States Finding California Defense Firms Easy Targets : Aerospace: Many companies, offered sweet deals, are leaving Southland. Standard of living, labor costs cited.

An estimated 18,000 aerospace jobs--among the highest paying in industrial America--were lost in the Los Angeles region during the 1980s as local aerospace firms grew estranged and quietly relocated, according to a survey by the Los Angeles Times at plants across the nation.

States stretching from South Carolina to Arizona are continuing to burrow into Southern California’s vast aerospace industry in search of coveted production jobs, which pay about $15 an hour--40% more than the nation’s average blue-collar manufacturing job.

The trend is no surprise. California has become an easy mark for industrial recruiters.

Utah, which already has lured three California firms to relocate within its borders, sees the California aerospace exodus as a “window of opportunity” and wants thousands of additional jobs over the next five years, according to a 100-page strategy plan.

The loss of these jobs to other states is exacerbating a painful aerospace downturn locally in which thousands of workers are being laid off monthly. In the last two years, some 35,000 jobs have disappeared at just the major contractors in Southern California; another 20,000 are likely to go in the next several years.

Unlike past aerospace downturns, this one threatens to put a permanent dent in the Southland’s aerospace sector, which has been an integral part of the state’s economic growth for decades and an important entry point to the middle class for Californians since World War II.

Southern California remains the nation’s leading aerospace center, but such factors as labor costs, environmental compliance and cost of living in the region are increasingly viewed by aerospace executives as a nearly fatal detriment to their business and competitive position.

California state officials say that retaining aerospace jobs is their top economic development priority, but they do not maintain records of industry job defections. While smaller states like Utah have formal plans to get aerospace jobs from California, no formal plan exists in California to retain the state’s 335,000 aerospace jobs.

California “ignores the whole damn industry,” says Kenneth W. Cannestra, president of Lockheed’s Aeronautical Systems Co., which is leaving Burbank for Georgia. “It even goes down to the local level. The only time anybody seemed to notice us is when we got up and left. And even then they didn’t really care.”

Although the major prime contractors--such as Hughes Aircraft, McDonnell Douglas and Lockheed--have transferred thousands of jobs out of the region, small companies have left, too, only with much less fanfare. For example, Intraspace, a start-up satellite producer, checked out of La Mirada two years ago with 39 jobs.

The motivations vary dramatically each time a firm moves out. But well-documented problems with high wages, factory land costs, taxes, environmental compliance expenses, union work rules and an inability to recruit new workers to Southern California are the disadvantages most often cited. Defense firms also complain about the weak support they receive from California’s congressional delegation.

For the time being, the losses are occurring predominantly in the lowest-skilled manufacturing jobs, while highly technical production jobs and engineering jobs remain in California. But even that could change in future years, as companies seek to consolidate their design and production in one location.

Meanwhile, other states are fast gaining reputations as new centers of aerospace technology.

To hear executives talk, places like Orangeburg, S. C.; Marietta, Ga., or Salt Lake City are new industrial paradises, where cities extend generous financial incentives and workers spend Sundays planting flowers on the factory lawn. A mansion can be had for under $300,000, and traffic jams never happen.

California was once thought of in such fond terms. The aircraft industry came to the state in the 1930s for its educated work force and the balmy weather that provided excellent flying conditions. While those attributes have not changed, the state has grown congested and costly--and it has lost much of its affection for the industry, executives say.

Until recently, the erosion in the aerospace industry has been masked by growth during the aerospace boom of the 1980s. Now that the industry is in the midst of a long downturn, the cost of the underlying exodus is becoming apparent. The recent evidence is compelling:

--Lockheed is vacating most of a 100-acre aircraft complex in Burbank, shifting production to Marietta, Ga.

--Northrop is closing a missile plant in Newbury Park and moving future production of a major program to a plant in Perry, Ga.

--Rockwell International is selling 50 acres of its 100-acre El Segundo aircraft production complex and shipping machinery to a plant in Tulsa, Okla.

--Hughes Aircraft has set up plants in six states across the South while it has cut thousands of jobs in Los Angeles.

“There are places in the United States that are a lot more hungry and much more friendly to business than California,” said James Worsham, a former McDonnell Douglas executive who is now in the aircraft leasing business. “Unless we do more to make this area business friendly, there are going to be more plants moving out.”

A survey of companies showed that most believe their moves have been successful. Hughes Aircraft credits its new Southern plants with helping win an Air Force contract to produce all future Maverick missiles, according to company Chairman Malcolm Currie.

“The cost savings have allowed us to stay in that business,” Currie said.

Similarly, Lockheed believes it will save $50 million annually by closing its Burbank aircraft plant and moving operations to its Marietta, Ga., plant. Lucas Western, which produces gearboxes for aircraft engines, credits its survival to escaping high wages in California.

Although the industry is not staging a wholesale retreat from Southern California, jobs are still leaking out at a rate that could put a significant dent in the industry over the next decade. Recruiters from other states are ready to exploit all of California’s weaknesses.

“We specifically targeted Southern California and Northern California,” said M. Kirk Green, Utah’s director of economic development. “Whether it’s traffic congestion, the cost of real estate, taxes, worker’s compensation, wages--you will get better value in Utah than you will in California.”

If that kind of talk is not enough, many states also throw in lucrative incentives to sweeten the deal.

When Hughes Aircraft opened a plant for producing radar components in Orangeburg, S. C., in 1984, the state granted the firm four significant incentives:

--It waived municipal, but not school district, property taxes for five years.

--It loaned Hughes $7 million from an industrial bond issue to build the plant.

--It provided a $1,000-corporate income tax credit for each employee hired by Hughes for a period of 10 years. With 475 employees, the company paid no state income tax last year.

--A local community college set up a training program, right down to a classroom that replicated a section of the Hughes plant.

“We go out of our way to assist them,” said Orangeburg Mayor Martin Cheatham, whose city charges Hughes $25 for its annual business license.

By comparison, Hughes faces heavy taxes in El Segundo, where the Orangeburg operation’s parent organization, the Hughes Radar Systems Group, is headquartered. The firm has 25,000 workers in El Segundo.

The city assesses three significant taxes on Hughes under its annual business license, including a “head tax” of $127 per employee, a 20-cent tax on every square foot of office and plant space and a land tax amounting to $530 an acre. In total, Hughes pays El Segundo taxes of more than $4 million annually.

The city doubled the head tax last year, but it does not believe it is driving away jobs. “You are talking about a multimillion-dollar business,” said El Segundo City Manager Ronald Cano. “When you look at El Segundo’s other taxes, we are below some of the other nearby cities.”

If financial incentives sometimes draw firms into other states, it is environmental regulations that push them out of California. Aerospace executives insist that they pollute no more in other states than they do here, but they find California’s red tape to be among their most serious concerns.

“It’s just the bureaucratic rat race you have to go through constantly in Los Angeles,” said Currie, the Hughes chairman. “We can do in one week (in South Carolina) what would take typically nine months to do here.”

For example, Hughes spent $5 million to build a waste water treatment plant for its $23-million printed circuit board plant in Orangeburg, meeting higher standards on discharge than California would impose, said Robert B. Poor, the plant manager. The plant handles 75 toxic chemicals, but all environmental regulation is administered by a single city representative, Poor said.

By comparison, dozens--by some estimates as many as 77--of government agencies administer environmental regulations in Southern California.

In the worst case, California regulations prevent firms from using chemicals required by the Defense Department. That specifically is the case with some chlorofluorocarbons, used to clean electronic circuit boards. The industry is now investing to find substitutes for the chemicals and still comply with Pentagon rules.

But in other cases, the time required to comply with California regulations poses too great a burden.

Northrop has made one of the strongest public commitments to staying in Southern California. Still, the Los Angeles-based firm decided to locate production of the Tacit Rainbow missile at a new plant in Perry, Ga., after examining options in California, Chairman Kent Kresa said in an interview. (Since then, the future of the program has been called into doubt.)

Northrop considered assembling the missile at its Newbury Park plant, which it is now closing, and producing missile parts at a small plant it purchased in Santa Maria.

But Ventura County fire regulations for handling explosives were stricter than federal laws, and obtaining the necessary permits for handling warheads in Newbury Park would have delayed production. In Santa Barbara County, air regulators wanted five years of air-discharge modeling data before they would issue a permit to the firm, spokesman Les Daly said.

Northrop sold the Santa Maria plant shortly afterward.

“This is the only case where we went out of state,” Daly said. “Our big thrust is to stay in the state.”

Although companies such as Northrop favor Southern California’s pool of engineers, other firms are desperate to find lower wages to cope with increased competition.

Lucas Western was losing market share for aircraft engine gearboxes when it moved 175 production jobs three years ago from its plant in City of Industry to Park City, Utah, according to Charles Hotes, Lucas Western’s director of business. The Industry plant now has 740 jobs, down from 1,100 before the move.

“By opening Utah, we saved a lot of jobs here,” Hotes said. “We had become non-competitive in the world marketplace. Since the opening of Utah, we have taken orders in direct competition with firms in Italy, France, Canada and Japan. We are not satisfied yet, but the signs are favorable that we can survive and maintain the jobs we have here in Los Angeles.”

Hotes declined to provide detailed hourly wage figures, but he said that the Utah facility averages about $2.50 an hour less than Los Angeles. On that basis, the firm would save roughly $1 million annually.

In Lockheed’s case, however, its Marietta and Burbank facilities have virtually identical wages, employee experience, turnover, absenteeism and productivity, according to Vice President Terry F. Powell.

Nonetheless, the decision to leave Burbank was not a complicated one.

The Marietta facility is owned by the government and provided rent free to Lockheed for defense work, though Lockheed officials insist that did not figure into their decision. In addition, Lockheed pays no property taxes and is not responsible for major renovations to the plant.

By comparison, Lockheed owns the Burbank plant and would have borne multimillion-dollar costs to update the complex, including the installation of new pollution abatement equipment and the removal of asbestos. In addition to being old, the Burbank complex consists of numerous small buildings, an inefficient arrangement.

By selling the Burbank land, Lockheed stands to realize as much as $1 million an acre for the 100-acre complex. It will also relieve itself of much of its property tax burden, amounting to about $5 million annually, once the Burbank land is sold.

Lockheed’s situation is not unique. A number of prime contractors, including McDonnell Douglas and Rockwell, have plants in other states that potentially could absorb California operations in future consolidations.

McDonnell Douglas has been most active in transferring work out of Southern California, sending jobs to new facilities in Ohio, Utah and Georgia that offered lower wages and freedom from union regulations. The firm also expanded its Douglas Aircraft operation in Long Beach, but whether such expansions would be repeated today is questionable.

At its new $12-million Salt Lake City plant, McDonnell builds fuselage sections for the MD-80 jetliner, employing 598 people. Employment is expected to grow to 2,000 eventually.

Alfred Egbert, the general manager at the plant, said McDonnell has eliminated many of the formalities that restricted change in Long Beach, enabling the firm to rethink the entire aircraft production process.

The non-union work force in Utah is salaried and does not punch in at time clocks; unionized workers in Long Beach are paid on an hourly basis and punch time clocks twice each day. Wages average $9.30 on an hourly basis in Utah, about two-thirds the $15 rate in Long Beach. Long Beach workers tend to have greater seniority, explaining part of the wage difference.

Utah provided no direct financial incentives to attract McDonnell, but it promoted its educational system and its proximity to Southern California. In 1990, the state spent about $500,000 to train workers for the McDonnell plant.

And once each month, Egbert meets with state officials, who have pledged to minimize any problems.

“We don’t feel that is possible in Southern California,” he said.

THE TOLL OF THE AEROSPACE EXODUS

Almost every major defense firm in Greater Los Angeles has relocated some operations or expanded elsewhere in the last 10 years, an exodus that has cost the region an estimated 18,000 jobs. Below is a list of major expansions and relocations that have occurred, based on a count by The Times at plants around the country. Number of Los Angeles-area jobs involved: Hughes Helicopters (now McDonnell Douglas Helicopters): moved helicopter production and jobs making aircraft assemblies and bomb racks from Culver City and Long Beach to Mesa, Ariz. 4,600. McDonnell Douglas moved jobs from Long Beach to several locations and added new jobs outside California: Macon, Ga., gained 460 jobs making C-17 aircraft structures Salt Lake City, Utah, gained 598 jobs making MD-80 fuselage panels Columbus, Ohio, gained 2,000 jobs making C-17 structures Melbourne, Ark., gained 200 jobs making MD-80 assemblies. 3,258 Hughes Aircraft moved jobs from El Segundo, Fullerton and Canoga Park in transfers that in some instances also shuffled jobs between out-of-state locations: Forest, Miss., gained 90 jobs making electronics cabinets Jackson, Miss., gained 535 jobs making torpedo parts Eufaula, Ala., gained 300 jobs making missile parts Orangeburg, S.C., gained 445 jobs making radar power supplies, wire harnesses and circuit boards La Grange, Ga., gained 600 jobs making missile parts Lexington, Ky., gained 250 jobs making displays Tucson, Ariz., gained 300 jobs doing missile engineering Foley, Ala., gained 150 jobs making cables and wire harnesses. 2,670 TRW moved electronics and software production from Redondo Beach to Fairfax, Va., and San Diego. 3,145 Lockheed is moving aircraft production from Burbank to Marietta, Ga. 2,000. Allied Signal Aerospace’s AiResearch Co., opened a Tucson division to build cabin pressurization systems for aircraft and air data systems, eliminating work formerly done in Torrance. 1,250 Northrop is moving missile production from Newbury Park to Perry, Ga. 750

Rockwell International moved electronics production from Santa Ana to Dallas, Tex., and CedarRapids, Iowa. 283 General Dynamics moved missile parts production from Pomona to the Navajo Reservation in New Mexico. 200 Lucas Western moved production of aircraft engine gearbox parts from City of Industry to Park City, Utah. 174 Intraspace, formerly of La Mirada, located start up satellite production in North Salt Lake City, Utah. 39 Total jobs lost in Los Angeles area: 18,369