Feast and Famine : Aircraft Refurbisher Thrives, Mortgage Broker Struggles as Antelope Valley Economy Changes
Joseph Giardelli, owner and president of Arrow Mortgage Co. in Lancaster, expects a short visit from Santa this Christmas. “Last year was a good Christmas,” he said. “This year will be a bad Christmas.”
That’s because his mortgage brokerage, like most of the real estate industry in the Antelope Valley, has fallen on hard times as house sales have dropped, prices have declined and builders sit on a huge supply of unsold inventory.
So far this year, Giardelli’s company has processed about $5 million in loans, compared to a peak of $18 million for all of 1987. A little more than a year ago, Arrow had nine full-time employees. Today, Giardelli and his wife, Becky, are the only full-timers left. They’ve already moved the business to smaller quarters but are considering moving again to save more money on rent. Today, Giardelli said, Arrow Mortgage is in a “survival mode.”
Things looked different in 1986, when Giardelli followed the exodus from the San Fernando Valley to the booming Antelope Valley. He moved his Woodland Hills business--which charges home buyers fees for finding favorable mortgage loans and doing the paperwork--to Lancaster, figuring he’d cash in on the growing demand for homes in the area. Until last year, he said, the move paid off.
Meanwhile, 25 miles north in Mojave, Aerotest Inc. is thriving. The company, which refurbishes commercial aircraft, has nearly 400 employees, compared to 60 when it opened its doors in this desert town in July 1989. In May, it opened a new, 75,000-square-foot hangar, large enough to accommodate two wide-body 747s and two smaller craft, or six planes the size of 727s--giving it one of the nation’s largest non-airline-owned hangars.
Aerotest does repair and maintenance work for aircraft owners including Emery Air Freight, the leasing company Polaris and the luxury airline MGM Grand. It hopes soon to land contracts with some big commercial airlines and, if all goes according to plan, will boost its work force to about 1,500 in the next 15 months.
Arrow Mortgage and Aerotest are a tale of two companies and show the two faces of the Antelope Valley economy. Companies like Arrow Mortgage are struggling to survive an economic downturn brought on by slumping house sales and layoffs in the area’s major industry, aerospace. On the other side are businesses like Aerotest, which is prospering largely because it isn’t dependent on the local economy but takes in business from national airfreight concerns and airlines.
Throughout the late 1980s, the economy was bustling in the Antelope Valley, on the western edge of the Mojave Desert. The area, which includes Palmdale, Lancaster and Edwards Air Force Base, has a population of 350,000 spanning more than 3,000 square miles. Developers could barely build homes fast enough to satisfy the huge demand fueled by buyers lured by affordable home prices in the valley, where homes of $100,000 or less were common.
From 1980 to 1990, Palmdale was the country’s fastest-growing city, with a whopping 432% increase in its population to 65,357, according to the U.S. Census Bureau.
As recently as last year, Giardelli said, he spent all his time “stuck to my desk,” taking calls and filling out paperwork.
But about a year ago, the boom started to turn bust for him. Demand for housing evaporated because of too-rapid price increases, growing competition from the San Fernando Valley--where house prices had started to decline--and layoffs in the aerospace industry.
In the second quarter of this year, 790 houses were sold in the Antelope Valley, less than half the 1,686 that sold in the year-earlier period, according to The Meyers Group in Encino, a real estate consulting firm. At the same time, Giardelli said, the inventory of unsold homes has ballooned to about 3,000--enough to last nearly a year at the current sales pace.
Even though prices have started to drop--by as much as $50,000 for what were $300,000 homes--it still hasn’t been enough to stimulate demand, he said.
Giardelli said many builders continued constructing houses at a rapid pace--even as home sales started to slow--in anticipation of Lockheed moving more of its operations up from Burbank, which could have brought 10,000 people to the area. But those plans have since been changed, and many of the former Antelope Valley-bound jobs are now going to Georgia.
Instead of bringing new jobs to the area, the aerospace industry has been cutting back. Six months ago, the industry employed 24,000 workers in the valley. Today, that figure is less than 18,000, said Howard Brooks, executive director of the Antelope Valley Board of Trade. Brooks added that many residents who work in the aerospace industry outside of the valley have also lost their jobs: When Lockheed announced a recent round of layoffs in Burbank, 1,200 of the displaced workers filed their unemployment claims in Lancaster, he said.
Hard times have spread to businesses that depend on a strong housing market. A few local mortgage offices and bank branches have closed recently. Chandler Lumber Co., based in Van Nuys, has laid off 20% of its work force at its Antelope Valley lumberyard.
Today at Arrow Mortgage, the phone rarely rings. Giardelli spends 80% of his time calling on real estate agents, trying to hustle business. “I’m like the president of nothing right now,” he said.
Giardelli said that if Arrow Mortgage does three loans a month, “we can survive, because our costs are down so much. But if we make two a month, I’ll be out of business in a few months.”
But not all businesses are suffering. Many retailers, for example, report that their sales are strong because they’ve lured away sales that might have gone to stores in the San Fernando Valley. The Antelope Valley Mall, which opened to much fanfare last month in Palmdale, has been doing brisk business. Even a few housing-related companies say that they’re holding steady, like Brian Russell Heating & Air Conditioning in Palmdale, which says it has weathered the downturn by specializing in custom homes and remodeling.
At Aerotest, which has corporate headquarters in Irvine but all of its aircraft maintenance and repair operations in Mojave, Ronald Neal, president of the Mojave division, says business conditions look bright.
Aerotest is flourishing because of demand by freight haulers and airlines to repair their aging commercial jet fleets. Many airlines can’t afford new planes, so they opt for heavy maintenance work and retrofitting old jets. Nationwide, it’s a trend that bodes well for the handful of private companies that do repair and maintenance work.
The maintenance and repair jobs at Aerotest range in price from a few thousand to a few million dollars and take anywhere from a few days to several months. The work can include replacing wiring, nuts and bolts, repairing parts that have been damaged by corrosion or “fatigue,” rebuilding engines and replacing “skins”--planes’ outer shells--as well as painting and washing the planes.
Aerotest expects an increased share of that business, Neal said, because small airliners can’t afford their own maintenance facilities, and large commercial airliners are becoming backed up with repair work at their own shops.
Also, the slump in the aerospace industry has provided a ready pool of skilled labor for Aerotest, Neal said. Roughly 75% of the company’s employees are former aerospace workers who have found work at Aerotest at pay levels comparable to what they earned in the aerospace industry.
Aerotest was founded by W. Robert Laidlaw, a former engineer and test pilot who has owned and sold other aircraft-related companies. Executives at closely held Aerotest wouldn’t discuss profits but said the Mojave operation has grown from about $3 million in revenues last year to an expected $18 million in 1990.
Neal said Aerotest will soon start construction on hangars to handle the increased workload it expects, and the company plans to continue hiring large numbers of former aerospace workers.
“A lot of the problem in the Antelope Valley is its heavy dependence on the aerospace industry,” Neal said. But, he acknowledged, one industry’s misfortune can be another’s opportunity. “It often happens that, when one is down, the other is up,” he said. “We’ve just hit the right combination at the right time.”
