Boom or Bust for Machine Shops : Some Shops Hum as Others Bow to Aerospace Fall

The machines at True Form Industries, a Cerritos aircraft parts manufacturer, are running full time these days, and the company is preparing to add seven workers to its crew of 63.

Amid an aerospace bust, with subcontractors dropping dead every week, True Form and a few dozen similar shops stand in sharp contrast: They expect a surge in orders.

The influx of business is coming from Northrop and other large aerospace contractors that are closing down their internal machine shops and subcontracting work to lower-cost small companies.

Northrop estimates that about 90% of its parts production--or roughly $35 million annually--will remain in Southern California. Others, such as McDonnell Douglas, are also shutting down their machine shops and sending work to smaller contractors.

These new subcontracts won’t reverse the misfortune of the machining industry, which is going through a difficult contraction. But while the shutdowns at Northrop and McDonnell will result in layoffs at the big aircraft firms, the subcontracts are casting a safety net for one segment of Southern California’s manufacturing infrastructure.

“We think we can make it in Southern California,” said True Form Vice President Mike Janisch. “It is still the major aerospace area in the nation and will be for quite a while.”

The survival of the region’s machine shops--which represent the largest concentration of industrial machining in the United States--is critical to maintaining Los Angeles as an integrated and robust aerospace center, according to consultants, industry executives and government officials.

Eventually, machine shops could also be a foundation for other manufacturing--ranging from mass-transit rail cars to electrical vehicles--that may partly replace the aerospace industry that is collapsing in Southern California, the experts say.

Although crime and high costs have badly tarnished the region’s appeal, a diverse network of suppliers remains a real strength in retaining big industry, according to John Harbison, head of the aerospace practice at consultant Booz Allen & Hamilton.

“Having a vendor a few blocks away rather than a thousand miles away will be increasingly important,” Harbison said. “The whole trend in aerospace is to reduce the cycle time of turning out products.”

Job shops, as the firms are widely known, often are not much more than oversized garages run by men and a few women who dream of being industrialists. With a small down payment on a $150,000 computerized machining center, an experienced machinist can go into business. Many small shops are linked by computer with their prime contractors, exchanging production data continuously.

A single job shop also helps support a huge cast of related businesses that perform heat treating, plating, specialized painting, non-destructive testing, deburring and metal stretch forming.

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HBI, another machine shop getting a boost from Northrop business, occupies a section of a nondescript industrial building along Alondra Boulevard in Paramount. The streets surrounding the plant are chockablock with aerospace firms, such as Carlton Forge, Aerocraft Heat Treating and Savon Plating.

Los Angeles has an estimated 30 heat-treating shops alone, according to Roland Cobert, general manager of Industrial Steel Treating. By contrast, Seattle--home to Boeing--has one or two shops, Cobert said. Much the same is true in other exotic metal trades. The Los Angeles Basin has an estimated 24 companies that can stretch-form metals for aircraft or rocket skins.

A survey several years ago by the Paramount Chamber of Commerce found that the city had about 500 manufacturing companies, mostly aerospace. There are similar enclaves in Gardena, Torrance, Inglewood, North Hollywood, Chatsworth, Long Beach, Santa Ana, Anaheim and Hawthorne, among other cities.

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The Business Roundtable, a private research group, estimated in 1991 that there were 4,080 metal fabrication, processing and machinery companies in Los Angeles County employing 95,000 workers--more than the Hollywood studios combined. That included roughly 838 companies primarily doing machining work.

But this industry has been hit hard by the aerospace downturn.

Every week, a machine shop is shut down and its assets put up for auction. Among the latest victims was Riclan Dynamics, a small shop opened in 1982 by Richard Clancy, a Boston transplant who came to Los Angeles to ride the defense boom.

Clancy, who has degrees in engineering from MIT and business from Harvard University, gave up earlier this year after receiving no new order in five months, he said. Clancy plans to leave California soon.

The problem facing Riclan and the rest of the industry is the deep aerospace drought, in which new aircraft production has plummeted.

Boeing has been among the most important customers of California machine shops. Although Boeing declines to provide specific figures for purchases in California, a company spokesman said the firm--which contracts with 1,475 California firms, mostly in the Southland--buys about as much here as in its hometown of Seattle.

Seattle economist Richard Conway estimates Boeing’s purchases in Washington state at $1.2 billion annually.

But Boeing has cut its purchases sharply. At one time, the company bought three times as much here as it did in Seattle. Cutbacks have been driven by the commercial aircraft bust. Boeing is now reducing commercial aircraft production from a peak of 38 airplanes per month in 1991 to 23 per month by this October.

Boeing is going in the opposite direction as most of the industry, increasing the amount of work it does in-house, spokesman Jack Gamble said. The firm just built new metal and composite plants.

But other firms face a shortage of capital, forcing them to specialize in the tasks they do best and most cost-efficiently: designing and assembling complex products.

Northrop is consolidating its four large machine shops that produce parts for the F-18 jet fighter aft fuselage, which is assembled in El Segundo, and for the Boeing 747 fuselage, which is assembled in Hawthorne. The company plans to operate just one small machine shop to support development of future aircraft.

Within three years, Northrop plans to subcontract about 3 million aircraft parts annually, 90% of which will go to machine shops in the Los Angeles basin, said Corporate Vice President Wallace Solberg. The subcontracts will go to 40 to 50 companies.

Solberg said small machine shops can produce the same parts as Northrop at roughly 33% savings, because they spend less on direct wages for workers and overhead costs.

“Boeing wants us to reduce our present costs on the 747 (by) 25%,” Solberg said. “We have to look at where we can shave costs.”

Some Northrop employees see a dark threat in the firm’s decision, worrying it is a precursor to an eventual shutdown of the Hawthorne plant and an ultimate consolidation in Dallas, where Northrop acquired a 49% interest in Vought Corp. Vought makes commercial and military aircraft structures.

But Solberg replied: “We are just doing our business. As far as I am concerned, (Vought) competes on our jobs.”

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Meanwhile, McDonnell is closing its Torrance machine shop and a fabrication plant in Columbus, Ohio. So far, the firm has transferred about 45% of the Torrance work; the rest will be gone by the middle of next year.

About 30% of the Torrance work has landed with out-of-state suppliers, another 30% has gone to McDonnell units outside California and 5% has gone overseas. In California, 20% has gone to the firm’s Long Beach plant, 2% to its Huntington Beach plant and 10% to suppliers around Los Angeles, a spokesman said. The firm plans to keep 60% of future work in the area.

McDonnell officials say they are not transferring subcontract work out of the Southland but actually are increasing the work done by local shops. While some machine shop owners agree with that assertion, others question it.

A consortium of 50 local job shops was formed recently to persuade McDonnell to keep work in the state, said Don McPherson, owner of Mikol Missile Air of Gardena. “We are trying hard to keep everything in California, where it belongs. We put our hearts into this,” he said.

Doy Henley, owner of Aeromil in Santa Ana, remains hopeful that much of the work McDonnell is sending out of California eventually will return. “There is a lot of production that you cannot effectively do elsewhere because of the infrastructure here,” he said.

But belying that optimism, Henley confessed: “We have never seen a retrenchment or slowdown like this one. We are going to lose a lot of people and capability.”