Los Angeles’ long-suffering aerospace industry is poised to get a major shot in the arm, with two multibillion-dollar Boeing contracts bringing loads of work to local subcontractors.
Last week, the Boeing Co. announced that the U.S. Navy had ordered 222 F/A-18 Super Hornet fighter airplanes from the company. The five-year, $8.9 billion contract is good news for two of Boeing’s principal subcontractors, which will do a good chunk of the work here in Los Angeles. Northrop Grumman Corp. is the principal airframe subcontractor for the F/A-18 and will be building the center and aft fuselage at its combat systems facility in El Segundo.
In addition, Raytheon Co. will provide the radar systems, which are also built in El Segundo by Raytheon’s Electronic Systems division.
The other big new Boeing deal is a 10-year launch services contract for NASA’s Delta II, Delta III, and Delta IV satellite launchers, with a potential value of up to $5 billion.
The engines for the Delta launchers are built in Canoga Park by Rocketdyne Propulsion and Power, which is part of Boeing’s Space and Communications Group.
Although it may be premature to speak of a recovery of the local aerospace/defense industry, these orders are promising signs nonetheless.
“An order of this size has been unusual in recent years,” said Bob White, manager of business development with Raytheon’s Electronic Systems. “Particularly the fact that (these are) multi-year contracts is very good news, because it will provide solid work for the next five years, and it is indicative of a better climate for the industry.”
Another major boost for the aerospace industry could come next spring when a decision is expected on the Joint Strike Fighter project. Both Boeing and Lockheed Martin Corp. are developing competing JSF prototypes at their separate facilities in Palmdale.
At stake is the largest-ever U.S. military contract, worth more than $200 billion for 2,852 aircraft for the U.S. alone, and the potential of an additional $200 billion from foreign sales. At this point, neither company has made any commitment about where the fighters would be built. However, there is a good chance that at least part of the work would be done in Los Angeles.
But even without the JSF work, L.A.’s aerospace industry is going to be busy. Raytheon’s slice of the F/A-18 contract will come to about $467 million over the term of the agreement. In March, the company landed a separate contract worth over $200 million to upgrade existing radar systems for the U.S. Navy, the U.S. Marine Corps, and the Royal Australian Air Force. That work will also be performed at its El Segundo Electronic Systems division.
White sees these contracts as signs of a modest improvement for the Southern California aerospace/defense industry in the near term after a number of very lean years as federal defense spending becomes more generous. However, Raytheon does not plan to go on a hiring spree as a result of the F/A-18 contract.
“We have between 100 and 200 people working here on the APG-73 radar system, depending on the volume of work,” said White. “No doubt we’re going to be at peak production levels for the coming years, and it is conceivable that we need to do additional hiring. But there are no plans to do so at this point.”
Northrop Grumman, meanwhile, is looking forward to an even larger share of the $8.9-billion F/A-18 contract. The company’s portion will amount to between $3.1 billion and $3.6 billion, given that it performs about 40 percent of the total work on the fighter.
Northrop will construct the aft and center fuselage systems and vertical tails for the fighter jets, as well as integrate all subsystems at its Air Combat Systems facility in El Segundo. Final assembly of the F/A-18 is going to be done at Boeing’s St. Louis plant, with General Electric Co. providing the engines.
A previous generation of the F/A-18 is already Northrop’s major program in El Segundo, employing about 2,000 workers, according to company spokesman Jim Hart.
“The new contract is certainly welcome in so far as it lends stability to the program,” said Hart. “But for now, we don’t anticipate that we have to expand the current workforce.”
Political decisions
In addition to the two principal subcontractors, the F/A-18 project will also provide plenty of work for the many small and mid-sized subcontractors operating in the L.A. area. According to Hart, 70 percent of the work on programs of this kind is usually outsourced to suppliers, which remain heavily concentrated in Southern California, in general, and in Los Angeles, in particular.
Although the F/A-18 contracts alone are not expected to lift the local aerospace/defense industry out of the doldrums, industry observers are optimistic that the worst might be over for now.
“The F/A-18 program will help to maintain a good, solid base in the (L.A.) area,” said Paul Nisbet, president of PSA Research Inc. in Newport, R.I. “A lot of production is still done in Los Angeles, and that may start to increase because Republicans in Congress have been pushing for large increases in the defense budget. There’s also no question, that if George Bush gets elected, that will be good news for the defense industry.”
Indeed, after a period of cutbacks in the years following the end of the Cold War, the U.S. defense budget bottomed out in 1998. Since then, it has been growing at a modest pace, and this year President Clinton is proposing a 5 percent, or $13.5 billion, increase putting the total budget at $291 billion.
That amount is likely to increase before the budget is approved by Congress, as the military is seeking a $30 billion increase, and lawmakers are itching to spend the budget surplus and curry favor with their constituents in an election year.
