Rockwell : Unit Searches for Life After the B-1
North American Aircraft is observing its 50th anniversary of building airplanes this year, but any celebration is likely to be short-lived.
Although the unit of Rockwell International is successfully entering full-scale production of the B-1 bomber only this month, the end of the lucrative program is already painfully close at hand.
When the last B-1 rolls out of a Palmdale hangar in 1988, the company will be without a major aircraft program to take it into the 1990s.
The Air Force and Navy have committed in recent years their next generation of large programs to other firms, virtually locking North American out of the big action in aviation for some time to come.
Just several weeks ago, El Segundo-based North American lost in its bid to win a development contract on the Air Force’s newest jet fighter, the Advanced Tactical Fighter, which carries a potential for $45 billion of future business.
The company chose to pursue the ATF alone and not join any industrial teams bidding for the work, which means it will not have even a small part of the ATF program. Of the seven major military aircraft manufacturers in the United States, North American appears to have the leanest slate of future programs.
Still, Rockwell Chairman Robert Anderson vows to remain in the aircraft business, buying time with a series of smaller programs until the next big opportunity comes his way.
“We have a pretty long-lasting commitment to the airplane business,” Anderson said in recent interview at his El Segundo office, overlooking flight operations at the Los Angeles International Airport.
“What is our next program? I don’t know,” Anderson said. “Nothing would make me happier than to have a large program.”
The aircraft business is no place for the faint-hearted, experts say. To remain in the business, a player has to be willing to ante up for years at a time, even when he’s losing hand after hand. Since North American, a pioneer aircraft maker, was acquired by Rockwell in 1967, it has managed to remain in the game.
“We have had our ups and downs before,” Anderson said. “When I came here in 1969, we had zero aircraft programs. I mean zero. We have the finest people, the finest tooling, the finest capability. We will have to find a way to keep them busy until something comes our way.”
Military aircraft experts agree that North American has a tough job ahead if it wants to remain a prime contractor in aircraft production.
“Rockwell is between a rock and a hard place,” said Thomas H. McMullen, the recently retired three star general who commanded the Air Force’s Aeronautical Systems Division, the service’s development and procurement arm for airplanes.
“But they have been in this situation before and they have been able to come back,” McMullen added. “It’s a complex thing to determine where a company is headed.”
The dearth of new contracts raises the question of whether North American will be squeezed out of the aircraft business in future years. It is widely believed that substantial excess capacity has developed at the seven heavy aircraft firms in the United States.
“Seven is not a magic number,” observed Verne Orr, retired secretary of the Air Force. “Six companies would give you competition. Five would give you competition. Even four would give you some competition.”
No Thought of Quitting
Despite such talk, Anderson said Rockwell has given no thought to getting out of the airplane business. “We have not had one meeting at this company about how we are going to get out of the airplane business,” he said.
Even without a new production program, North American will not be without business. Once production of the B-1 concludes with the delivery of the 100th aircraft in mid-1988, an after-market for spare parts, modifications and engineering support will continue to provide a substantial business for years to come, North American President Sam F. Iacobellis said.
That after-market, coupled with a handful of smaller programs, is likely to generate $1 billion in business annually, Iacobellis said in an interview last week.
Even so, the decline of the B-1 will pose a serious challenge to Rockwell in terms of maintaining corporate sales and earnings growth. Aircraft is the largest single component of the firm’s sales and profits, representing 31% of Rockwell’s $9.3 billion in sales in 1985 and 42% of its $1.2 billion in operating income. B-1 revenue will peak in 1986 at $3.9 billion and decline by 10% in 1987.
“There’s about $3 billion to recoup in B-1 sales,” Anderson said. “We probably can’t pick up all of that. That’s a substantial amount of business to pick up.”
Under Anderson’s term as chief executive, Rockwell has posted 11 years of consecutive record earnings, and he said the company has a “good chance” at maintaining earnings growth, despite lower sales.
“We are dedicated as a management team to doing it,” Anderson remarked. He said new accounting standards that the company must adopt under law will add $190 million in profits annually to the bottom line.
In many ways, Rockwell is better equipped to weather a lean period than most aircraft companies, owing to its diversification.
In addition to aircraft, Rockwell does a substantial government business in satellites, electronics, tactical missiles and manned spacecraft. It also makes auto components, commercial electronic devices and a broad group of other products, such as gas meters, newspaper printing presses and industrial sewing machines.
Lacking a large aircraft program, the company is likely to divest some of its aircraft production assets, Rockwell President Donald R. Beall said.
The company has substantial aircraft production facilities in Palmdale, Los Angeles, Tulsa, Okla., and Columbus, Ohio. Rockwell has a sprawling industrial complex near Los Angeles International Airport, bounded by Imperial Highway to the east and El Segundo Boulevard to the west, consisting of no fewer than 18 facilities.
“We will be looking at significantly reducing our capacity in El Segundo,” Beall said. “We will have to downsize El Segundo, for sure.” That plant now has 7,200 workers.
In addition, Beall foresees further reductions in Columbus (6,400 employees) and to a lesser extent in Tulsa (4,300 employees). The last reduction would be in Palmdale, the huge assembly and fabrication complex that the firm built specifically for the B-1 and that now employs 7,500. The Palmdale facility is the most modern aircraft production site in the nation.
In terms of manpower at its four production sites, North American will drop from the 25,500 employees it now has to 15,600 at the end of 1987, Iacobellis said.
Iacobellis, among many others at Rockwell, finds the current winding down particularly painful, given the firm’s performance on the B-1. So far it has met a rigorous delivery schedule and budget on a controversial program that critics predicted would run into trouble.
In Rockwell’s view, North American remains one of the pre-eminent aircraft makers in the nation. Although not widely recognized today, it is among the most prolific aircraft builders in history.
The firm built 42,683 airplanes during World War II alone, including the P-51 Mustang and B-25 Mitchell bomber. Later, it built the first operational supersonic jet fighter with its F-100. It built the X-15 high-speed research rocket plane. Its sister subsidiary built the Apollo moon ship, the space shuttle and a variety of satellites.
But its venerated past will do little to sustain the firm if its contract backlog is approaching zero. Rockwell got into this predicament in part because it was caught in a rapid shift of aircraft technology over the last decade.
If Rockwell can stake a claim to a specialty in one area of aircraft technology, it would certainly be in the area of very high-speed flight.
For more than three decades, Rockwell has built many of the nation’s fastest jet and rocket-powered aircraft. Its F-100 jet fighter in the late 1950s was the first operational supersonic aircraft. Its X-15 manned, rocket-powered airplane set a speed record of 4,104 miles per hour in 1962. And, of course, its space shuttle remains the only airframe that has experienced extreme hypersonic flight.
Unfortunately, speed is not the key selling point right now. Stealth, the technology of building planes that elude detection by radar, is hot, and Rockwell is not known as a Stealth developer. Major contract awards have gone to Northrop and Lockheed, the two airframe builders reknowned for their Stealth capability.
Has Several Options
Despite this shift, Rockwell is hardly out of the airplane game. In the long run, it is convinced that its capabilities will again be needed by the nation. And in the short run, it has a number of options, Iacobellis said.
Foremost among its short-term hopes is that the Pentagon will order more B-1s. While that has seemed unlikely since Congress rejected funding for more B-1s in the fiscal 1987 spending bill, the company is continuing to push for an order.
If the recent arms control talks in Reykjavik, Iceland, lead to a reduction of nuclear missiles, the Air Force will almost certainly want additional manned bombers, Iacobellis believes. And the Northrop Stealth bomber is at least five to six years away from being ready for the Air Force.
“Nothing could fill the void of the B-1 except more B-1s,” Iacobellis said.
Adds Beall: “Our first priority in aircraft is to maintain a capability to sell more B-1s. We would like nothing better than to add another 30 or 40 B-1s per year to the revenue.”
And Anderson says: “I am hopeful that there will be a need for more B-1s. I am not giving up.”
The odds of succeeding are thin, says aerospace analyst Wolfgang Demisch of First Boston Corp., even though it makes a lot of sense to try.
“The company pursued the B-1 program when it was officially dead, so I would expect no less now when they have a viable, ongoing program,” Demisch said.
An order for more B-1s isn’t the only opportunity North American has. It has about half a dozen smaller programs and subcontracts that it will be seeking or has already in hand. They include:
- The Supernormal Attitude Kinetic Enhancement aircraft, or Snake. An experimental aircraft that uses thrust to control aircraft direction, the Snake is a multinational program that North American is pursuing in conjunction with West Germany. The program is worth roughly $45 million.
- Oblique Wing Aircraft. This National Aeronautics and Space Administration program calls for modifying an existing F-8 jet with a wing that swivels on the fuselage, thereby enhancing performance. The program is worth $15 million. - C-17 subcontracts. Rockwell is bidding on production of structural parts for the McDonnell Douglas C-17 military cargo plane.
- P-3. Rockwell plans to bid on the Navy P-3G, a new generation of submarine patrol aircraft. The Navy plans to buy 125 of the airplanes. Lockheed has built previous versions of the P-3 and is opposing the Navy’s plan to allow competition on the airframe. The P-3 is based on the old Lockheed Electra.
- C-130 gunships. The Air Force plans to modify 12 new C-130 cargo planes to gunship status, which includes outfitting them with sensors, armor and guns at a cost of $500 million. The program could grow to $3 billion, however. Rockwell will be among the bidders.
- Trainer. Republic Fairchild is looking for a joint venture partner to help its troubled T-46 Air Force trainer. Iacobellis said Rockwell has held talks, but he declined further elaboration.
- National Aerospace Plane. The so-called Orient Express that President Reagan has endorsed is an aircraft that would travel up to 25 times the speed of sound and be capable of entering Earth orbit. North American is one of seven companies under contract. If Congress approves funding, a flight test program could evolve during the 1990s. The value of the program will certainly be in the billions of dollars.
In addition, there is always the chance that an unexpected development will open a new opportunity. The leadership of the aircraft industry has dramatically and unexpectedly changed hands in the past.
“I can remember a time when North American had a contract to develop the F-108 fighter and the B-70 bomber,” said McMullen, the retired Air Force general. “It looked like they had all the major Air Force programs sewn up.”
Those two programs, however, were canceled in the 1960s, leaving the firm with virtually nothing in the hopper. But the firm kept its hand in the aerospace business, successfully shifting its key people from aircraft to spacecraft. It is a strategy that will come into play again.
“We have got to maintain our capabilities, our technical resources, wind tunnels, engineers, scientists,” Anderson said. “We have all the machinery, facilities. We have to keep pushing along, and sooner or later, something will come our way.”
