In one of the most jarring business defections from Southern California, Hughes Aircraft will close its Canoga Park missile facility and move 1,900 engineering-related jobs to Tucson by 1994, the aerospace firm said Monday.
The decision ranks among the largest transfers of aerospace jobs out of the state since the trend began in the mid-1980s. More ominously, it undercuts one of the state's last remaining strengths: retaining its wealth of science and engineering talent.
The Hughes missile design staff, which pioneered development of guided missiles for the Air Force, is dominated by people with advanced university degrees and includes a few hundred Ph.D.s, enough to staff a college faculty.
Hughes Chairman C. Michael Armstrong said the decision to move the jobs was based primarily on the economic need to locate engineering and manufacturing at a single site. But he lambasted the state's business climate and said political inaction on solving the problems contributed to the move.
"This is another wake-up call from the state's largest industrial employer," Armstrong said in an interview. "We need to change. The message to the state is that the market has no more patience. We have to do what is necessary to get our company competitive."
Hughes executives began publicly criticizing California in 1985 and last September delivered a harsh judgment when the company decided to move production of missile programs acquired from General Dynamics from sites in Pomona, Rancho Cucamonga and San Diego to its facility in Tucson.
As a result of its decisions to leave California, Hughes' missile unit will eliminate 5,100 jobs, not including the 1,900 at Canoga Park.
Michael T. Smith, chairman of the Hughes Missile Systems Co., declined to say how much the move would save Hughes, but clearly it would amount to tens of millions of dollars. He said the firm would recoup the large initial cost of moving people within just three years, not including the proceeds from selling the Canoga Park facility.
By the end of 1994, the Tucson plant is expected to have 8,000 employees, up from 4,200 currently. The operation's projected 1993 revenues are about $2 billion, Smith said.
When Hughes announced transfer of production from Canoga Park last September, it also said it would study a consolidation of its engineering staffs.
The decision to relocate to Tucson was announced at an employee meeting early Monday and came as little surprise to Hughes workers.
"It was a good meeting . . . no emotion," said Smith, brother of General Motors Chief Executive John F. Smith Jr.
That is a sharp contrast to 1988, when Hughes studied a similar consolidation and decided to stay in Canoga Park. At that time, engineers began wearing buttons objecting to the move, and their recalcitrance played a large role in the decision to stay.
But today, there are few alternative jobs for missile engineers and the quality of life in California has deteriorated, said one Hughes executive who asked not to be named. At the same time, military officials encouraged Hughes to put all of its production and engineering at one site, he said.
"A lot of our (military) customers perceived this was a big problem," he said. "That message was read loud and clear. They wanted to see us at one site."
In addition, Arizona officials offered incentives--including tax breaks, infrastructure improvements and spousal employment assistance--valued at $10 million to $15 million, the executive said.
Julie Meier Wright, secretary of California's Trade and Commerce Agency, acknowledged that much of the criticism of California's business climate is valid--but said efforts to undertake reforms are being held up in the California Assembly.
It depends on "votes of people somehow not held hostage by special interests," she said.
The Hughes decision reflects the compelling need in the aerospace industry to quickly scale back excess production capacity amid a downward spiral in defense budgets.
In many cases, major defense contractors have surplus facilities in California and other states. Invariably, the decisions have been to shut down the California facilities and consolidate elsewhere.
The impact of such decisions goes far beyond the aerospace business.
Hughes and other contractors are investing heavily in what may become successful commercial ventures that promise the creation of significant numbers of new jobs in the 1990s. Without action to solve serious business concerns, those new commercial jobs are headed out of state, Wright said.
At a recent economic summit, Armstrong called for cooperation between industry and government to solve business climate problems. He said the Tucson move does not represent a foreclosure on that cooperation, but rather was aimed at "motivating action instead of rhetoric."
Armstrong said Hughes has invested $50 million in California facilities to develop controls for electric vehicles and $70 million on digital cellular telephones. But after those products are fully developed, Hughes will need to invest in new production facilities. Without political movement, Armstrong said, the new facilities are unlikely to go into California.
"The public has not picked up on the seriousness of the issue," he said. "It is not a personality issue between Willie Brown and the governor. The consequences are so serious that the problems have to be dealt with."
The Canoga Park closure will not affect other Hughes units in the state, ranging from its El Segundo-based satellite production facility to its Fullerton-based ground radar business.
Hughes will put the Canoga Park facility up for sale, but Smith declined to say how much it is worth. One executive estimated that the complex is worth $10 million to $20 million.
The 85-acre site was widely considered one of Hughes' best--a lavishly landscaped campus with a view of the Santa Susanna Mountains. By contrast, the Tucson plant is in a low-income area of bleak desert, abutting the Tucson airport.