Region’s Aerospace Sector Spared in Defense Review

The troubled Southern California aerospace industry dodged a bullet Wednesday, emerging from a comprehensive Defense Department review of American military needs without being targeted for any major new reductions.

Two groups spared were the military space industry--dominated by California--and local aircraft manufacturing operations, already shrinking as a result of post-Cold War defense cutbacks.

That came as a relief for such Southern California companies as Hughes Aircraft and TRW Inc., which build satellites in El Segundo and Redondo Beach, respectively. The military satellite business, which employs about 50,000 people in California, is considered one of the region’s remaining strengths in the face of massive defense cutbacks.

The “bottom-up” Pentagon review--which still faces congressional scrutiny--also gave continued support to the joint effort by McDonnell Douglas and Northrop to develop an advanced version of the F-18 fighter, although this news was largely anticipated. Northrop makes 40% of the plane in El Segundo and final assembly is done by McDonnell Douglas in St. Louis.

The fate of the C-17 cargo jet, in production at McDonnell in Long Beach, was not considered in the review. But the program is being closely scrutinized, and future purchases are expected to be cut by as much as half, following a history of cost growth and technical problems.

Lockheed, based in Calabassas, emerged from the review with mixed results. Aspin’s report called for ending purchases of Lockheed’s F-16 fighter, built in Ft. Worth, after fiscal 1994. But the report gave the green light for Lockheed and its partner, Boeing, to continue developing the F-22 advanced Stealth fighter jet.

Wall Street rewarded McDonnell Douglas, sending its stock up $3.625 a share to close at $84.625 on the New York Stock Exchange. But investor reaction was mixed toward other aerospace companies. Lockheed posted a small gain, but Rockwell International and Northrop slipped.

The government review does little to change the long-term outlook for the Southern California aerospace industry, which will continue to act as a drag on the region’s economy for years. That is underscored by a UCLA finding disclosed this week that the Los Angeles County transportation industry--almost entirely aerospace--entered its steepest descent of the recession in the second quarter of 1993.

Industry employment in the county now stands at 101,800, down from 160,400 in 1989, according to Larry Kimbell, director of the UCLA Business Forecasting Project.

“The rate of decline exceeds the post-Vietnam recession,” he said. “It is awesome.”

Despite good news for some local contractors, the cuts outlined by the Pentagon Wednesday will continue to cast a long shadow on the industry. The only hope for recovery is in the commercial aircraft business, Kimbell said.

In the Pentagon report, Aspin called for termination of the Navy AF/X attack plane and the Air Force multirole fighter. Lockheed and Rockwell, among others, had bid to develop those projects. But because the projects were still in early phases, no single company or region sustained a major employment impact.

Although Aspin provided little concrete information about the future of the nation’s troubled military space program, senior Air Force officials said they could not identify a single major satellite program that was cut back in the review.

Analysts, meanwhile, criticized the Defense Department review for failing to offer any industrial policy that might address the serious problems the defense industry faces.

“This is a big gap in the bottom-up review,” said Loren Thompson, director of the Georgetown University Global Security Project.

One piece of bad news for the local space industry: A new rocket launch system to replace the aged systems developed in the 1950s and 1960s was slated for cancellation by the review. Aspin said the Pentagon elected instead to continue using existing rockets. That decision will hurt major rocket producers in the state, such as Rockwell, McDonnell, Aerojet and General Dynamics.

But the Lockheed Milstar communications satellite, which involves both TRW and Hughes Aircraft, was retained, after significant debate and examination, a senior defense official told reporters. TRW’s Defense Satellite Communications System and its Defense Support Program satellite system were left intact.

Although defense officials will not discuss individual secret spy satellite programs, such as Lockheed’s Keyhole program or TRW’s Magnum program, officials indicated that as a group they were not cut.

“The bottom-up review did not result in any degradation of capability in space, period,” a senior Air Force official said.

Vartabedian reported from Washington and Peltz from Los Angeles.

Defense Winners and Losers

The Pentagon’s review of its future defense needs apparently would have mixed results for the major aerospace companies’ Southern California operations. Here’s how some of the review’s proposals would affect each company.

McDonnell Douglas/Northrop

* McDonnell Douglas can keep developing a new version of F/A-18 fighter/attack jets for the Navy. The plane’s final assembly is in St. Louis, but about 5,000 Northrop workers design and build 40% of the plane in El Segundo.

* Northrop can adapt its B-2 bomber, built in Palmdale and Pico Rivera, to carry conventional weapons.

Hughes Aircraft/TRW

* Major military satellite projects are not cut. Hughes builds satellites in El Segundo, TRW in Redondo Beach.

Lockheed

* Pentagon will stop buying F-16 fighter jets after fiscal 1994. They’re built in Ft. Worth.

* But Lockheed’s “Skunk Works” designers in Palmdale and their partner, Boeing, can keep developing the F-22, a Stealth fighter jet, for the Air Force. F-22 orders might be cut, however.

* Development of a Navy AF/X attack jet is killed. Lockheed made three separate bids for the project.

Rockwell

* Rockwell can adapt its B1-B bomber to carry conventional weapons.

* Purchases of ballistic missiles to be cut, which could reduce Rockwell’s missile-electronics sales. But that could be offset by planned upgrades of existing missiles.

* Rockwell’s bid with Lockheed for Navy AF/X project also ends.