S.D. Ties of Contractor in Doubt : Defense: Chairman of General Dynamics says firm must sell or restructure weaker divisions, sending shock waves through local plants that employ thousands.
General Dynamics Chairman William Anders, who is dramatically reshaping the nation’s No. 2 defense contractor, has ignited speculation that the St. Louis-based company might sell or restructure two divisions that employ thousands of San Diegans.
Anders, in a speech Wednesday night to an aerospace industry group in Florida, said General Dynamics will increasingly concentrate on its core defense businesses of building tanks, submarines and fighter aircraft.
The company will deal with its weaker businesses by selling them off, strengthening them through acquisitions or simply disposing of their assets, Anders said.
Anders’ strategic plan for General Dynamics sent shock waves through the company on Thursday.
“It should make San Diegans realize that, my gosh, General Dynamics, the largest private employer around here, might not be doing business here in the future,” said Vickie Powers, a spokeswoman with the International Assn. of Machinists, which represents about 5,900 General Dynamics employees.
Anders has “spoken in very direct and understandable terms,” said Max Schetter, a senior vice president at the Greater San Diego Chamber of Commerce. “We’re going to see significant cuts in (nationwide) defense contracting ahead, and these are probably pretty prudent options.”
Officials at General Dynamics maintained that it is too early to determine which business lines are to be sold or beefed up. “It’s way to early to speculate” about the fate of the company’s San Diego-based missile and electronics operation, which has about 16,000 employees in Southern California, said Jack Isabel, a General Dynamics spokesman.
But, in a memorandum circulated to local employees Thursday, Michael Keel, vice president of General Dynamics’ missile and electronics group, said that the only way for the group to survive as a “viable business in a declining market . . . (is to) merge with a competitor, buy (a competitor) and be stronger, or sell our assets.”
Keel’s statement was circulated to employees on Thursday afternoon after word of Anders’ speech spread throughout General Dynamics’ Southern California plants.
The missile and electronics group produces a wide variety of missiles and equipment. About 11,000 of the group’s employees work in San Diego. The rest are at plants in the Pomona area. General Dynamics also has about 4,600 employees in its San Diego-based commercial rocket division.
Anders’ speech prompted “a lot of questions” among employees, Powers said. “We don’t know what assets (Anders) is talking about. . . . We don’t know if he’s talking about (an entire) division, a product line or some equipment.”
In his statement, Keel acknowledged that, although General Dynamics has “major programs in the areas of missiles and electronics . . . we aren’t dominant in either.” Selling those businesses to a competitor, bolstering them through acquisitions or selling their assets “will produce a healthier, more competitive company,” Keel said in the statement. “The end result will provide more job security for our employees.”
Anders, earlier this year, stirred controversy with a stock-option plan that rewarded the company’s top managers with millions of dollars in bonuses.
Anders recently surprised industry observers by putting General Dynamics’ Cessna subsidiary up for sale and earlier agreed to sell General Dynamics’ data processing operation to El Segundo-based Computer Sciences Corp. for $200 million.
On Wednesday, Anders said that General Dynamics will remain in only those businesses where it has the “critical mass” to maintain a “strong competitive edge.” He also said that General Dynamics and other defense contractors can no longer carry businesses that aren’t “No. 1 or 2 in their fields of expertise.”
Anders called upon the defense industry to consolidate its weaker businesses in a bid to ensure the industry’s survival. Market leaders could strengthen their position by absorbing weaker competitors, Anders said, while corporations that sell off their weaker businesses would receive cash that could be poured into their remaining, stronger businesses.
Industry analysts voiced differing opinions on Anders’ proposal.
“Bill Anders is keeping his options very much open,” said Wolfgang Demisch, an aerospace industry analyst with New York-based UBS Phillips & Drew. “He’s identified missiles and electronics as two areas that either need to be expanded or disposed of . . . (which) leaves considerable room for flexible management.
“In that sense, he’s laid out his policy, or strategic plan without really giving away anything on the tactical plan,” Demisch said.
Scott Pace, deputy director of the U.S. Commerce Department’s Office of Space Commerce, called Anders’ proposal “simplistic.”
Pace compared the consolidation plea to a Japanese plan in the 1950s that would have consolidated that country’s car manufacturers: “Fortunately, Japanese car manufacturers told (the government) where to get off. They didn’t combine, and they’ve managed to compete more aggressively.”
Demisch, however, described Anders’ proposal as “sensible . . . if you’re in an industry where revenue prospects are for little or no growth . . . you should try to ensure that you optimize your capabilities . . . and (eliminate) areas where you are secondary or tertiary.”
But Demisch cautioned that what is good for General Dynamics might not be good for the nation’s taxpayers.
“The experience in this country has been that you get your best results when you have three, four, five or six competitors,” Demisch said. “It’s very difficult to get the kind of really heart-stopping competition . . . when you have only one or two competitors.
Still, Demisch noted that past industry practices might have to be set aside because “in the last 30 years you had the Cold War, and you don’t have that anymore. What was a good management strategy in the last 10 or 20 or 30 years is probably not a good management strategy.”
Schetter, however, suggested that Anders’ strategic plan failed to include “one important element--economic conversion . . . moving defense (industries) into peacetime applications.” Schetter and a growing number of San Diegans are urging defense contractors to help the nation avoid painful economic repercussions by converting their plants into ones that produce consumer goods.
General Dynamics rose $.875 to $52.125 on Thursday in New York Stock Exchange trading, on volume of 304,800 shares.
General Dynamics Corp.
Summary of net sales and operating earnings (in millions of dollars) by business segment during the first six months of both 1991 and 1992.
Net Sales
1991 1990 Military Aircraft $1,398 $1,923 Missiles, Space and Electronic Systems 992 1,129 Total Government Aerospace 2,390 3,052 Submarines 869 876 Land Systems 536 507 General Aviation 390 333 Material Service and Resources 166 191 Other 366 156 TOTAL 4,717 5,115
Operating Earnings (loss)
1991 1990 Military Aircraft $82 ($327) Missiles, Space and Electronic Systems $44 $19 Total Government Aerospace $126 ($308) Submarines $42 $56 Land Systems $46 $31 General Aviation $45 $39 Material Service and Resources ($4) $8 Other ($36) ($32) TOTAL $219 ($206)
Source: General Dynamics Corp.
