2 Success Stories in Trenches of Defense Conversion

Among the mysteries of Southern California’s recovering economy is how well or badly the numerous small companies are faring that depended for their livelihoods on supply contracts from defense contractors--the component makers and testing companies that once prospered from Simi Valley to San Diego.

Overall employment statistics indicate that business is changing and recovering. But overall figures are practically useless when looking for small companies, says economist Jack Kyser of Los Angeles County’s Economic Development Corp. In today’s environment, the same company might be declining in defense work but rising in medical electronics.

So looking at individual companies is often a better way to measure the region’s economy. Natel Engineering Co. in Chatsworth and the oddly named Xxsys (pronounced ex-sis) Technologies Inc. in San Diego both did defense work and are now succeeding in commercial industry.

And both have lessons to teach and challenges to offer about business policies in Southern California and the nation.

Natel made electronic components for Stinger antiaircraft missiles until defense budgets declined in the late 1980s. (The company once pleaded guilty to making false statements to the Pentagon and was fined $1 million.) But it found new customers for its electronic skills. This year, supplying components for heart pacemakers and implantable defibrillators will give Natel close to 30% of its $22 million in sales.

The company still makes parts for missiles, but now it also supplies electronics for space satellites, computer workstations and telecommunications equipment.

The result is that, at 200 workers, Natel now employs more people than it did at the height of defense work. And the jobs are good--electronic assembly pays $15 an hour plus benefits, the kind of work that many said would disappear from Southern California.

What helped Natel? No formal defense conversion program but what company President Sudesh Arora calls the region’s “infrastructure” of companies and businesses, communications and transportation.

A medical instruments firm in San Diego, working for an Australian customer, needed electronics for pacemakers, Arora explains. And it plucked Natel’s name from a Defense Department list of qualified component makers. “I’d like to say I planned it, but the business came to us--we were lucky,” he says.

You might say the firm made its own luck. In the 1980s, needing skilled technicians to work in clean-room facilities, Natel--then headquartered in Simi Valley--devised and operated its own training programs. Then it offered to contribute executive time and effort to Ventura College, which established a training program for technicians.

Now, having moved its headquarters to Chatsworth, Natel has offered to contribute such help to Los Angeles’ community colleges. And the economic development office of Mayor Richard Riordan is looking into the program.

Why should the company do that? “To give something back,” says Arora, who came to the United States from India in 1963.

By contrast, a formal defense conversion program helped Xxsys Technologies. (The name is a stylization of The Expert Systems Technologies Co.) That’s how the firm began in 1985, when it sought to develop ultrasound testing for composite materials.

Composites used in making aircraft wings demand more sophisticated testing because an uneven mix of materials could result in weak spots.

But no sooner had Xxsys perfected its technology than defense budgets declined. So the firm, led by Chairwoman Gloria Ma, who has a doctorate in molecular biology from UC San Diego, joined a defense conversion effort there with such companies as Hercules Inc., DuPont Co. and Lockheed Corp.

The program at UCSD’s Powell Structural Research Laboratories focused on use of composites to retrofit bridge and highway support columns that have been damaged by earthquakes or corrosion--a California and national problem of monumental proportions. The program was funded by the Pentagon’s Advanced Research Projects Agency, the same agency that aided so many high-tech breakthroughs during the Cold War.

And the effort succeeded. Xxsys now has a system that wraps damaged highway columns in carbon fiber treated with epoxy resin, then heats the wrapping to form a support collar harder yet lighter than steel. The process allows retrofit work to be done without closing highways or bridges for days.

Ma expects to compete shortly for highway work in California and then adapt the Xxsys process to corrosion problems in other parts of the country.

If you’re thinking about the wellsprings of industry and technology, it’s significant to note that more than $10 million in private capital has been invested in the Xxsys process over a decade--half from diverse shareholders since the company went public in 1992 and half from Ma’s family in Hong Kong, where she came from in 1973.

Another $5 million in government funds from ARPA or UCSD research budgets have supported the development of composite materials that will build stronger public highways in the future.

We should note the success of that effort because ARPA budgets are being slashed as Congress, unwisely cutting research, threatens to dry up the wellsprings of industry and technology.

And we should also note that both these examples of adaptable Southern California industry were founded and are led by immigrant entrepreneurs--Natel originally by the Lehrman family, which survived concentration camps to come to the San Fernando Valley--who have contributed to this region and benefited from it.

There may be mysteries in Southern California’s economy, but the enterprise of immigrant people is not one of them.