Seeking Signs of Life at Aerojet : Parent Company GenCorp Appears to Be Running Out of Reasons to Keep the Ailing Aerospace Unit


The evidence is growing that GenCorp Inc. plans to rid itself of Aerojet, its respected but ailing division that makes military electronics in Azusa and rocket motors in Sacramento.

GenCorp--which also makes automotive parts, Penn tennis balls and specialty plastics and wall coverings--said this summer that it was considering whether to keep Aerojet, place it in a joint venture or some other alliance, or sell the division.

GenCorp plans to decide by year's end. Executives had no comment on which option is preferred, spokeswoman Rosemary Younts said.

Industry sources said GenCorp's investment bankers have distributed information packages about Aerojet to prospective buyers.

"I don't think it's any secret that every major aerospace firm is at least taking a look at Aerojet," said one senior executive of a major defense contractor in Southern California.

Analysts believe GenCorp wants to sell Aerojet, which has been battered by federal spending cuts, even though Aerojet accounts for a third of the company's sales.

GenCorp "would just as soon not be a part" of the aerospace business, said Harry S. Mortner, an analyst with the investment firm C.J. Lawrence in New York. "They obviously don't have the economies of scale. It's a rapidly consolidating industry, and they're not apt to be growing that business. So why bother in it?"


Aerojet, which employs 1,350 people in Azusa and 1,650 in Sacramento, has built complex motors for some of America's most famous missiles and rockets, including the Minuteman, Titan and Polaris. It is also making body panels for the next-generation jet fighter, the F-22, and developing derivatives of Russian rocket engines for sale in the United States.

Aerojet's electronic sensors have long been critical parts of U.S. surveillance satellites that monitor missile and spacecraft launchings around the world. It also makes instruments for the government's Earth-monitoring satellites.

With the Cold War over and defense and space programs waning, however, Aerojet is taking a beating. Aerojet eliminated 1,250 jobs during the past year, but the division's sales and operating profits continued to sink, dragging down GenCorp's overall results.

All of that leads analysts to believe that GenCorp's new president and chief executive, John B. Yasinsky, wants to dump Aerojet.

GenCorp took one step in that direction last spring, when it sold a major part of its munitions business--which accounted for 23% of Aerojet's fiscal 1993 sales--to Olin Corp. for an undisclosed price.

"If they could sell it all for a decent price tomorrow, they would," said Mark B. Johnson, an analyst with the securities firm Roulston Research in Cleveland.

"Their No. 1 scenario is to get out of Aerojet and focus the company on commercial opportunities," he said. "That's what John Yasinsky definitely wants to do."

Aerojet's performance turned south in 1992 and has not improved since. In the first nine months of GenCorp's fiscal year, which ends Nov. 30, Aerojet's operating profit plunged 83% from a year earlier, to $6.8 million, and its sales dropped 35% to $405 million (partly reflecting divestiture of the munitions unit).

That meant Aerojet, while accounting for 33% of GenCorp's overall nine-month sales of $1.24 billion, kicked in only 10% of GenCorp's $66.8 million in total operating earnings for the period. And those earnings tumbled 25% from a year earlier because of Aerojet's problems.

GenCorp stock closed Wednesday at a 52-week low of $10.50 a share in New York Stock Exchange composite trading. Five years ago, the stock was trading in the low $20s.

"The best option for GenCorp and Aerojet would be to find a buyer willing to purchase the entire (Aerojet) operation," said analyst Mark L. Parr of McDonald & Co. Investments in Cleveland.


The tough times represent a dark chapter in the history of Aerojet, which was founded in Pasadena by aeronautic scientist Theodore von Karman in 1942. Six years later it was bought by General Tire & Rubber Co., GenCorp's predecessor. (GenCorp sold General Tire in 1987 to help fend off a hostile takeover attempt.)

Aerojet eventually centered its electronics business in Azusa and its propulsion operations in Sacramento, and both units flourished during the Cold War. From 1959 through 1979, for instance, it built the second-stage motors used on all 3,061 U.S. Minuteman intercontinental ballistic missiles.

But in recent years, the contracts have dwindled. Last year alone, Aerojet saw Titan rocket deliveries slow, cancellation of the Peacekeeper missile program and funding withdrawn by Congress for the advanced solid rocket motor program--a Lockheed-Aerojet effort to develop a new generation of space-shuttle booster engines.

GenCorp could sell Aerojet's electronics group in Azusa without much trouble because a buyer could readily merge Aerojet's product lines into its own, analysts said. But selling the propulsion business "might be more dicey," Mortner said.

One snag: Because there is already excess manufacturing capacity in the rocket-motor industry, a buyer of Aerojet's propulsion unit might want to close Aerojet's plants. However, Aerojet's programs got government approval based on their being built at Aerojet's plants.


Who might want Aerojet's propulsion line, anyway?

Other prominent rocket-motor builders include Thiokol Corp., producer of the Space Shuttle's boosters; Rockwell International's Rocketdyne division in Canoga Park, which built the Shuttle's main engines, and Hercules Inc.

Hercules' aerospace group is being acquired by munitions maker Alliant Techsystems Inc., and Rockwell, as it moves away from military contracts, is spending $1.6 billion to buy Reliance Electric Co.

In a Tailspin GenCrop's Aerojet division, which makes rocket motors and defense electronics, has suffered a sharp drop in sales and earnings in tandem with defense spending cuts.


In millions of dollars:

1994*: $405


In millions of dollars:

1994*: $7

Note: Fiscal year ends Nov. 30


By percentage of sales:

Aerojet-- 33%

Auto products-- 33%

Polymer goods-- 34%

By percentage of operating earnings:

Aerojet-- 10%

Auto products-- 35%

Polymer goods-- 55%

Source: GenCorp Inc.

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