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 the Southland economy, Hughes Aircraft Co. said Wednesday it will move all of its missile-building operations to Tucson, eliminating at least 4,500 more Southern California defense industry jobs.
The announcement is the latest in an avalanche of defense layoffs in the region that have totaled roughly 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 states where the business climate is more attractive.
Hughes Vice Chairman Michael T. Smith, in announcing the company’s decision, said the high costs of doing business at its Southern California missile plants--in San Diego, Pomona and Rancho Cucamonga--were a crucial factor in the move. He said Arizona offers significantly cheaper housing, utility rates and labor costs, and more favorable workers’ compensation laws and business taxes. The company studied about 50 factors before making its decision, Smith said, and Arizona was more attractive in nearly all categories.
Some transfers will be offered to affected employees, Smith said, but he declined to be specific about how many. He indicated the number will relatively small.
The 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 industry that California is not doing enough to keep businesses in the state and to attract new companies from beyond its borders.
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 said it would reorganize its missile unit after its $450-million acquisition last month of General Dynamics’ missile unit, but there were hopes then that many of the Southern California jobs could be saved. The scope of the reorganization announced Wednesday was staggering: Hughes will cut at least half of its 9,000 missiles workers in Southern California, most of whom it inherited in the General Dynamics acquisition, which was announced in May and completed last month. The company said there could more cuts, perhaps at Hughes’ Canoga Park facility.
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 will lay off 4,000 to 5,000 employees by the end of the year at its commercial aircraft division in Long Beach.
Like other military contractors, Hughes 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.
Jerry Cantwell, an aerospace analyst with Wertheim Schroder, said Hughes is like most defense contractors in that it suffers from underused manufacturing plants which 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 plans to move six missile programs to a large 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.
San Diego will be especially hard hit by the restructuring, losing most, if not all, of the 1,200 jobs tied to the Tomahawk Cruise missile program at a huge plant near Lindbergh Field. An additional 1,300 Hughes employees in San Diego will be left jobless in mid-1993 when the Advanced Cruise Missile program expires.
Tomahawk missile workers will be the first affected by the reorganization. Hughes workers on other missile programs may not be affected for up to two years, Smith said. The 1,200 Tomahawk workers will learn in three to four weeks whether their jobs will be eliminated, the company said.
At the urging of Arizona Gov. Fife Symington, the state 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 relocated to Arizona or added to the company’s payroll, said James E. Marsh, director of Arizona’s Department of Commerce.
Marsh said that the cost of doing business in Arizona is roughly 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 missiles jobs. But the effort fizzled during the state’s budget crisis.
Smith, the Hughes executive, said the company applied for a $70-million grant from the U.S. Department of Labor, which if awarded would 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 workers’ 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. Nothing was done,” Byrns said.
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 3-bedroom single-family detached home) $152,500 $231,250 Machinist’s average hourly wage $9.05 $17.79* Workers compensation (dollars per $100 of wages for machinist) $5.39 $6.26* Median household income $30,985** $33,720** Industrial space per square foot (monthly cost) 25 cents 40-82 cents 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.
