Aerospace Industry Strong Despite Cuts
Somber headlines and gloomy forecasts have cast a pall over much of Southern California’s aerospace industry, leaving tens of thousands of workers with an understandable sense of vertigo.
In the last several months Boeing Co. has shuttered the 717 jetliner plant in Long Beach and, bowing to a lack of new orders, taken the first steps toward shutting the neighboring line that churns out C-17 cargo planes. About 6,000 jobs would be lost or reclassified.
Last week the aerospace giant and its project partner Northrop Grumman Corp., both with large local workforces, lost a contract potentially worth $8.1 billion to build the next-generation manned spacecraft for NASA. The winner, Lockheed Martin Corp., plans to do the work in Texas, Louisiana and Florida.
“There does seem to be a lot of scary talk out there,” said Richard Aboulafia, an analyst with aerospace research firm Teal Group Corp. of Fairfax, Va.
One analyst has even begun to assert that the military side of aerospace, which has been surging since the Sept. 11 terrorist attacks, has reached a plateau.
“I would expect that major defense contractors will be announcing incremental drops in employment in Los Angeles,” said Loren Thompson, a defense policy analyst for the Lexington Institute, a think tank in Arlington, Va. “The money is beginning to be tight.”
Should the regional industry brace for a downturn?
Not so fast, executives and analysts say. Despite the recent setbacks, the aerospace industry here remains strong and will continue to grow for the foreseeable future, they say. It will just look different.
In their view, the shutdown of the 717 line and the expected end of the C-17 in 2009 will merely complete a transformation decades in the making. Once the bastion of blue-collar metal-bending aircraft manufacturing, the region has evolved into the nation’s center for white-collar advanced electronics development.
Although big manufacturing plants are mostly gone, thousands of suppliers in Southern California are profiting by making electronic components and other precision parts for commercial aircraft makers and defense contractors. After a several-year lull amid the worst downturn since the advent of air travel, major carriers are ordering planes again.
Aerospace and defenserelated shipments have surged since hitting bottom after the terrorist attacks grounded civil aviation, according to the Aerospace Industries Assn. The trade group projects that the value of shipments will grow to $176.9 billion this year, up 32% from a post-9/11 low of $133.7 billion in 2003.
The backlog of unfilled orders is growing even faster, to a projected $279.9 billion this year, the Washington-based association said. That’s a 45% jump from $192.4 billion in 2003.
“We’re on top of the mountain,” said David Napier, the association’s research director. Even if new orders decline, he said, the current backlog is “still going to be paying out for a number of years.”
In California the resurgence in orders has led to a sharp increase in jobs for aerospace engineers, to 24,330 last year from 16,010 in 2004, the state’s Employment Development Department reported. And that tally doesn’t give the full extent of regional employment in aerospace, because it excludes mechanical, electrical and other types of engineers who work in the industry.
“Aerospace is still extremely strong here,” said Dan Beck, a spokesman for Boeing’s integrated defense systems unit.
“It’s just that it has evolved and transformed into something new,” he said. “It may not be heavy industry building airplanes and rockets, but it is still going to be a formidable presence.”
In fact, Chicago-based Boeing remains the region’s largest private employer, with 31,000 workers. Northrop Grumman, headquartered in Century City, employs 27,000 in Southern California.
The region is still home to about a quarter of the nation’s aerospace workforce of about 630,000. The industry association’s tally doesn’t include aerospace engineers who work at research centers such as Aerospace Corp. in El Segundo, the Jet Propulsion Laboratory in La Canada Flintridge and HRL Laboratories in Malibu.
Large numbers of civilian engineers also are stationed at Los Angeles Air Force Base, which houses the Space and Missile Systems Center, the Air Force’s contracting arm for satellites and rockets; and Edwards Air Force Base, where new aircraft and equipment are tested.
At Raytheon Co.’s sprawling El Segundo facility, 9,100 engineers design sophisticated radars, sensors and aircraft electronics, reflecting the changing face of aerospace in the region.
Since 2002 the company’s El Segundo workforce has grown by nearly 2,500. Even as Boeing was closing its 717 line, Raytheon was running out of room and was forced to lease space in nearby office buildings.
In the last few years, “we’ve been in a huge growth rate,” said Jon C. Jones, president of Raytheon’s space and airborne systems unit. “I don’t expect that to continue, but we are going to continue to hire.”
Jones foresees “healthy, steady” growth for the next five years, driven by the Pentagon’s focus on surveillance equipment for unmanned spy planes such as the Global Hawk and the Predator, as well as new, more powerful radars for jet fighters. Lately, Raytheon engineers also have focused on developing equipment to detect and defuse improvised explosive devices of the type that have killed hundreds of U.S. military personnel in Iraq and Afghanistan.
The unit in El Segundo works on at least 1,000 programs, many of them classified, so it is financially buffered from the cancellation or paring of any one program, Jones said.
This summer, for instance, the company laid off 200 engineers after a program was canceled, but most quickly returned to other jobs at the company.
“There will probably be puts and takes as programs ebb and flow, but overall the numerical level will be pretty stable,” Jones said of his workforce.
Although federal budget cutters have targeted big-ticket items such as fighters, which can cost as much as $200 million, and multibillion-dollar warships, equipment to increase the capability of existing fleets of airplanes, ships and tanks probably will get a boost, analysts said.
Raytheon, based in Waltham, Mass., has exposure to a wide range of programs, but “it is not especially dependent on any one of them,” said Douglas S. Harned, aerospace analyst for Sanford C. Bernstein & Co. in New York.
“Many of the technologies it delivers are not particularly platform-specific but instead can in many cases be deployed on alternate platforms, should budget priorities change,” he said.
Raytheon radars, for instance, can be used on both Navy F/A-18s and Air Force F-15s.
For Raytheon and the other major players locally, the short-term forecast may indeed call for turbulence. But a long-term downdraft? Unlikely, they say.
“We’re in a perfect place,” Jones said.
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