Aerospace Industry Trend: Flight From the Southland

Lockheed’s decision this week to move almost all of its aircraft production to Georgia is the latest and most dramatic sign that Southern California’s grip on the high-tech, high-wage aerospace industry is weakening.

Aerospace companies have shifted operations from Southern California to small and medium-size cities in Alabama, Arizona, Utah and Georgia, where factories now produce missiles, helicopters, aircraft parts and defense electronics.

The moves are prompted in part by cheaper wages, looser environmental regulations and the opportunity to pick up valuable political support in Congress by locating in more states with influential politicians.

Contributing to the flight out of Southern California has been a widespread perception that the quality of life here has deteriorated amid unaffordable homes, gridlocked highways, polluted air and rampant crime.

“Every defense company worth its salt has looked at ways to move out, slip out and slide out of the basin,” said Robert D. Paulson, a director of McKinsey & Co.’s aerospace consulting business. “Virtually every one has managed to move production out. It is manufacturing where they are most pinched.”

There are still powerful incentives to keep aerospace companies in Southern California, where the industry grew up in the 1930s and where the world’s highest concentration of aerospace activity still remains. But increasingly, firms seem to be overcoming the obstacles, turning their backs on the skilled aerospace work force here and moving some operations out.

Lockheed disclosed Tuesday that it will move its Aeronautical Systems Co. out of Los Angeles County to Marietta, Ga., eliminating as many as 4,500 aircraft jobs here by the mid-1990s and dashing hopes for big employment growth later in the decade.

The Lockheed decision continues a trend that began a decade ago but has gone largely unnoticed because the aerospace industry was growing during the Reagan Administration defense boom. Now, as the industry contracts, the earlier defections are sure to exacerbate the pain from the coming downturn.

Just how important is aerospace to Southern California? Although many economists say Southern California has a more diversified economy than in years past, aerospace is still the cornerstone of manufacturing here.

Aerospace--which includes aircraft, spacecraft, missile, aerospace instruments and defense electronics--provided 217,000 jobs in Los Angeles County as of January. While that may not seem critical to an employment base of 4.2 million, it represents a 29% share of all manufacturing jobs.

David Hensley, an economist at the UCLA Business Forecasting Project, argues that Southern California is more vulnerable now than during the last aerospace downturn, in the early 1970s. Then, Hensley said, the region was not burdened with such problems as high housing costs, a deteriorating educational system, congestion and crime, which could prompt skilled people to leave.

“We are barely at the beginning of this downturn and it is unrealistic to think we are not going to feel any effect,” Hensley said Wednesday. “For me, the pivotal event was the announcement by McDonnell Douglas (last month) that they were laying off 3,000 workers. Everybody was counting on commercial aircraft to offset the military declines.”

And yet, the aerospace industry is far from staging a mass exodus from Southern California. The current bleak outlook in defense, coupled with departures of some firms, may overstate the risk facing the region.

Even while companies have announced out-of-state expansions, they have elected to make major investments in the state. Lockheed, for example, has just invested $100 million in new facilities for its Skunk Works operation in Palmdale that produces top-secret aircraft for the Air Force.

During the 1980s, Northrop invested $1.2 billion in facilities in Pico Rivera to produce the B-2 stealth bomber. Rockwell International is building the nation’s most advanced hypersonic wind tunnel in Ventura County.

While Southern California is losing labor-intensive production in the aircraft industry, it is retaining very high-value production work in spacecraft and electronics. The infrastructure of hundreds of small shops that forge, cast, plate and heat-treat metal is a powerful magnet to industry.

And Southern California remains a center of technology and design. Although Lockheed will move its aircraft operation to Georgia, it will rely on a research facility in Rye Canyon near Valencia that employs 1,000 engineers and scientists.

Hughes Aircraft agonized two years ago whether to move its Missile Systems Group to Tucson, but finally decided that the scientists and engineers at the Canoga Park facility were too valuable a resource to attempt to move or re-create elsewhere.

The state has not had any defections of the six major producers of spacecraft. All manned spacecraft in current production or under development, for example, are being led by prime contractors in Southern California.

“Spacecraft are more of a white-collar product and aircraft are more of a blue-collar product,” Paulson said, noting that the blue-collar work is leaving.

But the aerospace industry is facing a new business environment that is threatening California’s dominance. As the Pentagon slashes its budgets, defense companies will face additional pressure to cut costs.

The companies leaving Southern California have varying reasons for doing so. In Lockheed’s case, company officials say that consolidating excess space and reorganizing divisions will save $75 million annually. At the same time, however, they deny that lower wages in Marietta prompted their decision.

“Labor rates are slightly lower in Georgia,” acknowledged Kenneth W. Cannestra, president of Lockheed Aeronautical Systems Co., the operation that is scheduled to leave Burbank and relocate in Georgia. “It is not significant. It was not one of the factors in the decision. The primary purpose is to consolidate what little work we have and get some efficiencies of scale.”

And yet aerospace companies that have left California seldom go anywhere but to lower-wage areas of the country, and quite often to the South.

In the 1980s, Hughes Aircraft set up small plants in Foley, Ala.; Jackson, Miss.; Orangeburg, S.C.; La Grange, Ga., and Eufaula, Ala. Northrop is setting up a missile plant in Perry, Ga. McDonnell Douglas went to Salt Lake City and Mesa, Ariz.

Along with greater pressure to control costs has come greater political pressure on contractors from members of Congress who want jobs for their home districts and states.

Some analysts and many Lockheed employees believe that Lockheed was partly motivated by political considerations, since Georgia is the home state of Sen. Sam Nunn, the Democratic chairman of the Senate Armed Services Committee.

Aides to Nunn have consistently denied that he has put pressure on companies to relocate to Georgia, but they have asserted strongly that Georgia offers lower costs to do business. Such messages are not lost on politically astute contractors.

But blaming others for California’s problems strikes some in the industry as shortsighted.

“Why should this be such a surprise that companies want to leave Los Angles?” said a senior scientist at McDonnell Douglas. “This is a very expensive place to build airplanes. The city and the state have not made the investments necessary to maintain the infrastructure, and now we are paying the price.”

WORKERS REACT--Lockheed employees and union officials expressed anger and confusion. D1