Aerospace Left Us a Legacy to Be Used
Even now, almost six years since the defense industry began to decline in Southern California, we are in a quandary over what will take its place. What will replace the jobs and employ the skills built up over decades and generations of aerospace-defense work?
The answer is new opportunity springing from defense technology--although that’s an answer that many will be skeptical of. Our problem is that we’re so used to thinking of decline that we overlook the legacy of aerospace-defense--an inheritance of technology which, properly managed, will yield a bright future.
Make no mistake, happy days aren’t here again. An extraordinary number of people--almost 200,000 in the five-county area--have lost jobs in the decline of aerospace. And we have not quite reached bottom in that regard, either.
But a couple of examples, one at a company employing 1,200 people in Simi Valley and another at a business employing 75 people in the City of Commerce, show how defense work can be converted to commercial business.
Working on a product to confuse enemy radar in the 1970s, Whittaker Corp. came up with a process that took radar signals, reprocessed them at billions of bits a second and beamed back a false image to the radar--a real “Mission Impossible” stunt.
Could such technology possibly have commercial application? Yes, because the skill in question is not the beaming of false images but the reprocessing of information with incredible speed.
And that’s the skill Simi Valley-based Whittaker adapted to a leading-edge product in telecommunications, with help from technology consultants at the University of Oregon. “As defense industry people, we needed the outside perspective,” says Thomas Brancati, president and chief executive.
That was four years ago.
Whittaker, once a highly diversified defense contractor with $1.8 billion in revenue, had sold or spun off businesses ranging from hospital management to yacht making and reduced its revenue to $158 million. To renew its growth, it wanted to develop commercial products--and the consultants hit on the radar scrambler. They saw in it a faster version of asynchronous transfer mode, or ATM, a way of moving data through computer networks that is the hottest thing in telecommunications.
With ATM, packets of data can be stored and moved so smoothly that, for example, Whittaker--in partnership with Pacific Bell--now offers Hollywood filmmakers a cost-saving post-production service. It will store daily runs of film for directors to work on at the flick of a computer mouse.
Similar data services are offered to hospitals, advertising agencies, banks and universities.
Prospects in telecommunications have brought Whittaker back to $200 million in revenue this year, raised employee totals to 1,200 from 800, and fired ambitions of growing to $1 billion in revenue within five years--half of them coming from telecommunications.
Meanwhile, Pressure Systems Inc., a Commerce-based maker of fuel tanks for satellites, has adapted its skills--which include fluid dynamics and vacuum-chamber titanium welding--to the growing business of communications satellites.
Satellites need fuel so they can be maneuvered into precise orbits and adjusted during the 10 to 15 years they stay up in space, explains Alex Roberts, PSI’s president. And making titanium tanks is a specialized art. Tanks must be fault-free and capable of controlling and dispensing fuel in a weightless environment.
It’s the kind of work that Southern California needs--75 engineering, management and skilled factory jobs at an expanding plant on Bandini Boulevard, where PSI started as a family-owned company in 1963.
Back then, the firm made tanks for space vehicles and spy satellites. It had grown to $10 million a year in sales by 1985, when ailing family owners sold to TRW, which ran PSI with layers of management and lost money.
So TRW brought in Roberts, an entrepreneur, to restructure PSI. He got venture capital, did a leveraged buyout with other employees and has the company running profitably at $20 million in sales--60% of them to commercial customers. PSI is riding a global boom in communications satellites that has helped a number of Southern California companies, notably Hughes, offset a decline in government work.
A question: Since there is an abundance of technology in the defense industry, why don’t we hear of more successful adaptations? Why aren’t venture capitalists eager to fund this industry as they do computers, telecommunications and biotech?
“They’re gun-shy, because past defense conversions have led to failures--Grumman making expensive buses, for example,” says Jon Kutler, president of Quarterdeck Investment Partners, a Los Angeles investment bank that advises and finances defense companies.
Also, Kutler says, defense technologies often were developed in secret, so venture financiers were unaware of them. But as the Whittaker and PSI examples show, developing the underlying skills need have nothing to do with the original secret work.
If their examples inspire more innovative attempts at defense conversion, Southern California’s future industry would indeed be an adaptation of its past.
Before we get comfortable, though, we should keep in mind that the technologies Whittaker and PSI are adapting to new fields were developed by government defense and space programs. Who or what will do the basic research for the telecommunications revolutions and satellite industries of future generations?
In wringing hands over the decline of defense in Southern California, we have been thinking too much about the past. Tomorrow is what’s important.
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Easing the Pain
The rate of decline in employment in Southern California’s* aerospace and high-technology industry is slowing. Employment in thousands of jobs:
1995**: 207.1
* Los Angeles, Orange, Ventura, San Bernardino and Riverside counties
** Estimate
Sources: California Employment Development Department, Economic Development Corp. of Los Angeles County
