The Jobless Recovery : California's beleaguered aerospace industry is on the rebound, but new hiring is the exception

By JAMES F. PELTZ

March 17, 1996 12 AM PT

TIMES STAFF WRITER

The painful slump endured by California’s aerospace industry finally appears to be over after six long years. Companies are landing new contracts again, massive layoffs are fewer and farther between, and production is picking up.

But the aerospace industry--the backbone of a prosperous state economy a decade ago--now operates in a sober new world where fundamental changes have occurred. And despite the nascent rebound, aerospace is playing a much diminished role in California’s effort to return to full economic health.

Unlike in the old days, the pickup in the aerospace business is not translating into tens of thousands of new jobs across Southern California and the San Francisco Bay Area. California aerospace’s industry today has three main goals: lower costs, greater efficiency and better use of information technology--all of which dampen the need for more labor.

“It’s not a temporary cycle we’re in,” said Robert Paulson, aerospace director of the consulting firm McKinsey & Co. in Los Angeles. “It’s a structural change” in how the industry does business.

Most contractors, already hardened by years of layoffs and slashing costs to survive Pentagon spending cuts and a nose dive in the commercial aircraft business, are handling the resurgence of orders largely with existing employees.

The cautious approach means it’s highly unlikely that aerospace and defense will ever again dominate the California economy as they did in the 1970s and ‘80s--even if Pentagon spending eventually goes back up.

It also means only a modest number of the 350,000-plus aerospace-related jobs that vanished from California after the ‘90s arrived, the Cold War departed and the Reagan defense buildup ebbed are going to be replaced in years ahead.

In fact, a study released earlier this month by Rutgers University and the Economic Roundtable research firm in Los Angeles notes that “tens of thousands of [existing] jobs are still at risk” in California because of earlier Defense Department budget cuts still working their way through the economy.

There are exceptions, of course. The booming commercial-satellite business is creating work. Defense companies that have successfully moved into other commercial markets, such as auto parts, are also hiring. So are those that make gadgets for upgrading aircraft and improving communications among troops--gadgets the Pentagon is still eager to buy.

The general rule, though, is that widespread hiring is not even on the horizon because contractors want to keep squeezing more productivity from existing employees in order to stay competitive and protect profits.

Richard Bitzinger, who tracks California aerospace trends for the Center for Strategic and Budgetary Assessments, a research group in Washington, said that “a lot of the business that will come in over the next 10 years is just going to keep the existing work force employed.”

Added John A. McLuckey, head of Rockwell International Corp.’s aerospace and defense group: “We will not be getting back into the large quantity of hiring that we had.”

California has had to rely on other fast-growing industries to pull itself out of recession. The thriving entertainment, apparel, services and international-trade sectors lifted California’s nonfarm job total for 1995 to 12.6 million--its highest level since 1989--including 1.8 million in manufacturing.

But the state’s economic rebound has been anything but robust, in good part because many of those new jobs don’t pay nearly as much as the aerospace jobs that were lost, the Rutgers study concludes. Another report issued last week week by Rand Corp., the Santa Monica-based think tank, notes that roughly 1 of every 3 civilian aerospace jobs in the state has vanished since 1989.

The Rutgers study, which focuses on Los Angeles County, where the state’s aerospace industry is largely located, strongly suggests that the wage gap between the aerospace and nonaerospace jobs has seriously eroded the region’s middle class. It was a class that grew rapidly after World War II in places such as Lakewood and El Segundo, where people once could rely on aerospace to provide bountiful, steady work at middle-class wages.

A spot-check by The Times of a dozen aerospace firms with a major Southern California presence confirmed what Rand found: Nearly all have slashed more than a third of their work forces in the region since 1989, not including workers picked up through mergers.

Those firms alone eliminated more than 100,000 jobs in Southern California, or nearly 1 out of every 2 jobs that were under their roofs only six years ago.

Los Angeles-based Northrop Grumman Corp.’s regional employment is down 45% in the last six years. Parker Bertea Aerospace, the Irvine-based unit of Parker-Hannifin Corp.: down 44%. GenCorp’s Aerojet work force in Azusa: down 49%. Rohr Inc., based in Chula Vista: down 71%. And so on.

Although anguishing for the workers involved, the cuts have helped many contractors chalk up sharp increases in their profits and stock prices, and helped a few just survive. So they’re still keeping a lid on hiring despite landing new orders.

McDonnell Douglas Corp.’s Long Beach operation, for instance, got approval to build an additional 80 C-17 military cargo planes for $16.6 billion. The company’s other Long Beach group, Douglas Aircraft Co., launched production of its MD-95 commercial jet with a $1-billion order from ValuJet Airlines.

Both contracts will add about 4,000 jobs to McDonnell’s Long Beach work force during the next few years. But that’s only a fraction of the 27,000 jobs McDonnell has eliminated in Southern California since 1990.

Boeing Co. has announced a spree of billion-dollar orders for its commercial airliners in recent months. That’s more work for Northrop Grumman and Rohr, which build pieces of the aircraft. Northrop Grumman also still hopes to build more of its B-2 bombers. Lockheed Martin Corp. last year decided to consolidate its nationwide satellite operations in Sunnyvale.

Yet the employment erosion goes on.

Rohr--which recently won an order to build engine coverings and thrust reversers on the MD-95--still doesn’t plan “any substantial hiring” for at least a year, maybe two, said Kenneth Scholz, treasurer of the manufacturer of aircraft parts.

“We’re doing everything we can to remain cost-competitive,” which means keeping labor costs down, he said. “The new MD-95 order and others that we get will allow us to retain our employees, rather than translate into new hiring.”

Overall, statewide aerospace employment--as measured by the California Employment Development Department--fell 6% more during 1995, to 164,500 people. That’s a 55% plunge from 1988.

However, those figures understate aerospace’s role in the state economy, partly because the EDD separately counts employment in other industries--such as communications equipment--that include defense contractors as well as commercial firms.

The state’s aerospace contractors also are supported by thousands of smaller suppliers, vendors and service firms in California that which typically employ at least 1.5 workers for every “direct” worker in the aerospace industry.

So it’s likely that more than 400,000 people overall are in some way still supported by aerospace and defense contractors, or 3% of the total California work force.

Where there is hiring, the jobs are in fields that frequently involve computer and scientific engineering skills. The companies don’t need armies of “metal benders” because there are so few aircraft assembly lines left in California.

Take Hughes Electronics Corp. The Los Angeles-based unit of General Motors Corp. unit expects to add about 1,000 people to its Southern California work force of 27,000 this year, mostly in its thriving commercial-satellite group, said Ted G. Westerman, senior vice president for human resources.

“I’m estimating that our defense business [employment] will stay flat to some small increase,” Westerman said.

TRW’s Redondo Beach-based space group, a major builder of satellites and defense electronics, hired about 1,000 engineers and other workers in Southern California in 1995 as the group enjoyed a spurt in sales and profits for the first time in years.

The company previously had cut that staff so severely--to 8,000 in 1994 from 17,000 in 1990--that “as work came in, we automatically had to hire to accommodate the work,” said Fred Brown, the group’s vice president of development.

TRW expects to keep hiring for the next year or two because the Pentagon has a hunger for more advanced communications and intelligence gear for its forces, Brown said. That includes satellites and items such as a TRW device that attaches to armored vehicles to tell the people in them whether an approaching force is friend or foe, he said.

“We’re in the business of making each person in the military more effective, and that’s what the DOD has found it needs to do,” Brown said.

For the fiscal year ended Sept. 30, 1994--the most recent period for which information is available--Department of Defense prime contracts going to California totaled $22.6 billion, nearly three times the $8 billion received by each of its two closest rivals, Texas and Virginia.

Yet that same year, California’s share of the Pentagon pie was 22% less in dollar terms compared with a decade earlier. That’s because overall U.S. spending for airplanes, ships, missiles and other gear--known as procurement spending--plunged in the last decade.

Compared with its peak of $97 billion in fiscal 1985, procurement spending for the current year is $42.3 billion, and the Clinton administration earlier this month proposed a fiscal 1997 defense budget that would lower it even further, to $38.9 billion.

The White House wants eventually to raise weapons spending again, to about $60 billion by fiscal 2001, but even if that happens, job creation is likely to grow at a much slower pace, said Bitzinger of the Center for Strategic and Budgetary Assessments.

That’s because the aerospace contractors, now “fighting for every dollar out there,” continue to seek more efficiency and lower costs in order to stay competitive, said Rockwell’s McLuckey.

And efficiency doesn’t just mean eliminating jobs to produce the same goods with fewer people. It’s also how the firms use the people they have left.

Consider the Douglas Aircraft jetliner plant in Long Beach. Douglas recently joined with the consulting firm A.T. Kearney to create a computer network that allows the world’s airlines and Douglas’ suppliers to help Douglas design new aircraft.

Before, each of those parties would shuttle back and forth from the Douglas plant with revisions to the plane’s design--a process that typically would take six months, said A.T. Kearney consultant Waseem Sheikh.

But with the new computer network, the parties make their revisions from their office computer terminals, changes that are instantly transmitted to Douglas’ plant. The result: “There is no reason why Douglas cannot configure a whole airplane in three days,” Sheikh said.

That dramatic time savings not only reduces Douglas’ development costs by millions of dollars, it also “frees up Douglas people to let them do other work” at the company, he said.

In other words, Douglas doesn’t have to hire more workers--a lesson all the firms have learned.

The companies “have restructured themselves to fit the new reality,” said Paulson, the aerospace expert at McKinsey & Co. “That’s what is driving the mergers; that’s what is driving the layoffs. They’re shrinking an industry.”

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DEFENSE CONTRACTS

Prime Defense Department contracts awarded in state, fiscal years ended Sept. 30 (in billions)

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SOUTHERN CALIFORNIA AEROSPACE EMPLOYMENT*

Southern California’s battered aerospace industry is starting to rebound, but the region’s aerospace employment generally has not recovered from the deep cuts of the last five years. In thousands:

Hughes Electronics

1990: 48

1995: 27

McDonnell Douglas

1990: 52.2

1995: 25.2

Northrop Grumman

1990: 31

1995: 17.2

Rockwell

1990: 31.9

1995: 17.2