Northrop Grumman Corp. recently announced a four-year, $46 million government contract to develop an aircraft system that will provide critical information to soldiers in the field.
The work is being done at the company’s El Segundo plant.
Other recent announcements include the completion, in Redondo Beach, of a final mirror segment for NASA’s planned James Webb Space Telescope, and a step-up in production of F-35 airplane fuselages in Palmdale.
To the naked eye, it would appear that things are bustling for the aerospace giant in Los Angeles County, where it is the second largest private-sector employer with 21,000 workers.
But this summer, the company had some disconcerting news, too: After searching for months, it chose Falls Church, Va., as the new location for its headquarters, where it will move next year.
L.A.-area officials had known since January that the company was moving its Century City executive offices out of the county, but now that the departure is getting closer, there is a growing fear Northrop ultimately may reduce its mammoth local manufacturing operations.
As a result, county economic development officials have stepped up their outreach to the company.
“We always regret the loss of a company headquarters. Any region does,” said Bill Allen, chief executive of the Los Angeles County Economic Development Corp., who has been meeting with company officials. “There’s always the risk that they will move other operations elsewhere.”
Company representatives are quick to assert that they are not abandoning Southern California or Los Angeles County, in particular. They say the move to Northern Virginia is a strategic decision that will put Northrop’s top executives in proximity to their primary customer, the Defense Department in Washington, D.C.
“Northrop Grumman is neither leaving Southern California nor reducing its commitment to the area,” said company spokesman Randy Belote.
The move will relocate or eliminate 360 high-paying jobs at its high-rise offices at 1840 Century Park East, but the company said its vast research, development and production work force, as well as 1,821 county subcontractors, will not be affected.
In fact, Northrop claims that its new location near the Pentagon should result in more work for its operations here and throughout California, where it employs a total of 28,000 workers in 22 counties.
“We will still be building the airplanes and satellites and everything else we build in Southern California,” Belote said. “We expect the move to enhance business opportunities and increase our contracts. We anticipate more work that eventually will find its way to Southern California.”
Departure questions
Local business leaders and industry experts aren’t so sure.
“It’s not good news,” said Gary Toebben, chief executive of the Los Angeles Area Chamber of Commerce. “We wish they were staying here where they’ve been for the past 70 years.”
Keith Volkert, chief executive of Satellite Consulting Inc., an aerospace consulting service in Palos Verdes Peninsula, sees the departure as a big blow.
“Anytime a major company like Northrop moves out of the state it’s not good for the state’s aerospace community,” he said. “Decisions are made based on the best interests of the corporation and, though it’s an international corporation, there’s always a local aspect to everything. When the corporate officers are not in the state, the state’s best interests are not at the forefront of their minds.”
Northrop’s defection comes at a difficult time for Southern California’s once-thriving aerospace industry. Since the early 1990s collapse of the Cold War and the defense-related contraction that came with it, the region has lost as many as 200,000 aerospace jobs, according to some estimates. McDonnell Douglas, once the biggest employer in Long Beach, disappeared in 1997. Lockheed Corp., formerly headquartered in Calabasas with major operations in Burbank, merged with another company to form Lockheed Martin Corp., headquartered in Bethesda, Md. Rockwell International, with key facilities in Canoga Park and Downey, is now owned by Chicago-based Boeing Co.
Northrop itself has a long association with the region. Originally formed in 1939 in Hawthorne, the company, with 120,000 employees worldwide, now has five major locations throughout the county: Redondo Beach, where 8,000 employees work on space systems; El Segundo, where 5,000 develop and produce airplanes; Palmdale, where 2,800 build aircraft; Woodland Hills, where about 1,400 develop navigation systems; and Azusa, where about 1,000 people work on space-based electronics.
Other Northrop facilities are in Bellflower, Carson, El Monte, Gardena, Hawthorne, Lawndale, Long Beach, Pasadena, Pomona, Torrance and Van Nuys.
(With 19,000 employees, Northrop ranked second on the Business Journal’s annual list of largest private-sector employers in the county published Aug. 30. The figures were provided by Northrop, but Belote said the company has 21,000 employees here.)
With a total county payroll of $2 billion at stake, Allen said the LAEDC is hopeful that Northrop’s decision to move to Virginia may get it more defense work that will benefit Los Angeles.
“We remain guardedly optimistic that Northrop Grumman’s strategy (of moving closer to its customers) will bear fruit both for them and for us,” he said. “In the meantime, we have to remain vigilant to maintain them here.”
His organization recently hosted a meeting at Northrop’s Woodland Hills’ facility during which executives met with representatives of community colleges, state universities and private educational institutions to discuss the type of education and training it requires of its employees.
“We have to make sure that we continue to supply the high-quality work force that the company has found here,” Allen said. “We are in steady dialogue with Northrop Grumman about assuring a ready supply of highly trained workers in disciplines the company needs.”
Potential pitfalls
The availability of skilled workers, of course, is far from the only variable. There is the looming issue of whether defense spending will be cut amid the huge federal budget deficit now that U.S. combat operations have ended in Iraq.
In 2009, Northrop had flat revenue of $33.8 billion and had a backlog of orders worth $69 billion, while swinging to a $1.69 billion profit after losing money in 2008. More recently, it beat analysts’ second quarter earnings projections, posting net income of $711 million, nearly double from a year earlier.
Strong sales of its radar systems and unmanned planes boosted sales, and company Chief Executive Wesley G. Bush said in a conference call that the company was strategically ready for any slowdown in military spending due to its strength in unmanned aircraft, cybersecurity and other high-tech areas where demand should remain strong.
Yet at least one analyst sees some turbulence ahead.
John Staszak, a senior analyst for Argus Research in New York who follows the company, is neutral on whether to recommend the stock to investors as military operations end in Iraq.
“The defense budget will come under pressure,” he predicted. “This could really cause defense investors to change their outlook. It’s still a good company with lots of backlog, but investor sentiment is really going to change.”
Jason Gursky, a San Francisco-based analyst for Citigroup who follows the aerospace and defense industries, has a more positive take, believing Defense Secretary Bill Gates will spend in high-tech areas that are Northrop’s strength.
That could mean additional work for the company’s county operations.
“There’s a pretty well-installed base of employees and abilities in Southern California,” Gursky said. “They certainly won’t get left behind.”
