image

0

When word flashed on news wires that Northrop Grumman Corp. had agreed to be acquired by Lockheed Martin Corp., it represented more than just another huge takeover deal. For Los Angeles, Northrop was the last of the big aerospace companies to be snapped up by outside players.

You remember aerospace. Until just a few years ago, it was a linchpin of L.A.’s economy, employing more than 274,000 workers and accounting for a hefty share of the region’s highest-paying jobs.

For much of this century and especially since World War II Los Angeles has been at the vortex of the aerospace business. Many of the industry’s pioneers from Donald Douglas to Jack Northrop to Clarence “Kelly” Johnson made their mark in Southern California factories.

As the Cold War heated up in the ’50s and ’60s, so did L.A.’s domination of the industry.

But today, it’s all changed. Los Angeles is just one of many stars in the nation’s aerospace constellation. Today, places like Bethesda, Md., Marietta, Ga. and Seattle are where commercial and military hardware are being conceptualized and manufactured.

Consider the recent consolidation:

Lockheed merged with Martin Marietta in 1995; Rockwell International Corp.’s space and defense group is under Boeing Co.’s wing in Seattle; and Boeing will soon have Douglas Aircraft Co., the Long Beach unit of McDonnell Douglas Corp.

And now the announcement this month that Northrop is to be purchased by Lockheed.

In each of these deals, an L.A.-based operation is being taken over by an out-of-state acquisitor.

“In the post-Cold War era, Los Angeles has lost a disproportionate amount of its aerospace,” said Tom Lieser, associate director of UCLA-Anderson Forecast Project. “In addition to the jobs lost, the loss of headquarters meant a loss of major corporate leadership and civic participation.”

In 1996, L.A. County only had 139,000 workers in aerospace/high-tech, making it the county’s sixth largest employment sector, according to the Economic Development Corp. of L.A. County.

Of course, aerospace still has a signficiant presence here. In fact, some argue that Southern California has become a key center for work in satellites and electronic components, two of the industry’s key sectors.

“It doesn’t have as many prime contracts, but Los Angeles is still extremely important,” said David Braunstein, president and chief executive of the California Manufacturing Technology Center and a former aerospace executive.

“Most of the large companies with the prime contracts bring in 70 percent of the parts and components they use to build, and L.A. has thousands of suppliers. I mean, 25 percent of what Boeing uses in Seattle comes from Los Angeles,” he said.

Michael Beltramo, president of the aerospace analyst group Beltramo & Associates in Bel Air, goes so far as to say that L.A.’s current aerospace strengths leave it where it started back in the 1920s and 1930s.

“What we’ve retained here is the thing that made us strong in the first place technical excellence,” said Beltramo, formerly an aerospace researcher with the Rand Corp. “We’re a center for innovation, just like we started out.”

Nevertheless, the dynamics have drastically changed. Not only has the focus shifted from making planes to making components, but so have the players. Instead of several multibillion-dollar aerospace contractors, L.A. is now becoming a center for subsidiaries as well as small- to medium-sized subcontractors that feed off the big players.

Los Angeles will have to develop its “entrepreneurial ethic” if it is to harvest the potential riches of its technological base, said Jack Kyser, the EDC’s chief economist.

“Right now,” he explains, “there isn’t the entrepreneurial ethic of a Silicon Valley, because we for so long had the Department of Defense to rely on for a customer. But this ethic will have to develop, and in the early part of the next century I think it will lead to some very interesting new companies.”

Lieser, at UCLA-Anderson Forecast Project, is less optimistic. He pointed out that aerospace jobs pay uniformly higher wages than any of the industries said to be taking up the slack, like film production. And so it will be a monumental challenge for the county to replace the 150,000 or so high-paying jobs it has lost.

How did things reach this point?

It starts, of course, with the end of the Cold War. During the Reagan era, 6 percent of the federal budget went to defense and about a quarter of that went into the Southern California aerospace industry.

It was clear since the late 1980s that military spending would fall, creating financial pressures among the nation’s leading military contractors.

Paulson said he conducted a study in 1988 that predicted massive consolidation and that there would be winners and losers.

“The problem was that back then the (attitude) was, ‘we have more work than we need, so let (the relocating operations) go,’ ” said Paulson.

That nonchalance was understandable. Despite occasional dips, Southern California always had a reliable aerospace base. Which is perhaps why California’s representatives in Congress never made the industry’s needs a major priority.

“The government is a large aerospace customer, and California never has been particularly good at staying on the right congressional committees,” Braunstein said. “If you look at the committees that support manufacturing, there is still no one from California on them.”

It’s a stark contrast to, say, then-Sen. Sam Nunn, D-Ga., who is credited with steering Lockheed’s manufacturing operations in the early 1990s to Marietta, Ga. At the time, it was a stunning blow to California’s aerospace dominance but it would only be the beginning.

In 1993, Hughes Aircraft Co. announced the consolidation of its missile facilities in Canoga Park, Pomona, San Diego and Rancho Cucamonga to Tucson, Ariz.

“A part of this consideration is the economic environment of California,” said C. Michael Armstrong, then chairman and CEO of Hughes. California, he said, “is no longer a competitive place to do business.”

As Paulson noted: “Los Angeles was a place with high land costs, high labor costs, and so when it was time to choose where to consolidate to, why would you choose Los Angeles?”

Actually, there are a number of reasons, which is why the local outlook for aerospace is not as bleak as it might appear.

For one thing, Los Angeles retains a formidable infrastructure of engineers, designers and others who are not so easily available in other parts of the country.

Indeed, Los Angeles is still recognized as perhaps the leading innovation center of satellite and communications technology, with the local division of TRW Inc. and locally based Hughes Electronics Corp. leading the way.

What’s more, analysts say that with its concentration of high-tech universities and support companies, Los Angeles has little to fear in terms of the industry being totally uprooted.

“You can’t spread that sort of capability around, it has to be concentrated,” Paulson said. “I think that a lot of the people who work in this industry, if you tried to transfer them, they wouldn’t go because they want to be at the center of things.”

Economists point to a silver lining from the industry’s local devastation, saying it has forced the economy to evolve in ways it would not have had to otherwise.

No posts to display