 billion is being spread out across 10 years.''

Aside from developing unmanned aircraft, Northrop Grumman has been on an aggressive buying spree of late. Last year, Northrop Grumman bought rival TRW Inc. for $7.8 billion to redefine the company's defense-related programs. These areas are expected to get a boost if the United States goes to war with Iraq.

In November 2001 the company purchased shipbuilder Newport News, helping the defense contractor net cash from operations of $748 million during the fourth quarter.

``It's these other areas, like Newport News, that are helping Northrop right now. Obviously the work overseas will be helpful, too,'' Nisbet said. ``However, the company will probably run into some competition from Thales. Some European countries prefer to sign deals with European companies.''

Thales, formerly known as Thomson-CSF, is France's largest defense company. The French government owns more than 33 percent of Thales, which specializes in airborne warnings and control systems, missile systems and naval defense systems.

Despite Thales presence in Europe, ``our experience in integrating proven unmanned systems is flexible and agile enough to meet the evolving requirements for the U.K.,'' said Marty Dandridge, executive vice president and general manager of Northrop Grumman's Unmanned Systems, in a statement.

Northrop Grumman gained 20 cents to close at $91.69 Friday on the New York Stock Exchange.