Some Southland Firms Miss Brunt of Defense Cuts : Procurement: Despite a proposed 21% reduction in fiscal 1992, some key programs employing many in California would proceed at a fast clip.
Pentagon spending is expected to continue its downward spiral in the next several years, but some defense contractors--including major employers in Southern California--fared exceptionally well in the federal budget proposal made public Monday.
Although Defense Department procurement would plunge 21% in fiscal 1992 from the current year, the Northrop B-2 bomber and the McDonnell Douglas C-17 cargo jet are slated for full funding for production in the budget.
The Bush Administration asked Congress to fund four B-2s in fiscal 1992, which begins Oct. 1, and seven more in 1993--a $9.5-billion request. The C-17 was budgeted at six aircraft in 1992 and 12 in 1993, moving that program forward at a rapid pace, despite cost problems that have dogged development. Total funding over the two years would be $7 billion.
The B-2 and C-17 programs are the two largest defense industry employers in Southern California, accounting for more than 22,000 direct jobs in Long Beach, Palmdale and Pico Rivera; thousands of additional jobs are spread around at subcontractors in the area.
“We are delighted,” Northrop Chairman Kent Kresa said Monday. “The program is moving forward according to the plan by (Defense Secretary Dick) Cheney for 75 aircraft, which eventually will get us to a production rate of 12 aircraft per year.”
The Navy, meanwhile, signaled that it would develop a new version of the McDonnell Douglas F/A-18 fighter, filling the gap created by the recent cancellation of the A-12 attack jet. Northrop produces 40% of the F/A-18 in El Segundo.
“There were definitely some winners and some losers in the budget,” said aerospace analyst Michael S. Rosen, of Smith Barney, Harris Upham & Co. “The budget authority level was no surprise, but how we are getting there definitely has some surprises.”
Northrop, McDonnell and Lockheed are winners, while General Dynamics and Grumman are losers, Rosen said.
Lockheed Chairman Daniel Tellep said in an interview that his company was still closely analyzing the Pentagon budget Monday afternoon, but it appeared that the Calabasas-based aerospace firm would be able to sustain its current $10-billion sales level and improve its operating profit.
Although Lockheed would see its $200 million in Star Wars revenue cut in half by the Pentagon budget, it would more than offset that by increases elsewhere in its business. The firm reported 1990 profit Monday of $335 million, up from just $2 million the year earlier.
The Pentagon said it would terminate 13 major weapons programs in the 1992 and 1993 budgets, including such mainstays as the General Dynamics F-16 fighter produced in Ft. Worth and the FMC Bradley Fighting Vehicle produced in San Jose.
Significantly, not a single major program marked for termination has production in Southern California, an extraordinary stroke of fortune for the troubled aerospace sector here.
But several programs targeted for cutbacks or termination are held by firms headquartered here. They include the termination of the Northrop Tacit Rainbow missile, which was to be produced in Georgia; the Litton Industries LHD amphibious ship in Mississippi, and the Allied-Signal Aerospace Mark XV combat identification system, among others.
Moreover, the huge subcontracting industry in Southern California, which typically wins 25% to 33% of the work on programs outside the region, would be adversely affected by the overall national downturn in defense.
Hughes Aircraft would see production of its AMRAAM missile increase sharply in 1992 and 1993, but production of its Phoenix and Maverick missiles would be terminated. In addition, Hughes’ radar business would suffer with the end of the F-14 and F-15 aircraft. It supplies radar, however, for the F-18 and the B-2, which are big winners. (Hughes announced separately Monday that it would lay off 400 workers at the radar operation in El Segundo.) Northrop spokesman Tony Cantafio said that if Congress eventually funds the request for four B-2s in 1992 and seven in 1993, it might hire additional workers for its Pico Rivera and Palmdale plants.
The firm has 3,000 workers in Palmdale, 9,000 in Pico Rivera and openings for about 200 other jobs, Cantafio said.
Cantafio said Northrop has not received formal notice of termination on the Tacit Rainbow and could not say whether the Pentagon moved to cancel the program under punitive terms of default or under the more benign terms known as “convenience of the government.”
McDonnell Douglas spokesman Jim Ramsey said the firm has about 10,000 workers on the C-17 program in Southern California but does not anticipate additional hiring if Congress provides the funds requested by the Pentagon.
In trading Monday, Northrop gained $3 to close at $24.125, McDonnell Douglas gained $2 to close at $40.75 and Lockheed gained 25 cents to close at $38.25. General Dynamics was down $2.50 to $26.
BIG CALIFORNIA WINNERS The Northrop B-2 bomber program would continue under the Bush plan.
Fiscal 1992 Fiscal 1993 dollars dollars Program quantity (billions) quantity (billions) McDonnell Douglas C-17 6 $2.8 12 $4.2 Northrop B-2 4 $4.8 7 $4.6 Strategic Defense $4.5 $4.9
