Hughes to Close 92 Facilities, Lay Off 9,000
Hughes Aircraft will lay off 9,000 workers over the next 18 months, close 92 company facilities and take a $1.2-billion charge against profits as key elements of a restructuring to improve its competitiveness and adapt to lower defense spending, company Chairman C. Michael Armstrong announced Tuesday.
About two-thirds of the layoffs will be in Southern California, roughly proportional to the company’s employment here. The Los Angeles-based aerospace firm will emerge from the cutbacks with 15% fewer workers than its current 60,300.
About 90% of the facilities slated for closure, mostly offices, are in Southern California, but their locations will not be immediately disclosed, Armstrong said. Even the company’s elegant granite headquarters, perched on an ocean bluff, may be shut to cut costs and reduce vacant space.
The grim news gives sharper focus to the severity, scope and duration of the aerospace bust that continues in Southern California. A Los Angeles County aerospace task force earlier this year predicted that the downturn would be devastating, although some experts attacked such predictions as industry scare tactics.
Armstrong said the Hughes layoffs will fall across all occupations, but will hit upper-level managers especially hard. The company wants to reduce its corporate staff by 50% to about 500 workers at its headquarters.
“This is going to affect good people, professional people, management people, high-salary people--friends of ours,” Armstrong said. “What is happening is not their fault. It is the result of the precipitous decline in defense spending linked to the defeat of the Soviet Union.”
After Armstrong outlined his retrenchment plan to the company’s senior executives Tuesday afternoon, they responded with an ovation. A satellite video feed was broadcast to Hughes facilities around the country.
As part of its restructuring, Hughes also will sell or discontinue operating businesses that do not fit its “strategic objectives,” Armstrong said. In June, the firm said it would sell a unit in Irvine that makes electrical connection devices, which has $70 million to $90 million in sales.
Meanwhile, Armstrong said the layoffs will save the company $700 million in annual costs that will allow Hughes to enter a period of “renewed growth” in which it would gain market share in the defense industry and continue its growth in commercial sectors.
The massive cutbacks are the largest in Hughes history and rank among the biggest unveiled at one time by a defense contractor since Pentagon spending peaked in 1986. McDonnell Douglas cut 17,000 jobs in 1990, including 9,000 in Southern California.
Hughes’ elimination of 9,000 workers does not include additional job reductions that will result from attrition as the company imposes a hiring freeze. An additional 4,500 jobs could be lost as a result of consolidation stemming from Hughes’ agreement to buy General Dynamics’ missile operations in Southern California. Hughes already has laid off 3,000 workers this year, bringing the total number of jobs the company expects to eliminate in 1992-93 to at least 16,500.
Separately, Hughes executives have told San Diego officials that the General Dynamics Tomahawk cruise missile program--and its 2,000 jobs--will be moved to plants in Pomona or Tucson. As a result, San Diego will almost certainly lose another 2,500 General Dynamics jobs over the next year or so.
On Tuesday, Armstrong again criticized the state’s business climate, although he said Hughes still did not “target” Southern California for a disproportionate share of layoffs.
“Investment in California is so difficult. The cost of doing business in California is crippling,” he said.
A former IBM executive, Armstrong left open the possibility that any company facility or complex is on the shutdown list, including its facilities in Canoga Park, El Segundo and Fullerton. Hughes has 7 million square feet of unoccupied space. Nonetheless, Hughes has been investing in many of its Southern California facilities. It is preparing its Canoga Park plant for a radar program. And its satellite production facilities in El Segundo were recently upgraded.
Shutting the facilities and providing benefits to laid-off workers will cost $1.2 billion before taxes or $749 million after taxes, the firm said. General Motors, which owns Hughes, will absorb a portion of the charges amounting to 97 cents per share of GM common stock.
Armstrong, named chairman only four months ago, said the cuts were necessary because Hughes’ profits as measured by its return on assets rank near the bottom of its industry--even though Hughes has formidable technology and a bright future in new commercial products.
As the nation’s largest defense electronics firm, Hughes has long been recognized as a premier U. S. brain trust in electronics. It is the largest producer of communications satellites, sophisticated missiles and tactical radar. But its monopoly on these technologies has lapsed and it remains a high-cost producer vulnerable to new rivals.
Since the firm was acquired by General Motors in 1985, its sales have have stagnated. In 1991, the firm posted revenues of $7.7 billion, down from $7.8 billion the year earlier.
Lawrence Harris, an analyst at Kemper Securities, said that 40% of the job losses, including those at the missile operations, will come from management ranks. The scope of the restructuring indicates that the company is fairly ambitious about becoming more competitive, he said.
“While Hughes possesses some fantastic technology, in order to compete effectively on a commercial basis they have to operate differently,” Harris said. “They can’t just take the military cost structure and transfer it to the commercial world. The verdict is not in yet.”
Hughes said it will provide laid-off workers with a severance package of one week’s salary for each year of employment up to 10 years, and two week’s salary for each year beyond 10 years.
In addition, the firm said it will provide health insurance for six months after separation from the company and up to $5,000 of reimbursement for tuition or training expenses for the employees.
The benefits are substantial compared to McDonnell Douglas, which has laid off professional and hourly workers and provided a lower level of separation benefits.
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