The Sky's the Limit

TIMES STAFF WRITER

There's finally some good news for Southern California's beleaguered aerospace industry: Opportunities in advanced technology and commercial programs could more than offset job losses in traditional aerospace sectors over the next decade.

That optimistic outlook comes from "Beyond Consolidation," a yearlong study of the Southland's aerospace and defense industry that is to be released today. Although the region will lose more jobs as consolidation continues and some aircraft production is phased out, the report says Southern California can capitalize on a unique mix of skills to become a leader in emerging aerospace sectors.

"Companies are starting to project growth, which is a very positive thing for the industry and for the state," said Bob Pethick, vice president in charge of A.T. Kearney's aerospace practice in Costa Mesa and the study's lead author. "The growth is not industrywide but is confined to narrow industry sectors, which has a lot of strategic implications."

The study, a joint effort by A.T. Kearney, the Los Angeles Economic Development Corp. and the Los Angeles Regional Technology Alliance, is based on employment and financial data, plus surveys with about 50 aerospace executives throughout Southern California.

Historically, companies here focused on large manufacturing projects, like building military and commercial aircraft, missiles and expendable rockets. But shrinking defense budgets put more of a premium on cost, and much of the manufacturing work shifted to states where taxes and labor costs are lower, such as Alabama, Georgia and Texas.

Today, aerospace has been joined by information technology, telecommunications and entertainment as key Southland industries.

Aerospace firms here--which employ about 190,000 workers--have grown by teaming up with companies in their sister industries to create information-related products and services for both government and commercial customers. These products--ranging from defense electronics to digital special effects--could boost employment enough for the aerospace industry to grow for the first time in a decade, according to the study.

Of all the promising new markets, commercial space gives local aerospace executives the most hope with its potential for double-digit growth over the next 10 years, the study found. The commercial satellite industry is driving this sector, since California is home to industry leader Hughes Electronics of El Segundo, as well as the space divisions of such heavyweights as Boeing, Lockheed Martin, TRW and Space Systems/Loral.

Southern California also boasts a nascent industry supplying reusable launch vehicles, which could make launches more frequent, more reliable and less expensive.

Next on the list of important growth opportunities for Southern California is commercial aircraft production, which local executives predict will expand nearly 10% over the next decade. In large part, this will hinge on Boeing's ability to sell the Long Beach-produced 717 100-seater plane. In August, Boeing is expected to announce whether it will move some 737 production work to Long Beach as well. Those two programs could offset the work that will be lost when the MD-11, MD-80 and MD-90 lines close over the next few years.

The study also projects roughly 8% growth over the next five to 10 years in new markets created by companies that use their aerospace and defense expertise to offer products and services to nonmilitary customers. For example, the Global Positioning System network of satellites was originally built and launched for the U.S. military. But now a host of companies--including Magellan Systems in San Dimas and IVS in Monrovia--sell devices that read GPS signals and use them to navigate vehicles ranging from cars to airplanes.

Aerospace firms are also looking for opportunities in the entertainment industry. As Hollywood's appetite for sophisticated computer-generated special effects grows, programmers used to creating highly realistic simulations for the military may find new outlets for their work. Virtual reality games and simulation rides can also be created with aerospace industry know-how.

Over the next 20 years, employment among Southern California's prime contractors and large system suppliers could grow nearly 65%--to 187,000 workers--if companies here take advantage of the new opportunities, according to the study. The number of jobs in the commercial space sector alone could more than quadruple. Employment in commercial aircraft is expected to rise 25%, while the number of jobs in defense electronics will grow nearly 40%.

Those jobs will come just in time, since nearly half of all jobs tied to military aircraft production are forecast to disappear over the next two decades, the study says.

Northrop Grumman's B-2 program will produce only 21 stealth bombers, and production is scheduled to end by 2000. Another Northrop program, the F/A-18 Hornet strike fighter, faces a tough battle for continued government funding against aircraft like the F-22 and the Joint Strike Fighter. Even the contract for the successful C-17 cargo plane program at Boeing's Douglas unit will run out in 2004 unless new orders come in.

What's more, the impact of a wave of aerospace mega-mergers will continue to be felt for many years. More than 40% of prime contractors and systems suppliers are still considering consolidation-related facility closures. Analysts are also expecting a second wave of consolidation among mid-tier companies, and 58% of them are contemplating plant closures, according to the study.

All of these factors, the report concludes, are combining to recreate a thriving aerospace industry that will be significantly different from years past. As a result, state officials should rethink their policies to help California companies reach their full potential.

The study suggests state economic development policymakers focus on the most strategically important industry sectors, like commercial space instead of military aircraft. Financial incentives aimed at the aerospace industry in general should be re-targeted to high-growth, high-technology sectors, according to the report.

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Aerospace About-Face

After years of downsizing and defense budget cutbacks, Southern California's aerospace industry is once again poised for growth, according to a report to be released today. But this time, aerospace companies will be focused on high-tech and commercial space sectors instead of military applications. The new aerospace industry will also distinguish itself by finding synergies with other key Southland industries, including entertainment, telecommunications and information technology.

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Aerospace is still a major employer . . .

1996 Southern California payroll by industry, in billions of dollars:

Entertainment: $8.92

Aerospace and defense: 8.46

Non-defense high-tech: 5.01

Apparel: 2.92

Automotive: 1.60

Furniture: 0.96

Petroleum: 0.58

Note: Excludes services and agriculture.

* . . with Boeing the dominant player . . .

1996 aerospace employment in Southern California, by company:

Boeing: 29%

Northrop Grumman: 12%

Raytheon/Hughes Aircraft: 11%

TRW: 8%

Hughes Electronics: 6%

Lockheed Martin: 5%

Other: 29%

Note: This chart includes 140,000 of the region's 190,000 aerospace jobs. The other 50,000 jobs are in companies not classified primarily as aerospace firms.

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. . . and the commercial sector will grow

Aerospace employment at big companies is expected to grow nearly 65% over the next two decades. Here's how the proportion of jobs in each sector will change:

Commercial space: (1996) 13%

(20-year forecast): 42%

Commercial aircraft: (1996) 17%

(20-year forecast): 13%

Government space: 20%

(20-year forecast): 16% Defense electronics: 25%

(20-year forecast): 21%

Military aircraft: 25%

(20-year forecast): 8%

Source: "Beyond Consolidation: A Study of the Continuing Transformation of Aerospace and Defense in Southern California," from A.T. Kearney, the Los Angeles Economic Development Corp. and the Los Angeles Regional Technology Alliance.

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* SPACE RACE: Commercial satellite business is booming. A1

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