San Diego to Lose 1,700 Aircraft Jobs

Southern California’s aerospace industry suffered another jolt Monday when General Dynamics said it will lay off about 1,700 workers at its commercial aircraft assembly plant here in the next five months.

The layoffs, which will affect employees who assemble fuselages for McDonnell Douglas’ MD-11 jetliner, are a sign of how Southern California’s aerospace slump has spread beyond defense-related job losses to the commercial airline sector.

The General Dynamics cutbacks also signal that financially troubled McDonnell Douglas will be paring MD-11 production more quickly than expected because of slowing orders. That could lead to more job losses at the company’s Douglas Aircraft division in Long Beach later this year or in 1993.

The layoffs are more bad news for the aerospace industry in San Diego, where in recent months several other companies have announced plans to cut several thousand jobs. One in five jobs in San Diego is directly tied to military and aerospace business, economists said.

One month after General Dynamics sold its San Diego-based missile operations to Hughes Aircraft for $450 million, Hughes announced that it was moving most of the 1,200 jobs tied to its Tomahawk cruise missile program to Tucson. Another 1,300 Hughes jobs in San Diego will be lost as the Advanced cruise missile is phased out by next August. General Dynamics also said last month that it planned to cut about 465 jobs at its Space Systems operation in San Diego.

In September, Rohr Inc. said it may cut up to 2,000 jobs over the next two or three years. About half those losses would be at the company’s plant in Chula Vista.

The latest layoffs at General Dynamics will affect 40% of the roughly 4,200 employees at the company’s Convair Division. General Dynamics said the cuts are in response to plans by McDonnell Douglas to delay deliveries of MD-11 airframes. The company also cited its “ongoing effort” to reduce costs.

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

After several boom years in the late 1980s, the commercial airline industry is losing money and passengers. Airline traffic in 1991, based on miles flown, was off 3% from its 1989 peak, according to Avmark, an aviation consultant in Arlington, Va. Orders of commercial jets from U.S. airlines will total only 200 in 1992, down from 737 in 1989, Avmark expects.

Last week, Pratt & Whitney, a maker of commercial jet engines, said it will cut 4,800 jobs by mid-1993. Friday, American Airlines said it would lay off up to 1,000 managers to slash expenses by $300 million. GPA, a giant aircraft leasing firm based in Ireland, announced in September that it was scaling back projected airliner purchases by about 125 planes through the year 2000.

General Dynamics’ Julie Andrews said the company will scale back from three MD-11 fuselages a month to two. The lower rate implies that McDonnell Douglas could deliver as few as 24 MD-11 jetliners next year, depending on how quickly the firm drops to the lower rate. The firm is expected to deliver 43 MD-11s this year.

McDonnell Douglas would not confirm that it was canceling or delaying deliveries of aircraft, saying future production rates are “proprietary information.” But the General Dynamics cutback seems to support aerospace analysts’ forecasts that McDonnell Douglas will slow production of the MD-11 next year.

McDonnell has been laying off hourly and salaried workers at its Long Beach plant throughout the year. Employment at Douglas Aircraft has shrunk to 33,000, from 53,000 two years ago. Earlier this month, company officials told securities analysts that an additional 2,000 to 3,000 workers might be laid off in Long Beach this year, though it is unclear if those workers are part of already announced cutbacks.

The production cutbacks could foreshadow more bad financial news at McDonnell, which still must account for $1.7 billion worth of development costs on the MD-11. It is spreading those costs over the production of the first 301 aircraft.

But McDonnell has received just 173 orders, 55 of which were delivered by 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 it to take additional charges against future profits, analysts said.

Indeed, the second quarter report also notes that the majority of MD-11 expenses will be recovered from future orders. Aircraft orders have been weak for more than a year. In some quarters, McDonnell has lost more orders than it has booked.

General Dynamics’ stock was up $2.625 a share to $98.75 in New York Stock Exchange trading. The company made its announcement after the market closed Monday.

McDonnell Douglas shares rose $4.125 to $46.50. An investment analyst said he knew of no reason for the jump in McDonnell’s stock.