UPDATE 1-AIRSHOW-No dramatic drop in defense outlays-Northrop

* Fears of economic collapse receding

* No holes in the Northrop portfolio

* Waiting for next step in tanker competition

* Shares down 2.1 percent (Adds details from interview)

By Andrea Shalal-Esa and Karen Jacobs

PARIS, June 15 (Reuters) - U.S. defense spending should not decline dramatically and may even rise a bit despite Defense Secretary Robert Gates' cuts to weapons programs, Northrop Grumman Corp (NOC.N: Quote, Profile, Research) Chief Executive Ron Sugar said on Monday.

Sugar told Reuters at the Paris Air Show that fears of global economic collapse were receding but it was too early to say whether the economy had reached the bottom of its decline.

"The fear of continued freefall is basically behind us," Sugar said. "The huge fear that gripped the entire world" has ended, he added, and industry executives are now reassessing valuations and other indicators.

U.S. defense spending actually increased in fiscal year 2010 and could rise again slightly in fiscal 2011, Sugar said, adding that he does not expect a "precipitous drop."