S.D.’s Biggest Defense Contractors Spared Sting of Cuts : Military: The key to resiliency is the high-tech nature of the work, such as computers and space systems.
The “peace dividend” is a double-edged sword that has already begun cutting a wide swath through many companies dependent on defense contracts. But San Diego County’s largest defense companies, including General Dynamics and Cubic Corp., so far have been spared substantial cuts.
“We don’t see any near-term (contract cuts),” said General Dynamics spokesman Jack Isabel. “It is unclear what the long term will look like.”
General Dynamics, San Diego’s largest defense contractor with 17,500 local employees, has laid off only 114 workers in the last six months, or less than 1% of its local work force, Isabel said. Those layoffs include all local pink slips issued to General Dynamics employees, including non-defense-related contracts, he said.
The defense giant makes Tomahawk cruise missiles, Atlas rocket boosters and electronic weapons systems in San Diego.
Cubic Corp. has laid off about 50 of its 1,100 defense-related employees in the last six months because of cuts in small contracts, spokesman Jerry Ringer said. Cubic last week received a $34-million contract from the Army for a Combat Maneuvering Training Center, a training program that tracks and analyzes troop movements in the field, but the contract will not necessarily generate jobs, Ringer said.
Ringer said about 42% of Cubic’s revenues are defense-related, and that figure is expected to remain about the same.
However, Teledyne Ryan Aeronautical appears to be an unlucky casualty in the thawing of the Cold War. The 1,500-employee division of Los Angeles-based Teledyne may soon suffer a 60% slash in its defense-related revenue because its contract with the Army to build Apache helicopter frames, a mainstay of the company since 1983, expires in 1993, spokesman Ken Carson said.
The local Teledyne division depends almost exclusively on defense contracts, Carson said.
The company has laid off 125 people in the last few months as production of the helicopter frames has slowed from a peak of 12 frames per month to six per month, Carson said. The prospects for a replacement contract to stave off huge layoffs look grim.
“We’re looking at commercial contracting, but that’s a pretty tough arena,” he said.
Carson said it is difficult to say for sure that the layoffs are a result of the peace dividend, since Teledyne’s helicopter contract with the Army was to have run out in 1993 anyway. But the company had hoped for an extension of the contract. Instead, the number was scaled back last year, and renewal of the contract is not expected, he said.
“We were hoping that the Apache would go on until the year 2000,” he said.
Teledyne Ryan’s other major defense contract, the Firebee jet-powered pilotless practice target, appears safe for at least the next five years, Carson said.
A significant downturn in U.S. defense spending seems inevitable with the lessening of tension between the United States and the Soviet Union, and many major defense contractors including Northrop and Lockheed are scrambling to compensate for the loss of government dollars.
But both Ringer and Isabel said their companies have no plans for major shifts away from defense contracts into the private sector, and they expect their companies to survive the military belt-tightening with little pain.
“We believe that we will get through OK,” Ringer said. “We are probably in the right businesses in our defense subsidiary.”
Nevertheless, growth in local defense spending has already begun to slow noticeably.
A recent report by the San Diego Chamber of Commerce shows that defense-related expenditures in the county increased by only 0.7% in 1989 to $9.7 billion, significantly lower than the double-digit growth earlier in the decade, said Kelly Cunningham, senior research analyst for the Chamber of Commerce.
Defense spending, which last year accounted for nearly one-fifth of the county’s gross regional product, or the sum total of goods and services produced, is still the second largest component in the local economy behind the $13-billion manufacturing segment, Cunningham said. The county led the nation in Defense Department wages during fiscal year 1989 and was eighth in defense procurement contracts, the report states.
The key to San Diego’s resilience to defense cuts is the high-technology nature of many of the defense contracts being worked on here, Cunningham said. Contracts for computers, communication equipment, space systems, electronics and training equipment have largely dodged the defense budget ax, Cunningham said.
At a press conference in San Diego in April, Defense Secretary Richard Cheney said the county may have to brace for some future cuts, but the bottom will not fall out of the defense dollars coming in.
“San Diego has been, is now, and will continue to be an absolutely crucial part of U.S. naval posture and our military establishment, and that’s not going to change,” he said.
In San Diego’s favor is that virtually all of the military personnel stationed in the area are Navy-related, the branch of the armed forces the Defense Department seems most reluctant to cut.
Even if Navy and Marine Corps personnel levels nationwide are reduced, San Diego may not be affected because the bases here are high military priorities, Cunningham said.
“They’re likely to close the marginal bases, but at the major ones, like in San Diego, they might even increase personnel,” he said.
Navy officials say that so far, there have not been any major, permanent personnel cuts in the county but some minor reductions have already occurred, with more scheduled to come.
The aircraft carrier Constellation, with 2,500 uniformed personnel and one of three aircraft carriers stationed here, left for Philadelphia in March for a two-year major overhaul, said Bob Howard, assistant public affairs officer for the Command Naval Air Force Pacific.
About 760 Navy personnel will leave San Diego in the fall when the destroyer Hoel is decommissioned and the dock landing ship Alamo leaves for Brazil, said Mike McLellan, assistant public affairs officer for the Command Naval Surface Pacific.
McLellan hinted that it is possible that some of the 61 other surface ships based in San Diego could leave, but he would release no further information.
The military is the county’s largest single employer, with 170,000 active duty and civilian people receiving $4.1 billion in wages in 1989, according to the Chamber of Commerce report.
Overall unemployment in the county has been shrinking steadily from a high of 9.3% in 1982, said Jack Nowell, labor market analyst for the state employment development department. Last year’s 3.9% unemployment rate was one of the best in the state, he said.
However, for the last four years the electronics industry--much of it defense-related--has been the most noticeable exception to the employment boom in the county, he said. The loss of 800 electronics-related jobs in May of this year “may be indicative of a trend,” he said.
Nowell said he did not know if the job losses are connected to the peace dividend, and “probably have more to do with national trends in the industry.”
