COLUMN ONE : Flying in the Face of Turbulence : With the aerospace giants in decline, scientists and engineers are launching their own firms--providing opportunities for talented workers and a silver lining for the Southland.

In an aerospace industry awash in gloom and trepidation, an effusive 37-year-old Frenchman bet his life savings that he could overcome the worst bust in decades and launch a new aerospace company in Southern California.

Since he founded M.S. Aerospace in June, Michel Szostak has managed to hire 19 employees and reach the break-even point. A manufacturer of specialized aircraft and jet engine bolts in Sylmar, Szostak is projecting his first profit this month and plans to add six more workers.

Szostak is among the first entrepreneurs with a new vision for remaking the aerospace industry in Southern California. As thousands of scientists and skilled workers exit the business, many of them are expected to launch their own efforts, either in aerospace or related technical fields.

Although small companies like Szostak’s will not reverse the industry’s precipitous decline, they offer hope that the region can partly offset massive job losses and preserve a base of skilled workers that companies can draw on in the future.

The entrepreneurial activity is probably the most important force that will help stanch the outflow of aerospace from Southern California, experts say. It is the small, innovative firms that will demonstrate whether the troubled region can retain the intellectual vibrancy that has been so crucial to its past economic success.

“Los Angeles is the capital of the aerospace industry,” Szostak said. “If people move, it is going to hurt the entire nation. You find good people with good knowledge here. I am French and my English isn’t too good, but people are following me.”

There may even be benefits for the region in doing business on a much smaller scale. As the defense industry consolidates and shrinks, start-up firms can shed the stultified thinking and wasteful procedures that have became so pervasive at larger companies, analysts say.

“The vast majority of people in the aerospace industry are so used to living under the bureaucracy that they have been whipped by it,” said Michael Beltramo, an industry consultant specializing in competitive analysis. “But one in 10 hasn’t, and they will turn calamity into their opportunity.”

By starting fresh, Beltramo believes entrepreneurs will have a chance to run aerospace firms or other businesses on a small scale with greater flexibility, innovation and efficiency, because “the big companies haven’t made the leap into the 1990s and haven’t made the changes necessary for a new era.”

After a long downturn, the formation of new business is once again growing in California. Statewide, 19,839 companies were created in the first six months of 1992, 2.3% more than last year, according to a recent study by Dun & Bradstreet Corp., a New York business research firm.

The report found the increase was created by white-collar workers, largely exiting from the aerospace and defense industries who started up firms rather than join the legions of unemployed aerospace workers looking for jobs.

Although California’s rate of start-ups lagged behind the rest of the country and is far behind the levels posted during the 1980s, the uptick reported by Dun & Bradstreet is considered a good sign considering today’s depressed economy in the state.

Kwang-I Yu, one of the most promising young scientists at giant contractor TRW Corp., is among the first wave of entrepreneurs coming out of the defense industry. Last summer, Yu launched Paracel Inc., with financial assistance from TRW, to produce a revolutionary type of data search system based on a computer chip he invented.

The data search device, about the size of a bread box, contains up to 3,600 specialized processors that can scan the entire Encyclopaedia Britannica in roughly 30 seconds.

“Lots of people need to analyze lots of information in the government, and this is the fastest technology for analyzing text,” Yu said. “We think this is going to be increasingly important to the corporate world.”

Yu put his firm in downtown Pasadena, close to Caltech. Half of his dozen employees are Caltech graduates, and Yu values his proximity to the campus for “technical interchange,” he said.

So far, the government represents about half of Paracel’s sales, but Yu has made major inroads in supplying his systems to biotechnology firms for genetic research. The firm has orders for 100 systems, known as fast data finders, and is already breaking even. It expects to book revenues of a few million dollars in its first 12 months of operation, Yu said.

Paracel seems to be an archetype for new high-tech firms in that it offers a unique product or service. But Szostak of M.S. Aerospace is even more of a maverick. He is bucking all the trends, starting up a basic manufacturing firm in an industry that is already undergoing a painful consolidation to trim excess capacity.

Yet, Szostak has managed to turn the industry’s weakness into his strength, outmaneuvering major aerospace bolt manufacturers by specializing in very fast, small production runs. While big firms require up to six months to fill an order and are equipped to handle production runs in the hundreds of thousands, Szostak promises delivery within four to six weeks and can profitably handle orders for only a few hundred bolts.

The former executive of a French aerospace unit in Southern California managed to buy a $350,000 bolt testing machine for just $1,000 at an industrial auction. And he has attracted some of the region’s top manufacturing talent for aerospace bolts.

While his rivals are fleeing to states like Utah, Szostak said he is “laughing” at their chances of finding skilled workers on a par with those widely available in Southern California. As for executives who grumble about the business climate in California, Szostak facetiously suggests trying his homeland, France.

“People in France don’t want to work,” he said. “The best knowledge of this business is here in Los Angeles.”

In a business wracked by scandal over false testing of products, Szostak has put an emphasis on quality. As a result, he has quickly gained acceptance by several major firms, including General Electric, after demonstrating that his quality procedures are above reproach. He also gives employees an incentive to set high standards: a 10% monthly bonus if they meet quality-control targets.

Szostak’s biggest problem was getting financing from Los Angeles-area bankers.

“When I told them I am French and want capital to start an aerospace company here, they laughed at me,” Szostak recalled.

He finally found a private investor in France willing to put up nearly $1 million, and Szostak staked his life savings of $100,000.

“It is tougher and tougher for fledgling companies to get capital,” said Gary Wong, president of Wedbush Leasing, an investment banking firm that advised Szostak. “We need more manufacturing in Los Angeles. In our effort to raise capital for Szostak, a lot of people wouldn’t consider it.”

To some defense industry executives, starting up a new aerospace firm does not make much sense when existing ones can be purchased at fire-sale prices. Dale Peterson, chief executive of privately held Signal Technology Corp. in Sunnyvale, said he has made five corporate acquisitions in recent years that have more than doubled his sales and quadrupled his profits.

“To start up a new company is crazy,” Peterson said. “You can buy research and development for 30 cents on the dollar,” citing the example of a subsidiary he acquired from Eaton Corp., a major diversified manufacturer.

Companies like Signal are busy consolidating the middle ranks of the aerospace industry, buying up excess capacity and downsizing operations. Peterson said he typically buys firms at a price equal to one-third of their annual sales. In the industry’s heyday, he sold a company he founded to Loral Corp. for nearly twice its annual sales.

Nevertheless, in a depressed economy lots of bright, unemployed engineers and scientists will see an opportunity to develop their ideas, said John Harbison, who heads the aerospace practice of the consulting firm Booz Allen & Hamilton.

“These people have their pet ideas and in normal times these ideas don’t go anywhere, but if they are unemployed, they may not have anything to lose,” Harbison said. “It is a plus for the California economy, because in five or 10 years some of these companies will have taken root. This is the silver lining in all this turmoil.”

Take T.J. Wang. When he was laid off last year from TRW, he had few prospects of finding another aerospace job. So Wang founded Asian Connections Enterprises in Torrance a year ago. Instead of one pet idea, he had several and pursued them all.

So far, Wang’s most successful effort is at setting up personal computer networks for small firms. He recently won a contract to build such a network for an insurance company in Guam, although he complained that the cost of air fare was eating up his profits.

Separately, he has high hopes of getting into an emerging industry that embeds computer chips on credit cards. So far, he has linked up with several manufacturers in Asia that would implant his chips on cards, but he still doesn’t have any customers on this side of the Pacific.

As for aerospace, he doesn’t want to look back.

“I worked in aerospace for 15 years and was laid off three times,” he said. “I don’t feel bitter about it. But I don’t think there is any chance for (his firm) in aerospace.”

However, other entrepreneurs take the long view. After six years of trying to develop a new aircraft engine, Pat Wilks, president of Dyna-Cam Engines in Redondo Beach, is still trying to line up investors. She said the engine is significantly more fuel-efficient than conventional ones but that potential investors “are unable to comprehend a new engine project.” She now is trying to raise $6 million through private investors.

Many believe the ability of California to recover from the aerospace bust hinges on the success of such small firms, rather than the wholesale conversion of big defense contractors.

“The military created a whole industry suited to dealing with Washington and nothing else,” said Joel Kotkin, a research fellow at Pepperdine University. “What we are seeking now is a more flexible industry that can do aerospace but a lot of other types of manufacturing as well. It is at the ground level that this is going to happen.”