Pico Rivera Begins to Experience <i> Deja Vu</i> : Defense: With the end of the Cold War, Northrop’s prospects evoke too many parallels to Ford’s shutdown of 25 years ago to suit the city.
Ten years ago, the city had a 223-acre, multimillion-dollar problem. Ford Motor Co. moved out after almost 25 years. The 100 or so local residents who worked at the plant lost their jobs, and area merchants lost the dollars of a 1,200-person labor force.
“It was not a happy time,” City Councilman Jim Patronite recalled.
In 1982, to the City Council’s delight, Northrop Corp. moved in. The defense contractor proved a stable, moneymaking, expanding concern during a decade when a buildup of military hardware became a top national priority.
Now, however, there is the danger of a familiar, unhappy scenario repeating itself in Pico Rivera.
With Eastern Europe poised to beat its swords into plowshares and the U.S. budget deficit worsening, Northrop’s prospects have declined. National lawmakers speak of a peace dividend, an opportunity to spend less tax money on national defense. But such a peace dividend could turn out to be a direct assault on Pico Rivera.
No one is panicking yet, and Southern California’s economy is too diverse to collapse because of one industry’s decline. But a look at how the bounty of Northrop filters into Pico Rivera shows how much a defense giant means to a city--be it Douglas Aircraft Co. in Long Beach, Lockheed Corp. in Burbank or Hughes Aircraft Co. in El Segundo.
Northrop’s general store and three cafeterias generate more sales tax than any other one business in the city, Pico Rivera officials say. They would not divulge the exact figure.
About 300 of Northrop’s 10,500 employees live in Pico Rivera, and about 1,300 live in surrounding communities. Most, presumably, contribute to the local tax base, as well as the livelihood of merchants in this city of 60,000.
Northrop has invested more than $500 million in improving the facility in the last decade, including $1.3 million this year. The property’s increased value generates about $1.4 million in redevelopment funds for the city.
Northrop also hires subcontractors, which spreads money from government contracts throughout Southern California.
“Every direct dollar probably supports a multiple of additional ripple-down-effect dollars into the subcontracting community,” said Barry Wrenn, a vice president and general counsel for BP Chemicals (Hitco) Inc. in Santa Ana.
Wrenn’s company produces, for Northrop and other companies, some of the non-metal composites that make aircraft and submarines lighter, stronger and harder to detect with radar.
In 1946, his company sold insulation to the private sector. Now, as with many subcontractors, most of the firm’s business filters down from government contracts won by Northrop and other defense firms.
“Within 50 miles of this room, we have some 6,000 subcontractors and suppliers,” Northrop President Kent Kresa said in an address to shareholders last May in Los Angeles. “Since they begin producing parts and sub-systems for our systems that we will deliver two or three years later, they will also be among the first to feel the effects of budget reductions.”
Wrenn said these subcontractors supply everything from “avionics to tires for those aircraft, machine shops, forging houses, metal suppliers, fastener makers, machine-tool makers and temporary employee agencies, under normal circumstances.”
But those circumstances are changing, prompting one Pico Rivera resident to wonder whether local history will repeat itself. “When Ford left, they left a huge dent,” said the man, who now works at the Northrop plant. As did other Northrop employees, he preferred not to give his name because the company directs its workers not to speak to the press without company clearance.
He pointed to a liquor store across Washington Boulevard from the plant. “It went through three owners after Ford left,” he said.
A mini-city flourishes around the Northrop plant on Washington Boulevard: 14 full-service restaurants, eight fast-food outlets, five hotels, five liquor stores, four doughnut shops, four hair salons, three gift shops. Then there are the video shops, arcade, cleaners, laundry, pet store, florist, mortuary and swap meet.
To hear Kresa speak, none of these merchants need worry yet. “The United States is not going out of the defense business,” he said to shareholders. “And neither is Northrop.”
Some independent analysts, however, are more pessimistic. Northrop relies heavily on big-ticket items, such as the B-2 Stealth bomber, making the company vulnerable to a single legislative decision. The Defense Department had planned to buy 132 of the Stealth bombers. In April, Defense Secretary Dick Cheney reduced his request to 75, each costing about $800 million. The assembly line would be slowed, with 12 bombers built per year, down from the 24 per year once planned.
“Cheney is hoping, begging, pleading Congress will fund even close to” 75 B-2s, said Andy Lightbody, field editor for Armed Forces Journal International.
Lightbody said defense officials have said that fewer than 30 of the bombers would hardly be worth building at all.
In addition, the department has significantly slowed its scheduled production rate for the planned Advanced Tactical Fighter, a program for which a Northrop team will submit a strong bid. Industry insiders said Northrop officials hope that the fighter, along with the B-2, will be the company’s financial buttress for the next decade.
The security of its contracts has not been Northrop’s only recent difficulty.
“They’ve been indicted, investigated, accused, looked at, talked about and had a finger pointed at more times than they ever wished they had,” Lightbody said.
In recent years, government investigators have accused the company of bribing South Koreans to buy Northrop’s F-20 fighter; using substandard parts on its F/A-18 assembly line; submitting phony test results, and overcharging the government. In February, Northrop pleaded guilty to 34 charges of criminal fraud and agreed to pay the government $17 million, one of the largest fines ever assessed a defense contractor. The results of other investigations are pending.
Lightbody said of Northrop’s executives: “Unless they clean up their act and get back on track of doing business the way all of us would expect them to, they are liable to find themselves being accused of violating the public trust once too often, and that would call into question (the company’s) survivability as a major player.”
However wounded its national image may be, Northrop receives effusive praise from Pico Rivera officials. They applaud the company’s role in local charities, such as the city’s Christmas basket program, which provides holiday food and gifts to needy families. Employees contribute goods and services worth close to $45,000 a year.
In addition, the company and its workers give about $100,000 to other area charities and organizations, including youth counseling, drug education and gang-prevention programs, as well as local hospitals and artistic and recreational activities.
The company has won the public-relations battle in Pico Rivera and, seemingly, with its own employees. By and large, Northrop workers speak of exciting projects, generous benefits and perks such as a private 6.5-acre athletic field.
They also worry about keeping their jobs. “As of right now, everybody’s looking at everybody else, wondering who’s gonna get hit,” one employee said. “It’s real touchy right about now.
“Other departments don’t know what’s in store for them. They’re hesitant to buy homes. There are always stories about how Northrop is going to sell the Pico plant. It’s hard to start a life.”
His concern is also Pico Rivera’s. City Manager Dennis Courtemarche said: “We would certainly survive if Northrop went away, but it would have a devastating effect on the budget and our ability to provide services.”
NEXT STEP On Monday, a congressional subcommittee will travel to Paramount to conduct a public hearing on the impact in Southern California of budget cuts in the defense industry. Among those testifying will be Pico Rivera Mayor Alberto Natividad, who will discuss Northrop Corp.’s role in his community. Congress is considering legislation to provide assistance to communities, workers and businesses affected by the cuts in defense contracting and the closing of military bases.
THE FIVE LARGEST EMPLOYERS IN PICO RIVERA
Employer Number of Employees Northrop Corp. 10,500 El Rancho Unified 1,200 School District Clarklift of Los Angeles 280 (makes and services forklifts and conveyor systems) Windsor Art Products 260 (makes picture frames and other products) Engs Motor Truck Co. 180 (sells and services Peterbilt trucks and tractors)
Source: Bill Schlapper, public information officer, Pico Rivera MAJOR L.A.-AREA DEFENSE CONTRACTORS
Hughes Aircraft Co.
Parent: Part of GM Hughes Electronics.
Corporate headquarters: El Segundo.
Southern California operations in: Three of seven operating groups in El Segundo; also plants in Manhattan Beach, Torrance, Canoga Park and Fullerton.
Number of employees in Southern California: About 47,000.
Job reductions: 9,000 in the last half of ’89. Stable at the moment with some job openings because of numbers of individuals who took early retirement.
Percentage of company work that is defense-related: About 80%.
Prognosis: As a subcontractor for programs such as the B-2 bomber, Hughes could be hurt by contract slowdowns and spending cuts. The company hopes, however, to pick up contracts to upgrade existing equipment, and intends to reduce its reliance on Defense Department work.
Gross sales in 1989: $7.44 billion.
Lockheed Corp.
Corporate headquarters: Calabasas.
Southern California operations: Burbank, Palmdale, Ontario, Vandenberg Air Force Base, Anaheim, Saugus, San Diego.
Number of employees in Southern California: 14,500.
Job Reductions: 3,000 since January, nearly 40,000 since mid-1988, 1,500 more by year’s end.
Percentage of company work that is defense-related: About 74%. An additional 11% is non-defense government work for the space program and the Environmental Protection Agency.
Prognosis: In 1989, completed delivery of 50 C-5B military transports and TR-1 tactical reconnaissance planes. In April, delivered the last P-3C, an anti-submarine patrol airplane. Last week, delivered the 59th and last F-117A, the Stealth fighter. There have been no major contracts to replace these, prompting the massive job reductions. Five thousand employees will remain in Southern California after the company moves some of its operations to Georgia.
Gross sales in 1989: $9.9 billion.
McDonnell Douglas Corp.
Corporate headquarters: St. Louis, Mo.
Southern California operations: Long Beach, Torrance, Huntington Beach, Carson, Long Beach, Cypress, Irvine, Monrovia and Culver City.
Number of employees in Southern California: About 60,000.
Job reductions: About 10,000, at least 4,000 before the end of July. Additional layoffs likely because of a corporate goal of cutting expenses by more than $700 million. Because much of the defense contracting takes place outside of Southern California, the company labels the job reductions as cost-cutting measures.
Percentage of company work that is defense-related: 70% is government contracted.
Prognosis: The C-17 military transport program, based in Southern California, faces uncertainties. The defense secretary plans to reduce the production order from 210 to 120. Congress could cut deeper still. A-12 attack aircraft program also faces cutbacks and slowdowns. The company is still competitive commercially with strong sales for the MD-80, a short- to medium-range twin-engine jet, and the MD-11, the company’s replacement for the DC-10.
Gross sales in 1989: 14.58 billion.
Northrop Corp.
Corporate headquarters: Century City.
Southern California operations: Pico Rivera, Palmdale, Newbury Park, Hawthorne, Palos Verdes, El Segundo.
Number of employees in Southern California: 32,000.
Job Reductions: 2,500 nationally last year. 3,000 this year including 1,400 Pico Rivera employees and 1,350 at Hawthorne. About 800 workers will be hired at the Palmdale facility. Company says the cutbacks are to increase operating efficiency.
Percentage of company work that is defense-related: 90% of its sales were to the Defense Department last year. Much of the remaining 10% were arms sales to other countries.
Prognosis: Company is optimistic that it will remain a defense-industry leader and it has the inside track on the advanced tactical fighter. However, company relies heavily on big-ticket projects, such as the B-2 and the advanced tactical fighter, which makes it vulnerable to massive spending reductions or program cuts.
Gross sales in 1989: $5.248 billion.
Rockwell International Corp.
Corporate headquarters: El Segundo.
Southern California operations: Canoga Park, El Segundo, Palmdale, Downey, Lakewood, Seal Beach, Anaheim, Newport Beach.
Number of employees in Southern California: 34,000.
Job reductions: about 2,000 since January, 1989.
Percentage of company work that is defense-related: 25% Defense Department; 15% NASA (space shuttle and space station programs).
Prognosis: Layoffs because of general trimming so far, but Rockwell is a major subcontractor for other firms that depend on federal funding. Company is bidding for more NASA work with the security of a strong private-sector business.
Gross sales in 1989: $12.5 billion.
Source: Company representatives and defense analysts.
