1,700 Convair Workers in S.D. to Be Laid Off

General Dynamics announced Monday that it will lay off 1,700 Convair Division workers on its MD-11 jetliner fuselage assembly line over the next five months.

The cutbacks, already under way in some production areas, came after McDonnell Douglas asked that deliveries of airframes be delayed. General Dynamics Convair also cited its “ongoing effort” to reduce costs in announcing the cutbacks.

Added to layoffs and relocations already announced or expected, the latest cuts mean that, by the end of next year, roughly 5,000 General Dynamics jobs will have disappeared over a three-year period, or one-third of its payroll in San Diego County.

This latest of a series of shocks to Southern California’s aerospace industry indicates that McDonnell Douglas will be paring MD-11 production more quickly than expected and might be forced to make additional layoffs in Long Beach later this year or in 1993 in response to a slowdown in orders.

Convair makes the huge, tubular fuselages at its Lindbergh Field plant in San Diego, then ships them by barge to Long Beach, where McDonnell Douglas assembles the jetliners.

The cutbacks, which amount to a 40% cut of the fuselage operation’s payroll, are the latest of several major aerospace job cuts announced in San Diego and, more generally, in Southern California, where more than 100,000 aerospace jobs have been lost in the last several years. General Dynamics has been attempting to sell its 4,200-employee fuselage business since the beginning of the year.

Up to now, most of the aerospace cuts in the region have been caused by shrinking defense budgets and contracts. But more jobs are being lost at places like Convair because of a slump in commercial airline orders.

The layoffs have brought particular pain to the San Diego economy, which is more than one-fifth dependent on the military and aerospace. Greater San Diego Chamber of Commerce research chief Max Schetter illustrated the possible ripple effect by estimating that each aerospace job in the county creates 2.5 additional outside jobs.

Dan Pegg, president of San Diego Economic Development Corp., said the loss of so many jobs will have a ripple effect in San Diego because “these are the kinds of quality jobs that are very difficult to replace.”

“It’s going to take a long time to create the kinds of jobs we’ll be losing and the public revenues associated with those people,” Pegg said. “So it will create personal hardships for the employees, and their loss will be felt by the entire community.”

The layoffs are the latest in a litany of bad news from San Diego’s aerospace employers.

In August, General Dynamics sold its San Diego-based missile operations to Hughes Aircraft for $450 million. A month later, Hughes announced that it would move most if not all of the 1,200 missiles jobs associated with the Tomahawk cruise missile to a largely vacant plant in Tucson. An additional 1,300 Hughes missiles jobs in San Diego will evaporate as work on the Advanced cruise missile is phased out by next August.

In September, Rohr Inc. said it may cut as many as 2,000 jobs, or 22% of its work force, over the next two to three years because of pessimistic forecasts about the future market for its jet engine components. About half of those cuts would affect Rohr’s Chula Vista work force.

General Dynamics also said last month that it planned to cut about 465 workers, or 15%, of payroll from its Space Systems operation in San Diego. Earlier this month, General Dynamics announced it was selling its Electronics division to Carlyle Group of Washington, D.C., but pledged that there would be no layoffs among the unit’s 2,000 local employees.

In January, General Dynamics announced it was selling its San Diego-based missiles, electronics and fuselage businesses in a bid to realign itself around the markets in which it had clear superiority. The fuselage business is the only unit still to be sold, although Northrop has been rumored to be a possible buyer.

After several boom years in the late 1980s, the commercial airline industry finds itself losing money and passengers. As a result, airlines are trying to defer or cancel delivery of previously ordered airplanes, said Phil Friedman, an aerospace analyst with the Morgan Stanley investment firm in New York.

The reluctance of airlines’ to take delivery of jets “should come as no surprise” given continued losses by commercial airlines to the point that “they have hit the balance sheet wall” and are increasingly unable to afford the planes’ high cost, Friedman said.

Airline passenger traffic in terms of miles flown in 1991 was 3% less than during the 1989 peak year, according to Avmark, an Arlington, Va.-based aviation consulting firm. Avmark expects new orders of commercial jets to U.S. airlines in 1992 to total only 200, down from 737 ordered in 1989.

While the commercial aviation industry is less open about announcing airplane order cancellations or “stretch-outs” than it is about orders, indications are that those reversals are accelerating in response to continued sluggishness in the industry.

Last week, commercial jet engine manufacturer Pratt & Whitney announced it will cut 4,800 jobs by mid-1993. On Friday, American Airlines said it would lay off as many as 1,000 managers to cut costs by $300 million. GPA, a giant aircraft leasing firm based in Ireland, announced in September that it was scaling back its projected airliner needs by about 125 planes through the year 2000.

General Dynamics’ Andrews said the Convair Division will reduce its production rate from three to two MD-11 fuselages per month. The lower rate implies that McDonnell Douglas will deliver as few as 24 MD-11 jetliners next year, depending on how quickly the firm drops to the lower rate. Forty-three MD-11s are expected to be delivered this year.

McDonnell Douglas refused to confirm that it is canceling or stretching out deliveries of aircraft, saying future production rates are “proprietary information.” But the Convair cutbacks confirm expectations long cited by aerospace analysts that McDonnell Douglas, feeling the impact of weak orders, will scale back MD-11 production next year.

McDonnell has been laying off hourly and salaried workers from its Long Beach plant throughout this year. Payroll at Douglas Aircraft division in Long Beach is now down to 33,000 now from 53,000 two years ago. Earlier this month, company officials told securities analysts that an additional 2,000 to 3,000 workers could be laid off from Long Beach this year, though it remains unclear whether those workers were part of already announced cutbacks.

The production rate cutbacks could also forewarn some bad financial news by McDonnell, owing to how the firm accounts for its MD-11 costs. The firm is is amortizing about $1.7 billion worth of development costs on the MD-11 over the production of the first 301 aircraft.

But McDonnell has received just 173 firm orders, of which 55 were delivered as of June 30, according to the firm’s second quarter report. By cutting production rates, the company will break even on its MD-11 program much later than expected, which could force the company to take additional write-offs, analysts said. The issue depends on whether the firm’s most recent financial statements already had assumed a cutback in production, analysts said.

The second-quarter report also noted that $1.2 billion in MD-11 expenses will be recovered from future orders and, if those orders fail to materialize, it will be forced to take a write-off.

Aircraft orders have been weak for more than a year. In some quarters, McDonnell has lost more orders than it has booked, though whether it has lost orders recently is not known.