Paths of 3 Giant Defense Firms Varied, Challenging : Industry: ‘Conversion’ means different things to wary workers. How Hughes, Northrop and Litton are coping.
Rhonda Harmon works on a Hughes Aircraft Co. production line in Torrance--and on the front lines of defense conversion. She builds power boxes for electric passenger cars, using technology converted from Hughes’ military radar.
Eighteen miles away in Pico Rivera, Margaret Calomino also works for a huge defense company, Northrop Corp. But as a manager on the B-2 bomber, she’s not part of defense conversion. At Northrop, “conversion” simply means adapting to smaller Pentagon budgets--but staying in defense.
The notion of conversion also carries little weight with Alton J. Brann. As the top executive at Litton Industries in Beverly Hills, he’s splitting the company down the middle. One half will keep making Navy destroyers and other defense gear. The commercial half, a provider of energy and industrial-automation services, will go its own way as a new firm.
Harmon, Calomino and Brann are all middle-aged defense industry veterans who are now embarking on disparate, uncertain and risky paths after leaving behind the economic security provided by a U.S. military buildup that lasted decades.
The three had little choice. With the arms buildup now being furiously dismantled, the nation’s defense companies have been dramatically shrinking, a process that oddly has created both pain and pleasure.
Hundreds of thousands of workers have lost their jobs--Hughes, Northrop and Litton alone have slashed a combined 25,000 positions from their California payrolls over the last five years--and more cuts are looming. Yet those layoffs and other cost-cutting steps have enriched shareholders by lifting the profits and stock prices of many of the major defense firms.
But reducing costs might be the last thing the large defense contractors will have in common. Each is now being forced to stake out a strategy to survive into the 21st Century without a steadily rising flow of Pentagon money.
Which path is best? It will take years to tell. But the different routes show one thing: Despite President Clinton’s call in March to put defense technology “to work in the civilian economy,” few of the nation’s large defense firms have major conversion programs of their own.
Hughes is one that does believe it can convert its defense strengths, namely satellites and electronics, into commercial products. Some others, notably Rockwell International Corp., also have been expanding commercially for several years.
But most are not. The defense industry knows that its past commercial ventures generally have been flops, including Grumman Corp.’s mass-transit bus and Raytheon Co.’s Starship corporate jet. Marketing savvy, customer attention and rapid decision-making are key to selling a desirable product--and are skills defense contractors often lack.
“The majority of defense companies don’t go at it (conversion) aggressively, because they question their ability,” said C. Donald Scales, aerospace manager in the Los Angeles office of consulting firm Arthur D. Little.
But staying in defense has risks as well. Defense spending is expected to keep dropping until 1997, altering the industry’s entire structure and forcing the weakest players out of business.
“There will be a smaller number of defense contractors,” said Caspar W. Weinberger, who was defense secretary in the 1980s during the Ronald Reagan military buildup.
It is the defense workers, of course, who will find out firsthand whether their companies’ decision to embrace conversion--or not to--was the right strategy.
Either way, the workers say--at least in public--that they welcome the changes and challenges. But their comments are also tinged with apprehension and insecurity as unrelenting waves of aerospace layoffs have meant that few now take their jobs for granted.
Here’s a closer look at how Hughes, Northrop and Litton are mapping their futures--through conversion or not--and how their workers are adapting.
HUGHES AIRCRAFT
Hughes probably best exemplifies what defense conversion means. Yet Hughes’ ability to make such big changes is rather new.
Started by Howard Hughes after World War II, Los Angeles-based Hughes was a skilled, yet loosely organized company until it was bought by GM in 1985. As the defense cuts then deepened, Hughes had to change to keep making money.
It cut operating expenses, improved quality to avoid cost overruns and tightened management controls. Along the way, Hughes has eliminated about 13,000 jobs in California alone since 1989.
Then in 1992 it hired a 31-year IBM veteran, C. Michael Armstrong, as chief executive, who is pushing Hughes to pay more attention to marketing, service and international expansion to peddle more commercial goods.
He is also politically savvy and wise in the ways of public relations. He has lobbied Clinton to protect Hughes’ turf and invited Assembly Speaker Willie Brown (D-San Francisco) to tour company facilities in Los Angeles.
Hughes still has an enormous defense business, and the U.S. government buys about two-thirds of the $8 billion in goods Hughes sells each year. To reinforce its defense commitment, Hughes also bought General Dynamics’ missile business last year for $450 million.
But Hughes also now has a myriad of commercial programs, and it is rapidly moving into new commercial areas that can exploit Pentagon technology that Hughes has already mastered.
“We pursue markets while attempting to lead from our strengths,” Armstrong said.
Case in point: DirecTv, a satellite-to-home version of a cable-television system. DirecTv will offer up to 150 channels beamed with digital clarity from a pair of satellites (the first of which will be launched this month). The service is mainly aimed at rural areas, but 35% of U.S. households overall lack cable and are considered potential customers.
Meanwhile, Rhonda Harmon and her 155 colleagues at Hughes’ Power Systems unit in Torrance are making the electric-power converters and battery chargers for GM’s proposed Impact electric car and for electric buses.
A bejeweled brunette whose work uniform is a drab smock, Harmon, 40, asked to move to the Torrance plant from Hughes’ radar group because she feared the budget cuts would soon claim her old job, she said.
“If I had remained in El Segundo in radar, I’d be feeling the heat right about now,” Harmon said in an interview at the Torrance site. “I feel more secure here.”
And for Dick Morgan, a manufacturing engineer, the electric-car work has an intangible reward that makes him rest easier at night.
“I used to go home and worry about making money and developing systems that could cripple people,” he said of Hughes’ military work. No more. “I feel a lot better about coming to work, and putting time and talent into something that’s more visible” to the consumer, he said.
Another direct conversion is going on at Hughes’ Canoga Park plant, where the company makes electronics that enable missiles to find and track targets. Now, in a far more mundane endeavor, they’re using that “image-recognition” expertise to help the Postal Service deliver mail faster.
The Postal Service needs new high-speed equipment to better identify mailing addresses--especially handwritten ones. So Hughes is competing with eight other firms to supply a new “optical reading” system that would get more mail routed correctly the first time. The award is expected to be announced early next year.
Brian Lincoln, the program’s lanky manager, explained the defense conversion this way: “Locating the address block” on an envelope to ensure it’s correct, “is the same as if you were trying to find a tank in a bunch of bushes.”
But the program’s chief scientist, Chuck McNary, said his team knows a hot product is not enough. Hughes will have to back it up with sterling service and an eye-catching price--tasks that cause him to “wake up each morning with some measure of trepidation.”
Yet even if Hughes does win, that won’t help Southern California’s battered aerospace work force. Hughes’ missile group is being transferred to Arizona--and the image-recognition team is going with them.
NORTHROP
Greg Curry, a senior technical specialist at Northrop’s Pico Rivera plant, said he’s comfortable with his company’s plan to stay largely in defense.
“We’re not dinosaurs, we can evolve,” said Curry, a balding, bespectacled 40-year-old with a trim beard and deliberate voice. “The question is whether you can focus on what you’re doing best and make money at it.”
For Curry and most Northrop employees, defense conversion is largely an abstraction.
The Los Angeles-based company has dabbled with conversion--it got a small federal contract to design a lightweight, clean-air bus last year, for instance. But it’s remaining a defense firm even though that could mean thousands of layoffs in coming years.
Northrop builds 40% of the F/A-18 fighter in El Segundo and, in its major existing commercial venture, makes fuselages for Boeing’s 747 jumbo jet in Hawthorne. Its other main project is the B-2 bomber.
But after the 20 B-2s on order are completed, probably in early 1997, the B-2’s 11,800 employees in Pico Rivera and Palmdale could find themselves in unemployment lines. Northrop already has announced plans to close the Pico Rivera plant when the project ends.
Northrop Chairman Kent Kresa said the decision to stay focused on Pentagon contracts does not mean Northrop, with $5.6 billion in sales last year, is sitting idle. It’s searching for other defense firms to buy, ready to fulfill the prediction made by former Defense Secretary Weinberger.
“We’re actively looking,” said Kresa, a studious, soft-spoken figure who took over as Northrop’s chief executive in 1990 when industry titan Thomas V. Jones retired. Now 55, Kresa has himself been in defense circles in business and government for more than two decades.
Northrop has no choice but to shop for more properties, said Scales of Arthur D. Little. “If you’re going to play that game of sticking to defense, then you have to be aggressive,” Scales said. “You better be No. 1 or No. 2 in your markets, because if you’re any less than that, you’re not going to be a significant player going forward.”
One critical question is how many of Northrop’s employees will go forward with the firm.
Tim Hall, a 10-year Northrop engineer with two children, said, “I’d be lying to you if I said I wasn’t” concerned about being laid off. Hall, 34, then added: “But you can’t look over your shoulder.”
Margaret Calomino, 33, the program manager who works on advanced ways for the B-2 to find its targets, and another Pico Rivera worker, customer-service representative Jeanette Smith, are also worried about pink slips after the last B-2 is built.
Their fear is fueled by past experience. Smith’s husband was laid off by Boeing Co. in 1969, and the search for more secure work is what prompted them to then move to Southern California. Calomino’s husband, fearful of the defense cuts, recently left General Dynamics to enter law school.
“I can’t help but wonder where I’ll be” in the next few years, Smith wondered.
Northrop itself is expected to be a survivor despite the B-2’s limited future. The company has been cutting its debt and profits are climbing--it earned $131 million on sales of $3.8 billion in the first nine months of this year.
If Northrop does decide to launch a commercial product, it “probably would be tough” for some employees to make the switch, because they’ve been dealing with one customer--the U.S. government--for so long, Hall said.
“But if I was asked to do it,” he said, “I would do it.”
LITTON INDUSTRIES
Litton, which Charles (Tex) Thornton and Roy Ash turned in to one of the most glamorous, fast-growth conglomerates of the 1950s and 1960s, is attempting to rejuvenate itself by splitting in two.
Unhappy investors urged Litton to break the 40-year-old company apart, so that the value of Litton’s pieces would produce a higher overall price in the stock market. And as the defense slowdown set in, Litton decided to do just that.
The Litton Industries that will remain will stay with defense, which includes making Navy destroyers in Mississippi and aircraft guidance and control systems in Woodland Hills. Its annual sales are expected to be around $3.5 billion.
The commercial energy-services and industrial-automation lines will be spun off to stockholders, creating the new Western Atlas, which will have about $2 billion in annual revenue. The energy-services division is now known as Western Atlas--a familiar name in drilling fields from Texas to Indonesia.
Western Atlas will also take over Litton’s unique Beverly Hills headquarters, a two-building set of white Georgian colonial mansions decorated with crystal chandeliers, needlepoint tapestries and sweeping circular staircases.
The “new” Litton, meanwhile, will move to a functional steel building at its Woodland Hills site.
Brann, 51, will become chairman of both the new Litton and Western Atlas, but his daily operating chores will be focused on Western Atlas. A Maine native with a mathematics degree from the University of Massachusetts, Brann became chief executive last year amid expectations that he would mainly improve Litton’s commercial divisions--which he did.
But now he’s about to set those divisions free, even as Hughes and some other defense giants are searching for more commercial markets. Why?
Because Litton’s defense and commercial groups have virtually nothing in common, as opposed to the technology shared by Hughes’ satellite operations. Vocal investors should also like the arrangement better, Brann noted.
The decision, however, has unsettled many of the company’s 46,000 employees. “This was outside the comfort zone of most of the employees, quite frankly,” Brann said. Among other things, “whenever you make a company smaller, you make it more vulnerable, so people start thinking of takeovers.”
Ann Hastings, a Litton legal administrator, is not among the anxious. She was invited to move to Western Atlas, and the chance to be with a new independent company put her at ease, she said. She also has no qualms about leaving behind the Pentagon as a customer.
“It’s difficult to operate with all of those rules,” she said of the Defense Department’s famous military specifications. The commercial market “will give us a little more freedom to operate.”
The “new” Litton, despite sticking with defense, will continue to have some commercial work of its own. It makes navigation gear for passenger jets, and has other budding projects to convert defense technology.
But Brann said the potential combined sales of those projects pale next to Litton’s defense sales. In other words, Litton can’t look to defense conversion to survive the end of the Cold War.
“The overwhelming amount of our technology,” he said, “is applicable to the defense end of the business.”
About This Series
Today’s story is part of an occasional series, “Farewell to Arms: Reinventing Southern California After the Cold War.” As the massive defense buildup that shaped us wanes, The Times examines a region adjusting to a new and uncertain way of life.
* Today: Three companies stake out strategies to survive
Weapons Wizardry Put to Everyday Use
With products ranging from roller coasters to plastic bridges, defense firms are turning their expertise to the non-military ventures. Some of the developments:
* MONSTER RIDE: A Burbank firm has unveiled a virtual reality theme park ride that takes 24 participants on a simulated underwater mission to rescue the Loch Ness monster. The technology was developed by Evans & Sutherland Computer Corp., a Salt Lake City designer of military flight simulators.
* THE PLASTIC BRIDGE: Durable, lightweight composites originally developed for military aircraft and missile systems are being applied to bridge construction. Developers say such bridges could resist corrosion and earthquakes better than steel or concrete. UC San Diego and a San Diego construction firm are teaming up on the federally sponsored project.
* MAPS OF THE FUTURE: The Global Positioning System, which blends signals from 24 satellites to give pinpoint positioning for aircraft, is being adapted for cars. One application on the drawing board calls for a receiver with a display screen in every car. Dial in your destination, and the screen will light up with a map showing where you are, where you want to go and how to get there. The satellite system was originally launched by the Department of Defense to track troop movements.
* ON LOCATION: A new technology to help screen potential production locations is being undertaken by The California Trade and Commerce Agency and CalTech. It will develop a state-of-the-art computer imaging system for the California Film Commission’s Location Resource Library.
* ENVIRONMENTAL RADAR: Mirage Systems, Inc., a Sunnyvale company which has provided radar technology to the military, is using Ground Penetrating Radar (GPR), for underground imaging to locate toxic waste containers, underground storage tanks that may be leaking or drums of nuclear waste which may be lost to assist in national cleanup efforts. The technology can also be used in construction and utilities, to precisely locate electric, gas, telephone or other utility lines.
* PYROTECHNIC JAWS OF LIFE: Hi-Shear Technology Corp., a Torrance producer of spacecraft and aircraft parts, is devloping a new rescue tool that would be powered by pyrotechnic cartridges. The cartridges, similar to the type used to propel fighter pilot ejection seats, would allow the devices to be lighter and less expensive. Current systems rely on hyraulic fluid and gasoline-powered pumps.
* THE ENVIRONMENT: Laid-off defense workers are being trained to work with environmentally sound products and processes. The project, based at Cal State Fullerton, will train twenty-five to thirty engineers each year.
* SCULPTING THE EARTH: Guidance technology will be used to in major construction projects such as dams and highways. Engineers from Maganavox Electronics Systems and several other firms are working to use space-based systems to position the blades of earth-moving equipment. This will allow builders to sculpt the earth along any computer-designed path to accuracies of a centimeter, without lengthy site surveys and topographic analysis.
* CUTTING-EDGE ASSEMBLY LINES: Laser machine tools for drilling, cutting and welding on assembly lines are beig developed by TRW Space and Electronics Group of Redondo Beach. This technology will enable higher precision and greater tooling speeds. For example, drilling ultra-fine, uniformly-spaced cooling holes for jet engines will double the life of engine parts and improve engine performance.
* “FROZEN SMOKE” Aerojet, a major aerospace and defense company, will produce this ultra-lightweight space-age insulation, which was developed by the Lawrence Livermore National Laboratory. It’s appearance has earned it the nickname “frozen smoke.” It is the lowest density transparent solid ever made. It can support more than 1,000 times its weight.
Researched by NONA YATES / Los Angeles Times
HOW THE GROUND PENETRATING RADAR WORKS:
Airborne radar capable of scanning large areas is used.
Land-based and handheld radar are also available.
Scanning data is automatically processed and analyzed using three-dimensional imaging techniques giving operators a glimpse of objects or structures in the area scanned.
Offset scanning can be used for even larger areas.
Source: Richard D. Schmidt of Defense Conversion Strategies
