General Dynamics Sells a Third San Diego Unit : Aerospace: Purchaser says it has no plans to eliminate jobs or move Electronics Division.


General Dynamics announced Monday the sale of its Electronics Division to Carlyle Group of Washington, D.C., its third divestiture of a major San Diego operation over the past year.

The local pain caused by the sale is expected to be minimal: both General Dynamics and Carlyle Group insisted that the Electronics Division and its 2,000 local employees will remain in San Diego and that no layoffs are planned.

Neither buyer nor seller would disclose the sale price but sources close to both sides say the transaction was worth “under $100 million.” Aerospace analyst Jerry Cantwell of the Wertheim Schroder investment firm in New York estimated the price at $50 million.


The sale, which won’t be final until December, is part of General Dynamics’ plan to sell its “non-core assets” and to restructure around its submarine, armored vehicle, commercial rocket and military aircraft businesses.

General Dynamics said in January that it would sell its electronics, missiles and airliner fuselage businesses, all based in San Diego. General Dynamics sold the missiles unit to Hughes in August and is now shopping the fuselage business, which supplies MD-11 airframes to McDonnell Douglas.

In September, 1991, General Dynamics sold its Data Systems Division to Computer Sciences Corp. for $200 million. Nearly all of the division’s 1,200 San Diego employees kept their jobs.

The divestiture strategy has impressed Wall Street and General Dynamics stock is up nearly 60% this year. But the strategy has shaken thousands of General Dynamics’ employees in San Diego, not to mention civic leaders who feared the economic impact if jobs were moved elsewhere.

Those fears were realized in August after General Dynamics sold its missiles unit to Hughes Aircraft for $450 million. Hughes later announced that 1,200 jobs related to the Tomahawk cruise missile would be moved to Tucson, where labor costs are cheaper. Another 1,300 local missiles jobs will evaporate by next August when the advanced cruise missile program is discontinued.

The Electronics Division, which will be renamed GDE Systems, makes equipment used by the Air Force to test the flight-worthiness of the F-16 fighter and a variety of other aircraft. The company also produces digital mapping technology used in guidance systems of the cruise missile and other weapons.


The division has delivered approximately 100 of the multimillion-dollar avionics test systems. The air forces of 15 countries are among the division’s customers. The systems are used to test the 4,000 F-16s flying worldwide.

The test units, called the Avionics Intermediate Shop, include a huge bank of computers that had to be transported by three giant Air Force cargo planes during the Persian Gulf War.

Cantwell, an aerospace analyst with Wertheim Schroder, said the sale of the electronics unit will be good news for the division and its employees as the new company branches out into commercial business.

For future growth, the company will have to turn to commercial products because the test equipment market is “mature, with little in the way of growth prospects for them,” Cantwell said.

“They are small fish in a big pond at General Dynamics and now they will be more on their own, and I think that will work out to their benefit.”

Carlyle will lease General Dynamics’ 450,000-square-foot complex that the Electronics Division occupies in Kearny Mesa. Carlyle plans to vacate the buildings after a three-year lease and option runs out because a “significant portion” of the complex is vacant. New GDE Systems Chief Executive Terry Straeter said the company would then move elsewhere in San Diego.

The Defense Department has already approved the transfer of Electronics Division’s contracts to the new Carlyle entity.

In addition to the missiles, data processing and electronics divisions, General Dynamics has also sold its Cessna private aircraft and ship chartering divisions over the past year.

In a press briefing Monday, Straeter said the company’s annual sales are $300 million, which amounts to a 60% share of the $500 million annual market for Air Force aircraft test equipment.

Carlyle’s principals include former U.S. Defense Secretary Frank Carlucci and Fred Malek, a close political associate of President Bush. Much of the firm’s capital was initially invested by Richard K. Mellon. The sale to Carlyle had been rumored for the past month. Other interested bidders included Loral Corp. of New York and SAIC of San Diego.

About 30 former General Dynamics Electronics managers, including Straeter, who are staying with the new company will be given the opportunity to buy up to 10% of GDE stock.

William E. Conway, a Carlyle Group managing director, said Monday that no significant changes are planned in GDE Systems.

“There is no plan to move the company or change management,” Conway said. “We think the big assets are the management and the work force. And we think both would rather be in San Diego than in blank. You fill in the blank.”

Formed in 1987, Carlyle Group has engineered eight acquisitions of companies with combined 1992 sales of about $4 billion, Conway said. The deals are made typically with equity funds put up by about 30 institutional investors and with bank loans.