Hughes Cuts 4,500 Jobs in Southland : Economy: Aircraft firm will transfer missile-building operations to Arizona, resulting in the layoffs. Official cites the high cost of doing business in California.

In another major blow to San Diego County’s economy, Hughes Aircraft Co. said Wednesday that it will move all of its missile-building operations, including the San Diego-based Tomahawk, to Tucson, Ariz.

The move could eliminate as many as 1,200 defense industry jobs locally and at least 4,500 in Southern California.

Hughes executives had previously disclosed to San Diego leaders that they were moving the Tomahawk jobs out of the city, but did not divulge the destination and full extent of the move. Hughes Vice Chairman Michael T. Smith removed the suspense at a news conference here Wednesday, announcing that the Tomahawk missile operation will be operating in Tucson by April.

Hughes said it would reorganize its missiles unit after its $450-million acquisition of General Dynamics’ missiles operations was completed last month. But the dimension of the reorganization announced Wednesday was staggering: Hughes will cut at least half, possibly more, of its 9,000 missiles workers in Southern California.

Although Hughes declined to specify which workers at which plants in Southern California will lose their jobs, the company made it clear that San Diego will be hard-hit, losing most, if not all, of the 1,200 jobs tied to the Tomahawk cruise missile program at a huge plant near Lindbergh Field.

All Tomahawk-connected employees will be told over the next three to four weeks whether they are losing their jobs. An additional 1,300 Hughes employees in San Diego will be left jobless for sure in mid-1993 when the advanced cruise missile program expires.

Hughes’ announcement is the latest in an avalanche of defense layoffs in the region that have totaled about 100,000 over the past several years. Industry executives and some economists say the move provides one of the strongest examples yet that Southern California is losing its competitive edge to other states.

Indeed, Smith, in announcing the company’s decision, said the high cost of doing business in its Southern California missile plants--situated in San Diego, Pomona and Rancho Cucamonga--was a crucial factor in the move. He said Arizona offers significantly cheaper housing, utility rates and labor costs, as well as more favorable worker’s compensation laws and business taxes. The company studied about 50 factors before making its decision, Smith said, and Arizona was more attractive in all but two categories.

That cost gap worries state officials and economists because manufacturing companies form the backbone of the California economy by providing highly paid technical jobs and generating additional work for suppliers and service companies.

There has been a rising chorus of criticism from industries that California is not doing enough to keep businesses in the state and attract new companies. However, there has been little more than anecdotal evidence that the business climate in California is driving companies away. Some experts worry that the Hughes move could serve as a catalyst for other firms that are considering leaving the state.

Hughes, like other military contractors, is under pressure to reduce costs as a result of the Pentagon’s plan to contract with a single supplier for missiles and other weapons systems. Previously, the Defense Department often had more than one supplier for a particular weapons program.

In July, Hughes announced plans to lay off 9,000 workers through the end of 1993 and close 92 facilities. That figure did not include the layoffs Hughes announced Wednesday. Also in July, McDonnell Douglas said it would lay off 4,000 to 5,000 employees by year’s end at its commercial aircraft division in Long Beach.

Jerry Cantwell, an aerospace analyst with Wertheim Schroder, said Hughes is like most defense contractors in that it suffers from underused manufacturing plants that are costly to operate.

“The only way these businesses make any sense is to combine them in one facility so that you have enough business to keep (it) operating at a somewhat efficient rate,” he said. “Otherwise, everyone kind of dribbles along starving for business and losing money.”

Hughes and McDonnell Douglas will soon be competing, for example, to be sole supplier of the Tomahawk cruise missile. Hundreds of jobs hang in the balance. Up to now, the two companies have shared the annual procurement for the weapon, but the Navy has served notice that, beginning in fiscal 1994, it will begin buying missiles from just one supplier. The contract will go to the low bidder.

Hughes plans to move six missile programs to a 2.2-million-square-foot Tucson plant that is operating at 30% of capacity, Smith said. Five of the programs--the Tomahawk, Standard, Phalanx, Stinger and Rolling Air Frame--are being moved from Southern California. The Sparrow missile is being moved from a Camden, Ark., plant that will be closed.

Tomahawk missile workers will be the first to be affected by the reorganization, while Hughes workers on other missile programs may not be affected for up to two years, Smith said. At the urging of Arizona Gov. Fife Symington, the Legislature in July passed a tax incentives package to lure General Dynamics. The state offered tax credits of $4,000 to $5,000 per employee who is relocated to Arizona or added to the company’s payroll, said James E. Marsh, director of Arizona’s Department of Commerce.

Marsh asserted that the cost of doing business in Arizona is about 30% less than in California.

“My perception is that, every way you look at it, California comes out the loser in terms of cost, regulatory burden, taxes and productivity,” said Wertheim Schroder’s Cantwell.

Tucson Mayor George Miller said the city is fortunate to be adding jobs after losing 6,000 jobs, or 20% of its manufacturing employment, during the past four years. “This is good news for us,” Miller said.

Soon after the Hughes acquisition of General Dynamics missiles unit was announced in May, San Diego and state officials said they hoped to assemble a competing incentives package to keep the missile jobs. But the effort fizzled during the state’s budget crisis.

Smith said Hughes applied for a $70-million grant from the U.S. Department of Labor, which, if awarded, will be used to retrain or relocate employees affected by the restructuring.

Doug Byrns, a former staff member of the California Council on Competitiveness, called the Hughes decision “disappointing but not surprising.” In April, the committee, appointed by Gov. Pete Wilson, recommended reforms in worker’s compensation, regulatory and liability reform and investment incentives aimed at keeping businesses in the state.

“All those things were spelled out in our 100-page report,” Byrns said. “Nothing was done.”

A Tale of Two Cities

Hughes Aircraft Co. officials cited cost considerations in announcing that the company will cut about 4,500 jobs in three California cities and move six missile programs to Tucson, Ariz. Here is a cost comparison between San Diego and Tucson.

Indicator Tucson San Diego Home prices (median price for $152,500 $231,250 3-bedroom single-family detached home) Machinist’s average hourly wage $9.05 $17.79* Workers compensation (dollars per $5.39 $6.26* $100 of wages for machinist) Median household income $30,985** $33,720** Industrial space per square foot 25 cents 40-82 cents (monthly cost) Sales tax 7.0% 7.75% Corporate income tax 9.3% 9.3% Unemployment Rate 4.8% 7.3%

* Tool and die maker

** Tucson figure 1989; San Diego figure 1990

Sources: San Diego Chamber of Commerce, San Diego Development Corp., Greater Tucson Economic Council, Arizona Department of Commerce, California Workers Compensation Insurance Rating Bureau, PHH Corp.