R&D--the; Last Line of Defense : Despite Pentagon Cuts, Many Scientists in State Could Be Retained : NEWS ANALYSIS

The Pentagon’s dramatic proposal to freeze virtually all future weapons production could provide relief in an otherwise dismal outlook for California’s massive defense technology establishment, enabling the state to retain thousands of engineers and scientists who otherwise would lose their jobs in the years ahead.

The tilt toward research will not nearly offset the huge overall effect on the state’s economy from the drop in the Pentagon budget, and at least one leading defense industry executive worries that the shift could turn the entire defense industry into a “garage hobby shop” that would lose vital manufacturing know-how.

But the trend away from production could provide an important crutch in supporting high-value jobs and keeping major science laboratories in the state robust, even while production plants are shuttered and tens of thousands of workers furloughed. The Times disclosed Thursday that the Pentagon proposes a virtual freeze on new arms production, which would accelerate a trend that began after the defense budget peaked in 1985.

The shift could also have important ramifications for the exodus of aerospace plants from the state. Major firms have elected to relocate in part to reduce high production costs, but lacking production programs these companies might be more likely to retain research staff here.

California does more than 35% of all the nation’s research and development on aircraft and missiles, outpacing No. 2 Texas by a factor of nearly five times, according to a National Science Foundation survey. Its activity in spacecraft is significantly higher than that, and in the special category of manned spacecraft it is dominant, experts say.

Meanwhile, the entire West Coast, including the Boeing Co. in Seattle, employs 44% of all of the aerospace industry’s scientists and engineers.

“The sheer volume of research and development that goes on in this state is unmatched,” said Michael Rich, vice president at the RAND Corp., the Santa Monica-based think tank. “Any policy that intensifies research and development will look to the brain power in Southern California to carry out.”

Since the Pentagon budget peaked in 1986, spending for production of weapons and other equipment has plummeted nearly 50% in inflation-adjusted terms. But research and development spending was down just 1.3%.

The Pentagon is spending $40 billion in the current budget year to support research and development, a large portion of which is attached to the engineering of specific programs such as the McDonnell Douglas C-17 cargo jet and the Northrop B-2 bomber.

Even though California has become relatively less competitive in production of major aircraft and ships, there seems to be little evidence that it has lost any of its technical edge to other regions or nations.

For example, the Air Force’s advanced tactical fighter, which Lockheed will produce in Georgia, was designed in Burbank. The National Aero Space Plane, the spacecraft that flies like an airplane, is being developed by a Rockwell International team in Palmdale.

Beyond direct industry efforts, a number of laboratories and technical centers support the technology base here, including Aerospace Corp., the Air Force’s nonprofit engineering company in El Segundo, which has 575 scientists and engineers with Ph.Ds.

Even before the disclosure Wednesday that President Bush may freeze production of future weapons programs, the Pentagon had clearly set its priority on protecting its technology base.

And within the defense industry, major corporations are cutting production capacity and forming teams to produce weapons, but each firm appears intent on protecting its own technical staff, securities analysts say.

“Those companies that have a high technology content and that do neat things technically are likely to have the opportunity to continue to advance,” said Joseph Campbell, a vice president in the investment banking division at PaineWebber. “Those with big volume production lines will be relatively more hurt.”

A model for the new defense system might be the Star Wars missile defense program, in which billions of dollars have been spread over small programs throughout the industry without a plan to deploy a system. California firms dominate the field of major Star Wars contractors.

But many experts worry that a total freeze on new production, as Bush is expected to propose next week, could hasten the erosion of the defense industry base, particularly at key small companies that make sophisticated parts but that do little formal research. And major contractors could lose the ability to form large organizations capable of buying millions of special parts, administering contracts, planning production, building tools and running the day-to-day intricacies of a factory.

Rep. Dave McCurdy (D-Okla.), chairman of a congressional panel on the defense industrial base, said he favors a tilt toward research but cautions that freezing production of new programs “is not a viable long-term strategy.”

“There has to be some level of production to preserve a viable industrial base,” McCurdy said.

To retain as much industrial capability as possible, McCurdy said the Pentagon will have to revamp its cost-accounting regulations and technical specifications to allow defense contractors to integrate military and commercial programs. Over the past decade, most firms have sought to separate their government and civilian businesses.

A senior Northrop executive said this week that simply doing research without setting up production tools and building systems would create a virtual “garage hobby shop” industry.

And Ben Rich, the widely respected former chief of the Lockheed Skunk Works, which built the F-117A Stealth fighter, said in an interview Thursday that the policy, if it is enacted, would seriously undermine the capability to produce sophisticated systems in the future.

“It is terrible, and it could be a disaster for the defense industry,” Rich said, emphasizing that he was responding to news reports about the policy and could not confirm it. “We are going to lose essential manufacturing skills. . . . You can’t divorce manufacturing technology from product technology--otherwise you end up with engineering toys.”