NEWS ANALYSIS : TRW Takes a Body Blow in Loss of Satellite Contract : Defense work: The craft had for decades been a cornerstone of the firm’s business. Pentagon cuts are causing large job losses.

When the Volkswagen Beetle was still America’s leading import, TRW began producing the sophisticated satellites the Pentagon used to guard against a nuclear missile attack on the United States.

The sentinels, known as defense support program (DSP) satellites, orbit 22,500 miles above the Earth, ready to report in a few seconds the sighting of a hot missile plume from an intercontinental ballistic missile.

TRW, along with its partner Aerojet Electronic Systems of Azusa, has booked billions of dollars of DSP sales through the years at its facilities in Redondo Beach. But last week, The Times has learned, the Air Force quietly canceled what had been one of its last orders for the satellites, a blow that will destroy a cornerstone of TRW’s military spacecraft business. TRW had begun producing the satellite in the late ‘60s.

TRW executives declined to be interviewed, but a company spokeswoman confirmed that the order had been canceled.

Although all military programs must come to an end some time, defense experts agree that the DSP belongs to a special class of weapons whose longevity is a credit to their sound design and enduring value. DSP is to spacecraft what the B-52 bomber was to aircraft or the Cobra to helicopter gunships--a weapon that endured for decades.

The cancellation is only one of the shock waves coursing through the nation’s military spacecraft industry, causing the loss of untold thousands of jobs and threatening the future of some major U.S. corporations.

Unlike the carnage in other defense sectors, the cuts in the space business often go unnoticed, because secrecy has shielded much of the bloodletting and also because the individual contracts being canceled are small by Pentagon standards.

Nevertheless, spacecraft makers are facing the same difficulties in restructuring and consolidating that the aircraft, missile and shipbuilding industries have as their budgets have shrunk.

“All the spacecraft producers are experiencing substantial pain,” said Wolfgang Demisch, an aerospace analyst at BT Securities in New York. “You can make do trimming at the edges only so long. You are now cutting the muscle and bone of these organizations.”

The spacecraft industry had long escaped such pain. Indeed, budgets for it continued to rise for several years after Pentagon spending had begun to decline overall in 1985. Annual spending on military spacecraft--including photo reconnaissance, electronic eavesdropping, navigation, weather and communications satellites--peaked in 1992 at an estimated $20 billion.

Today, the budget is estimated at roughly $13 billion, according to a recent report issued by the House Defense Appropriations Subcommittee. According to the report, about 42,500 government workers are involved in military space work. Non-government estimates have put total government and industry employment in military space work at roughly 100,000 but dropping fast.

In addition, the House report criticizes the way the Pentagon and Central Intelligence Agency are managing the space program, saying that the agencies have been “inattentive” to cost savings, have a poor understanding of the way military requirements are changing, and lack a coordinated space policy.

The spending cuts and resulting shakeout are a particular threat to California, which has long dominated the military space business through TRW, Hughes Aircraft, Aerospace, Loral, Lockheed, Rockwell International and Aerojet.

In terms of intellectual content and the high-paying jobs they create, the military space programs rank among the most coveted in the aerospace industry. Companies such as Aerospace, the nonprofit engineering firm in El Segundo, have enough Ph.D scientists to staff a small college.

Senior Pentagon officials have said that by the time the dust settles, as few as two of the historical eight producers of reconnaissance satellites will be left standing. TRW, long considered a blue chip Pentagon contractor, certainly thinks it will be one of the survivors, but analysts say TRW is not guaranteed a place in the industry of the future.

The Air Force decided on June 30 to end production of the 24th DSP, which followed a decision earlier this year to cancel the 25th DSP. TRW is still under contract to complete production of several of the last of the satellites, a job that will take at least several years.

“This is quite unwelcome, a substantial milestone for TRW,” said Demisch, the securities analyst. “This has been a mainstay program for TRW.”

Cai von Rumohr, an aerospace analyst at Cowen & Co. in Boston, added: “It is not good for TRW, though it is not a death blow.”

TRW took another blow earlier this year when the General Accounting Office canceled a contract award for a new spy satellite fleet after Martin Marietta and Lockheed filed protests that TRW had made an unrealistically low bid for the contract. TRW may yet win in a new contest, but there is no guarantee.

Without some new program, experts say, TRW lacks a significant anchor for its business. The firm is finishing production of a tracking and data relay satellite for NASA, an orbiting X-ray observatory for NASA, payloads for the Lockheed Milstar communications satellite and several small experimental satellites. Much of that business is winding down.

The impact of the contraction is clearly visible in the large number of TRW job losses. Employment at TRW in Redondo Beach peaked at about 18,000 in 1985 and 1986, according to figures supplied to The Times; today, employment there is 7,400.

There have been similar job losses at Rockwell, Lockheed, Aerojet and others in the state.

Air Force spokesman Maj. Dave Thurston said the DSP was canceled to make way for the next generation of early warning satellites, known as the Alarm series. According to the House appropriations report, however, Alarm in its various incarnations has been under study for about 15 years and might not be ready for launch for another 15.

The House Armed Services Committee had instructed the Air Force not to cancel the DSP until it completes a study of the Alarm’s cost and technical risks, but senior Pentagon officials authorized the cancellation last month, based on estimates from Aerojet, which builds the satellite’s infrared sensor. Aerojet estimated that it would cost the government an additional $6 million to wait until October, when the Alarm study would be completed.

Thurston said Aerojet plans to protest the cancellation and to file claims against the government.

Air Force and industry space experts said they are concerned about whether the Pentagon will ever be able to afford the Alarm system. The previous version of Alarm, known as FEWS, was canceled earlier this year because it was estimated that its cost would exceed $13 billion.