Defense Spending Cuts Cost Valley Millions : Economy: Prime contracts have been reduced by 16% since '89, Times study shows. There is a ripple effect.


The whittling down of the American military has reduced defense spending in the San Fernando Valley and nearby areas by 16% in prime contracts since 1989--a loss of tens of millions of dollars--according to a computer-assisted study by The Times.

Uncountable more millions disappeared with the loss of subcontract work for prime contractors in and out of the area.

As a result, the Valley area, once the beneficiary of decades of heavy military spending, now finds itself an economic casualty of peace, with tens of thousands of manufacturing jobs already lost.

The region has well over $1 billion in prime contracts and hundreds of millions of dollars in additional defense work in subcontracts, records and interviews indicate. California's five largest defense companies--McDonnell Douglas Corp., General Motors Corp., Northrop Corp., Lockheed Corp. and Rockwell International Corp.--all do major work in the Valley.

The Times review of defense contracts between the 1989 and 1992 fiscal years found that 285 companies in the Valley area received prime contracts in 1989 and 313 did so in 1992, but the total amount of money involved was much less.

The San Fernando Valley is home to 257 of the firms, the Santa Clarita Valley, 35, and the Antelope Valley, 21. The Antelope Valley also is host to the massive Air Force-run Plant 42, where aerospace manufacturers complete the assembly of many planes.

The 16% decline--comparable to that suffered elsewhere in California--was based on the amount spent in 1992 after adjusting for inflation since 1989. The decrease in actual dollars during the four-year period was a more modest 5%.

The study did not include subcontracts, which may have been reduced even more. From Burbank's industrial parks to Palmdale's desert sprawl, the three valleys are home to hundreds of small machine, electronic and other shops that perform specialized tasks for larger firms.

The impact of shuttered or scaled-back defense companies has a ripple effect throughout the Valley economy. Indeed, defense spending itself incorporates a broad range of supplies and services, including such daily staples as food and clothing for military personnel.

The Air Force accounted for the lion's share of the Valley contracts. Overall, large sums were spent on construction of bombers and other aircraft, research, communication systems, laboratory instruments, guided missiles, maintenance and repairs of buildings and equipment.

Faced with pressures that appear to be growing more intense, Valley contractors are dealing with the post-Cold War cutbacks in various ways. Many have laid off employees. Some seek to expand existing commercial business.

Others hope to apply their military technologies and well-trained work forces to civilian enterprises--the modern equivalent of beating swords into plowshares, now called "conversion."

"It's been very tough," said Rep. Howard P. (Buck) McKeon (R-Santa Clarita), who has set up a task force on defense conversion. "It's amazing that people have held up as well as they have. They've been very ingenious in trying to move into other areas and trying to husband their resources and hold everything together."

Their ingenuity may be further tested in the future.

Some cutbacks are yet to be fully felt since funds for weapons systems may already have been in the pipeline for future years before the reductions were made. Moreover, the Clinton Administration, in its effort to reduce the federal deficit, is seeking steeper defense cuts.

Like other parts of California, the Valley has been hard hit by defense firms departing for lower tax and regulatory pastures in other states. Lockheed Corp. has moved thousands of jobs from Burbank to Marietta, Ga. Hughes Aircraft Co., a subsidiary of General Motors, is shifting its missile design operation from Canoga Park to Tucson, Ariz.--taking 1,900 jobs with it.

Northrop's massive B-2 stealth bomber program, which employs about 3,500 with a $160-million payroll in Palmdale, is due to end in 1997 when the 20th bat-winged plane comes off the assembly line. And the Rocketdyne Division of Rockwell International Corp., which employs 6,000 workers in the Valley, faces an uncertain future with the proposed space station and the National Aerospace Plane, two of its big projects.

Rocketdyne has $1.9 billion in NASA contracts to build the space station, the largest NASA project. The space station faces intense criticism by those who say its $31.3-billion price tag is too high for the benefits it would bring. Figures for NASA are not included in The Times defense contract review.

Northrop has actually accounted for an increase in employment and spending in the Valley area in recent years as the B-2 program moved into full swing. The plane's initial construction is done at Northrop's plant in Pico Rivera and by subcontractors elsewhere. Final assembly takes place in Palmdale, where Northrop has been moving additional workers in recent years.

Prime contracts for the company jumped from $2.5 billion in 1989 to $3.2 billion in 1992. But because no figures could be obtained for the amount of work done specifically in Palmdale, Northrop's growing income was not included in the overall Valley survey.

The controversial B-2 program--established during an era when the then-Soviet Union loomed as the major military threat to the United States--appears destined to be grounded in four years. At this point, Northrop has no major system in the works to replace it.

"If you're not building airplanes, obviously there will be reductions in the work force," said Tony Cantafio, Northrop's spokesman. "And those are to come."

The thousands of aerospace workers who have already been dismissed have gone many different ways.

"We find that some have gone back to school, some have been relocated out of state, a few have taken advantage of retraining opportunities in other kinds of work," said Rod D. Hanks, vice president of H. R. Textron, a Valencia-based firm that has reduced its work force by 40% in the past three years.

"Many have been re-employed as a result of our out-placement work. And, unfortunately, some are still unemployed. It runs the gamut."

Now, faced with the prospect of additional dislocation, some Valley firms, labor leaders and lawmakers aspire to take advantage of the Clinton Administration's program to make a reality of defense conversion, which has been much touted but little-realized thus far.

The most ambitious conversion effort is the Calstart program in Burbank. Headquartered in a former Lockheed plant, this is a partnership between government, private industry, utilities and labor to establish an advanced transportation industry that would make components for electric vehicles and other spinoff projects, utilizing the skills of laid-off aerospace workers.

Beyond this program, here is a look at how some specific Valley area defense firms are coping:


Teledyne Systems in Northridge has seen its defense sales drop $20 million and its employment decrease from a peak of 1,800 in 1989 to 1,215. The company, a subsidiary of Teledyne Inc., headquartered in Century City, designs and manufactures aviation and electronics systems and equipment.

Teledyne Systems' 1992 prime defense contracts included navigational and flight instruments and automatic data processing equipment for the Navy and aircraft alarm and signal systems and gunnery fire and control components for the Air Force. The firm also does a great deal of subcontracting work for other Teledyne subsidiaries.

Teledyne's Northridge facility was built in 1967 and has expanded considerably since then.

The company has responded to the decline in defense contracts by increasing its business outside the U. S. military from 18% of its sales in 1991 to 33% this year, said Berkley Baker, assistant to Teledyne Inc. President Donald B. Rice.

Teledyne has done this through diversification into commercial aircraft markets as well as expansion of sales of military systems and equipment to foreign governments. Teledyne doesn't disclose the identity of its customers, Baker said.

"Obviously, as the U. S. defense decreases, you have to look for other markets," Baker said. "We're going to do what we can to maintain our business. That doesn't guarantee that you can be successful."


H. R. Textron, which has a machining center in Pacoima as well as its Valencia facility, has seen its sales plunge 32% since 1990 and its employment plummet from 1,250 three years ago to 740.

The firm, a subsidiary of Textron Inc., which is based in Providence, R. I., makes aircraft and missile flight controls, helicopter control systems, electronic controls and automatic test equipment and other components. Its U. S. military work has dropped from 80% to 70% of its total sales since 1990.

Textron, like many other companies, has suffered a double hit because the recession in the commercial airline industry has driven down non-defense sales as well.

"If we had a steady military base we could weather the commercial downturn," Hanks said. "When the two are going down together, it's devastating."

The company is seeking to get into the conversion business in a big way. It first became aware of the full potential when it provided parts for Calstart's showcase electric car. The firm hopes to adapt some of its military technologies for commercial use.

Following in Calstart's tracks, H. R. Textron is seeking to establish its own public-private consortium with some of its suppliers to develop commercially viable products from materials used in aerospace. This might entail, for example, modifying test equipment for military aircraft so that it can be produced more inexpensively and used in commercial aviation.

Hanks said that the consortium expects to apply for some of the $215 million in conversion funds that Congress approved last year and Clinton made available earlier this year to promote the development of dual-use technology and the adaptation of military technology for civilian purposes. He has met with McKeon and Rep. Howard L. Berman (D-Panorama City), who has been heavily involved with Calstart from its inception.

"Everybody's coming together in a very supportive way," Hanks said.


Whittaker Controls Inc. in North Hollywood decreased its work force from 300 employees a little over a year ago to 200. With business declining, the company has farmed out a lot of its work to lower-cost suppliers, said chief operating officer Jay Fernandes.

The firm, a division of the Whittaker Corp., headquartered in Westwood, has prime contracts with the Air Force for aircraft engine fuel system components and modification of equipment and with the Air Force and Navy for aircraft air conditioning, heating and pressurizing equipment.

The company also does subcontract work making valves for Northrop's endangered B-2 bomber and McDonnell Douglas' C-17 cargo jet, a troubled $37-billion project. In addition, it makes parts for the F-15, F-16, F-18 and C-130.

"There is some Whittaker equipment on every turbine-powered airplane around," Fernandes said.

More than two-thirds of Whittaker's work is commercial--providing valves to airframe and engine manufacturers in the United States and Europe. The company, located in North Hollywood since the early 1960s, is looking at possible additional commercial applications for its specialized, high-technology valves in processing plants and co-generation facilities.

But Whittaker's major thrust has been to acquire other companies and merge them with existing facilities and personnel. Last year, it bought three defense companies that had $31 million in combined revenue. Whittaker paid only about $15 million for the three businesses and is confident of turning a profit, even though two of them were in the red.

One of the firms was one of Whittaker's smaller competitors, an aerospace division of Sunstrand in San Diego. Whittaker transferred Sunstrand's production to North Hollywood but, by eliminating much of its overhead, needed fewer than half the acquired companies' workers.


California Research and Technology in Chatsworth has seen its employee rolls drop from a peak of 60 five years ago to 40. Some of the decline has been caused by transfers of computer scientists and engineers to another division of the company in Albuquerque, N. M.

The firm, a division of the Titan Corp. based in San Diego, does about $6 million in business, three-quarters of it in defense research and development.

The company conducts highly sophisticated, computer-simulated studies of weapons effects, primarily explosives and armor penetrators. It also does some work for NASA analyzing high-altitude particles.

California Research and Technology--which concentrates on testing other companies' weapons instead of building them--has been somewhat immune from steep declines in defense spending, said General Manager Ken Kreyenhagen, because "as we build fewer weapons, we want to make sure that the ones we do build are effective. So there's a lot of interest in our work."

At the same time, he said that the company is striving to increase its non-defense work. This includes computer simulations of seismic measurements to verify nuclear treaty compliance by the former Soviet Union and structural analysis of new buildings, bridges and other structures.

"The same codes we would use to predict nuclear fallout or something like that can be adapted to measure the movement of industrial pollutants," Kreyenhagen said.

Researcher Murielle Gamache contributed to this story.

Valley Defense Procurement

Defense procurement in constant 1989 dollars (in thousands) in the San Fernando, Santa Clarita and Antelope valleys.

FISCAL YEAR FISCAL YEAR % PRODUCTS 1992 1989 CHANGE Armaments $84,813 $111,569 Heavy equipment and spare parts Office equipment and supplies ($1,341)* $14,535 Other equipment and supplies (non-personnel-related) Other equipment and supplies (personnel-related) Fuels and lubricants $0 $474 Other $4,025 $3,025 TOTAL PRODUCTS $430,295 $536,067 -20% SERVICES Special studies $15,002 $1,828 Maintenance, repair and rebuilding of equipment Technical representative $8,179 $6,095 Professional administration and support services Photographic mapping and printing Facility lease $32,027 $50,863 Property maintenance $12,240 $12,099 Other $17,379 $8,300 TOTAL SERVICES $128,531 $138,457 -7% RESEARCH AND DEVELOPMENT Defense Systems $239,683 $273,897 Other defense $17,048 $10,584 Other non-military $2,800 $10,432 TOTAL RESEARCH AND $259,531 $294,913 -12% DEVELOPMENT TOTAL VALLEY PROCUREMENT $818,357 $969,437 -16%

* Contracts awarded in previous year reduced by this amount.

Source: Los Angeles Times analysis of Federal Procurement Data Center records

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