Howard Rubel News

A senior Navy official is warning that rising costs in key programs such as Lockheed Martin and General Dynamics' next-generation surface combat ships could derail efforts by the department to modernize its fleet and aircraft. The Navy has awarded contracts for four ships that initially were estimated to cost $270 million each under the Littoral Combat Ship (LCS) program, two to Bethesda, Md.-based Lockheed Martin Corp. and two to Falls Church, Va.-based General Dynamics Corp. But the cost of Lockheed's first ship - which is roughly 73 percent completed - has already soared to roughly $350 million, according to the Navy. The Navy ordered a halt to work on the Lockheed's second ship in January while it conducted a program review.

Goldman Sachs lowered its rating on U.S. military contractor Northrop Grumman Corp. to market perform from outperform. In a report, analyst Howard Rubel said the downgrade stemmed from potential dilution and distraction over a bid for Newport News Shipbuilding Inc. He said a combination between Northrop and Newport News may not produce the benefits for Northrop or the U.S. Navy that a General Dynamics Corp.-Newport News deal would. General Dynamics and Northrop have competing bids for the shipbuilder. General Dynamics agreed to buy Newport News for $2.1 billion in cash, while Northrop is offering $2.1 billion mostly in stock. Northrop…