Calif. Joins Fray to Keep Aerospace Alive and Here

On a wind-swept airfield on the edge of the Mojave Desert, the nation’s largest aerospace firms are fighting a pitched battle to land history’s most lucrative defense contract.

Working in each other’s shadow in Palmdale since 1996, Boeing Co. and Lockheed Martin Corp. are building prototypes for the Joint Strike Fighter, a sleek, swept-wing aircraft that will serve as America’s jet fighter for the 21st century. The plane aims to marry superior lethality and supersonic agility with fiscal discipline.

At stake is a $300-billion contract, dominance of the aerospace industry and employment for a generation of skilled workers. But another combatant--the state of California--has recently joined the fray, launching a lobbying campaign for the Joint Strike Fighter.

After watching 300,000 defense and aerospace jobs disappear in the last decade, state officials are lobbying the White House, the Pentagon, Congress and the defense contractors to build the Joint Strike Fighter here.

The cradle of the modern-day aerospace industry, Southern California once counted on projects such as the JSF to fall into its lap. But when the contract is awarded early next year, company officials say the jet will be manufactured at existing plants elsewhere.

“We will do final assembly at our Boeing fighter facility in St. Louis,” said Boeing communications director Denny Kline. Added Lockheed Martin spokesman Gary Grigg: “Our plane will be assembled in Texas.”

State Commerce Secretary Lon Hatamiya has a different idea, terming the project “of vital importance to California aerospace.”

The history of aerospace is rich with political skulduggery and influence-peddling, the results of which can be seen in pork-barrel projects from coast to coast. States have long attempted to influence the Pentagon’s and the defense industry’s decisions with mixed success. In the current era of tight federal defense budgets, political maneuvering is seen as all the more critical to protecting regional industries.

“The logic behind pursuing the JSF is to maintain our existing jobs and the expertise that goes with them,” Hatamiya said. “It’s also to create new opportunities for the future by attracting businesses to our inherent strengths, including our technology, higher education and well-trained work force.”

Gov. Gray Davis has deployed Hatamiya’s agency to reverse the decline in the California aerospace industry. The gambit to wrest the JSF from either Texas or Missouri will be a profound test of California’s ability to wield political power.

State Eyeing Other Projects

Although the Joint Strike Fighter is the biggest prize, the state is targeting other projects as well--committing as many as 60 workers and more than $1 million to sell aerospace companies on California’s skilled work force and manufacturing infrastructure, said state Trade and Commerce Agency spokesman Mike Marando.

Agency officials have created a marketing campaign touting the virtues of “Aerospace Valley” to the Clinton administration, members of Congress, defense contractors and foreign governments.

In fact, it’s hardly a valley--but instead a wide swath of California that stretches from Point Mugu in Ventura County to the China Lake Naval Weapons Station near Death Valley. Installations range from major facilities like Air Force Plant 42 in Palmdale to the small Rye Canyon test facility in Valencia.

Marando acknowledged that the state took some geographic license, but said the moniker is a handy way to pitch the heavy concentration of aerospace in the region.

“It’s more or less a cornerstone for emerging space and aerospace activities,” Marando said. “It’s also a very effective marketing tool.”

Since taking office last year, Davis has convened the first-ever aerospace summit and promoted the state’s aerospace industry during a trade mission to Europe. Last year, Davis budgeted $4.1 million in tax breaks, marketing and subsidies for the commercial space and aerospace industries, and has requested the same amount in the 2000-01 budget, Marando said.

That includes $2.4 million in grants to companies developing space-related technology and about $1.4 million to market the JSF and sites for launch and production facilities for the VentureStar--a prototype reusable space vehicle being developed by Lockheed Martin.

The governor also is beefing up his staff, recruiting political insiders like Kari Dohn, a former Clinton administration official in the U.S. Commerce Department, to advise him on the JSF.

“It makes me feel pretty good that they are out there trying to bring jobs to the state,” said Rep. Howard P. “Buck” McKeon (R-Santa Clarita). “In any business, you have to spend on marketing and promotion. This is the cost of doing business.”

“In the past, perception of the state aerospace industry was, ‘It’s downsized, it’s merged, let’s go on to something else,’ ” added Andrea Seastrand, a former Republican congresswoman and state assemblywoman from Santa Barbara who now serves as executive director of the California Space and Technology Alliance. “But there’s still an industry we have to fight for, and the governor has shown the beginnings of understanding this.”

Critics Question Timing of Campaign

Still, others are skeptical of the aerospace campaign, questioning the timing of the effort and whether the state can actually land a major aerospace venture without giving away costly incentives.

“The question is, are we giving away more than what we’ll be getting?” said Joel Kotkin, senior fellow with the Pepperdine Institute for Public Policy. “Everyone is playing this game.”

“If you spend $50 million to get $10 million worth of jobs, it’s not a good idea,” Kotkin said. “On the other hand, if you spend $50 million and get $100 million worth of jobs while preserving its industrial base, it’s a good thing.”

Jon B. Kutler, president of Quarterdeck Investment Partners Inc., a Los Angeles firm that analyzes the aerospace business, said the money spent by the state today very well could pay off later on.

But it could have had a “significantly bigger impact” if the state had spent money and time on the problem in the early 1990s, he said.

“The industry consolidation and the complacency of California political leaders gave other regions a chance to catch and pass us,” Kutler said. “It’s going to be harder. The sector has moved on.”

The state did score a big victory in January when Swiss aircraft firm SR Technics decided to place an aircraft maintenance facility in Palmdale and with it an estimated 6,000 jobs in the next five years.

The company got $85 million in tax breaks over 15 years, Marando said, in part because the Antelope Valley is a state-designated enterprise zone--a geographic area where companies that create more local jobs are eligible for tax credits.

In return, Marando said, SR Technics will generate an estimated $226 million in revenue for the state during the next five years, including corporate taxes, personal income taxes and sales taxes.

State officials say the SR Technics negotiations were a classic example of their new aggressiveness in pursuing aerospace.

During an autumn trade mission to the Middle East, Davis learned that SR Technics officials were thinking of locating in California. Within hours, Hatamiya was on a plane to Switzerland for face-to-face negotiations with SR Technics executives.

State and local officials arranged a meeting between SR Technics Chief Executive Michael Rudnyak and Antelope Valley College President Linda Spink to discuss work-force training. And company officials also were taken on a helicopter tour of Los Angeles to dispel concern about “the L.A. area being unstable” in the wake of the 1992 riots, Marando said.

But successes such as SR Technics have been offset by losses on other fronts. Over the last year, Lockheed Martin slashed 1,400 jobs at the Skunk Works at Palmdale Airport as part of a nationwide corporate reorganization.

Perhaps more significant, Lockheed Martin announced in January that the Skunk Works--officially Advanced Projects Development--would no longer be an independent division within the company. Instead, it will be part of the new Lockheed Martin Aeronautics Co. based in Fort Worth.

The forge for such advanced planes as the U2 spy plane, the SR-71 Blackbird and the F-117 Stealth fighter, the Skunk Works has been credited with operating at a high level of cost efficiency in large part because of its ability to manage projects independently.

The Palmdale site, technically the Air Force’s Plant 42, was the site of such major aerospace projects as the B-2 and B-1B bombers, the F-5 jet fighter and L-1011 jetliner.

Lockheed Martin isn’t the only aerospace contractor that is cutting back. Northrop Grumman Corp. eliminated 1,000 positions in Palmdale as it scaled back work on the B-2 bomber. Boeing is down 50 jobs at its Antelope Valley space facility.

These cuts are only a fraction of the jobs California has already lost in the past decade.

From 439,000 jobs in 1989, the state was down to 153,000 aerospace jobs in 1999, according to the latest figures available from the state Employment Development Department. The industry’s share of the overall state economy also tumbled from 9% to 4%, the state Legislative Analyst’s office said.

Over the same period, California’s share of national defense contracts dwindled from 20% to 15%, with the state’s aerospace sector absorbing most of the cuts, said Michael O’Hanlon, a defense analyst with the Brookings Institution.

“The numbers still are impressive for the state as a whole,” O’Hanlon said. “But when you look at it on a per-capita basis and think back, California is not the dominant aerospace force it was.”

Adding to the state’s difficulties, critics say, is the fact that the California congressional delegation did little to stop the decline of aerospace.

“The California delegation has been placing all of its bets on high technology and entertainment,” Quarterdeck’s Kutler said. “And it’s been forgetting about where the roots of a lot of the investment really came from, which is aerospace. It’s part of having it so good for so long.”

Some members of Congress admit more could have been done to stem the losses in the industry. They also say they are now ready to fight collectively for projects, even if their district isn’t a direct beneficiary.

Last November, Reps. McKeon and Loretta Sanchez (D-Garden Grove) introduced HR 3396, which called for the Pentagon to study the cost of building the Joint Strike Fighter in Palmdale and compare cost savings against sites in St. Louis and Fort Worth. McKeon estimates building the plane in California would save $2.2 billion in federal funds because of state and local tax credits, proximity to suppliers and technical support bases and available stealth production facilities.

But one industry source said even if the state offered those savings, it wouldn’t be enough to sway the companies or the Pentagon.

“Any savings the state is promising amounts to less than a fraction of 1% of the total value of the contract,” the source said. “Both contractors have a number of techniques and abilities that could save several times that.”

HR 3396 is pending before the House Armed Services Committee.

McKeon acknowledged that oddsmakers are betting against California’s getting the lucrative fighter contract.

“I understand this is an uphill battle,” he said. “But I think we have to start somewhere.”