Fullerton Fights Odds to Keep Hughes Plant : Jobs: City touts low tax rates as grounds for big employer to stay, but its high property values could be deciding factor to leave.
A week after Hughes Aircraft announced that it might close one of four defense electronics plants, including its Fullerton operation, a contingent of half a dozen leaders representing the city marched into Vice Chairman Michael Smith’s office at Hughes’ headquarters in Westchester, near Los Angeles International Airport.
There, Rep. Ed Royce (R-Fullerton) and Fullerton City Manager James L. Armstrong, among others, spread out on a table their analysis of the situation.
Fullerton’s big advantage, they argued on that May day, was the city’s significantly lower tax rates. For a 10,000-employee firm with 2 million square feet of office space, $4 million in annual utility bills and $1 billion in sales (parameters Hughes meets in Fullerton except with fewer employees), they said, the overall business license and utility taxes in Fullerton would cost just $90,000 a year, versus $455,000 in Long Beach and $1.9 million in El Segundo.
That, the Fullerton contingent reasoned, was a strong sales pitch. But as Hughes Aircraft Co. nears a decision on its facilities consolidation plan, there’s a common feeling among public officials, real estate brokers, analysts and union representatives that tax advantages just won’t be enough. The main reason: Hughes has extremely valuable real estate holdings in Fullerton.
Unlike Hughes’ two facilities in El Segundo and its smaller plant in Long Beach--which are also being evaluated as part of the streamlining plan--Hughes’ 350-acre Fullerton site is totally owned by the corporation. It’s very valuable and easily salable.
The impending consolidation is likely to have the biggest effect on El Segundo and Fullerton because the company’s Long Beach center is a leased field support office with 970 workers. At Fullerton, Hughes produces ship-based radars, air traffic control equipment and large-scale air defense systems. The two El Segundo facilities make radars and electrical-optical devices such as sensors, and have a combined employment of about 7,800.
Based on property tax records, the Fullerton site’s assessed value is $75 million--a figure real estate analysts say is conservative. Yet only two-thirds of its 3 million square feet of working space is being used because of diminished defense work; the remainder sits idle.
Though the company also has surplus space at its two complexes in El Segundo, which has a combined working space of 3.3 million square feet, it is not thought to be nearly as much. And one of the El Segundo plants is half the age of those at Fullerton, and the other in El Segundo is on a long-term lease.
“It’s mostly a real estate problem,” acknowledged Fullerton Mayor A.B. (Buck) Catlin, who is a member of the so-called red team attempting to keep Hughes in Orange County. Catlin worked for Hughes in Fullerton in the early 1960s, a few years after it opened, and he has unhappily watched its employment dwindle to 6,800 today from a high of 14,500 in 1986. Though Catlin said he doesn’t think Hughes will abandon Fullerton, he and others fear more shrinkage of jobs.
“It’s the kind of industry people would kill for,” said Gary A. Chalupsky, director of Fullerton’s Redevelopment Agency. Most of the nearly 7,000 jobs are white-collar, such as computer programming and engineering; the rest are manufacturing positions that pay up to $15 an hour.
Hyrum Fedje, director of planning and building safety for El Segundo, says he already sees indications that the Hughes consolidation will benefit his city. Last week , Fedje said, his staff was completing plan checks on an 80,000-square-foot tenant improvement project by Hughes in El Segundo. That’s a fraction of the more than 3 million square feet now there, but 80,000-square-foot can still house 400 workers.
“The signs are that they’re about to consolidate more and more people in El Segundo,” Fedje said.
Hughes spokesmen at headquarters said they are unaware of this particular project, and stressed that no decision has yet been made. Company officials say consolidation recommendations are being studied by senior officials and that an announcement is expected later this month or in early September. Company officials have said the realignment is likely to result in job cuts of about 3,400--or 10% of the company’s overall employment in California. And the consolidation could affect other Hughes facilities, spokesmen said, even though the review is focusing on these four.
“There undoubtedly will be a reduction in the whole space,” said Hughes spokesman Richard Dore, noting that cutting surplus space is a primary objective.
The four defense facilities being considered for streamlining are part of Hughes Aerospace & Electronics Co., a corporate division formed in March. The consolidation reflects the latest efforts by General Motors-owned Hughes to simplify its operations amid continued defense cutbacks.
In the past two years, Hughes has closed plants in Canoga Park and San Diego, among other places, in combining its missile operations in Tucson, and its profits have soared. In all, the company has pruned about 25% of its work force and cleared out of more than 100 buildings.
Hughes declines to specify how much of the 3.3 million square feet at El Segundo is unused. The Long Beach site encompasses three buildings with a total of 780,000 square feet, of which about 17% is vacant, sources said.
While the company’s facilities in Fullerton and El Segundo both have test facilities that would be difficult to uproot and transfer, much of their electronics operations are transferable. So neither site appears to have an edge in possessing key tooling or production equipment.
“The kinds of things (defense electronics plants) make tend to be more portable than companies making large aircraft or missile structures,” said John Harbison, who heads the aerospace practice at the Los Angeles consulting firm Booz Allen & Hamilton. “There is a common thread to what they do, and that is basic electronics.”
On the other hand, there are certain programs at Fullerton that, if moved elsewhere during the production phase, could delay shipment. Perhaps the biggest project now at Fullerton is Hughes’ $1-billion-plus Peace Shield contract to provide air defense systems for Saudi Arabia, which is scheduled to be delivered by 1996.
Still, Hughes has said that its eventual consolidation would take 18 months to two years to complete, which would reduce the impact on such ongoing programs.
City officials at Fullerton and El Segundo say they are not in a bidding war and that Hughes has not asked either city to put offers on the table. But each knows the consolidation plan is a zero-sum game.
James W. Morrison, El Segundo’s city manager, said the business license and utility tax calculations by the Fullerton representatives were “speculation.” And he said El Segundo’s City Council last month cut its business license tax by 10%. “Our overall tax package is competitive,” he said, adding that the city has also recently streamlined the process for completing building plan checks so companies like Hughes could more quickly expand.
Fullerton’s Armstrong, however, said Hughes executives were interested in the tax analysis. But he acknowledged: “These numbers, while I think they’re significant, may not be to Hughes.”
Chalupsky, head of the city’s economic development and redevelopment office, said there are some intangible pluses for Fullerton, including its strong local work force and lifestyle values. Many Hughes engineers graduated from Cal State Fullerton, he said, and “we have a good old-fashioned, educated work force here” at the Fullerton plant.
But unlike Hughes’ earlier decision to move operations from Southern California to Tucson, analysts don’t see the issue of work force locale as being major, because the four plants are all in the region. In fact, only about 15% to 20% of the Hughes workers in Fullerton live in the city, according to Hughes.
Chalupsky could think of only one negative for Fullerton, but it weighed heavily in his mind.
“One of our strengths is a weakness in terms of Hughes,” he said. “Fullerton is considered an excellent living environment. That will probably say to them (that) all that land they own is marketable.”
Indeed, several real estate executives said they expect Hughes to abandon most or all of its Fullerton site precisely for that reason. Hughes is already in the process of getting a zoning change to sell off about 140 acres, about 40% of the total, to build houses and apartments.
Bob Sattler, vice president of CB Commercial in Anaheim who specializes in industrial and commercial properties in Fullerton and a longtime resident there, said he can easily imagine the entire Hughes site being converted for residential use.
Hughes’ gated campus in Fullerton, which is made up of about 10 large office and industrial buildings, is surrounded by residential neighborhoods. “If that had been vacant land without Hughes (having moved there in 1957),” Sattler said, “it would be all residential now.”
Sattler said it is possible Hughes could sell its Fullerton site for industrial use, especially with Orange County’s non-residential real estate market tightening--the vacancy rate was about 11% in June. But Sattler and others said its greatest value would be for residential use.
Hughes workers in Fullerton and their representatives at the Carpenters Union worry that the temptation of big land sale profits will be too much for Hughes to resist. Office and blue-collar workers in Fullerton, speaking only on the condition that their names not be used, say they are bracing for the worst. Some workers in the plant, they say, have formed groups recently to help each other write resumes and prepare for new jobs.
During much of the summer, Hughes management has held hourlong forums on Fridays in a vacant lot during lunch to answer workers’ questions about the consolidation. But the meetings stopped two weeks ago because, company officials say, they had no new information. But workers and union stewards say they quit attending well before the sessions were canceled because they got no answers to their questions.
“People are trying to take care of basic things, get bills paid off, looking into other careers,” said one union representative, who noted that the company has continued its long pattern of trickling layoffs monthly at Fullerton. Last month, union reps said, 20 hourly workers at Hughes were laid off, and 19 more are expected to be dismissed this month.
Another longtime worker who is a thinking of starting his own business said: “The mood is we’re all doomed by the end of the year.”
Hughes in Southern California
Hughes Aircraft Co. is expected to announce soon to consolidate its Southern California operations. A 350-acre site in Fullerton is a prime candidate for closure.
* Facility: This plant, which was opened in 1957, now has 3 million square feet of work space. Value of the total site, by conservative estimate, is $75 million.
* Projects: Air defense equipment, battlefield radar, shipboard display systems and anti-submarine warfare equipment
* Employees: 6,800 down 58% from a peak of 14,500 in 1986
* Facility: Two complexes in El Segundo, with a combined working space of 3.3 million square feet, have an unspecified amount of unused space.
* Projects: Radar equipment, thermal imaging, missile guidance systems, commercial satellite systems
* Employees: 7,800
* Facility: This field support office is in leased facilities.
* Projects: Communications and logistics equipment.
* Employees: 970 Source: Hughes Aircraft Co.; Researched by JANICE L. JONES / Los Angeles Times
Hughes’ Stock Trend
Defense budget cutbacks have forced Hughes Aircraft, which was acquired by General Motors in 1985, to streamline its operations. The resulting profitability is reflected by an uptrend in GM’s H-Class stock price, which is linked in part to Hughes’ profits. Quarterly closing stock prices, 1991-1994:
1991: $19.25 1994: $35.50 Source: Dow Jones; Researched by JANICE L. JONES / Los Angeles Times
About 140 acres at Hughes’ Fullerton facility may be rezoned and sold for residential development.