Subcontractors/18.5/dp1st/mark2nd
By DANIEL TAUB
Staff Reporter
The same fate that struck L.A.’s aerospace giants during the past several years is now hitting the industry’s next tier: local subcontractors.
Just as Seattle-based Boeing Co. snatched up McDonnell Douglas Corp. and Rocketdyne, and Lockheed Corp. merged with Martin Marietta (and moved its headquarters to Maryland), outsiders are taking over L.A. companies that supply parts and services as well.
Firms based in Pennsylvania, Virginia, England and elsewhere have scooped up metal-bending shops, fastener makers and parts distributors, from the South Bay to the San Gabriel Valley.
Subcontractors targeted by recent consolidations include Whittaker Corp., a Simi Valley maker of fire safety systems and fluid control valves for airplanes. The company announced in June that it is being bought by Meggitt plc, a London-based maker of aerospace electronics and controls, for $358 million and the assumption of $22 million in debt.
Also this year, Fairchild Corp., a Dulles, Va.-based manufacturer of aerospace and industrial fasteners, bought two local aerospace suppliers: Fullerton-based Kaynar Technologies Inc., a maker of fasteners and tools, for $267 million and the assumption of $98 million in debt; and Chatsworth-based Special-T Fasteners, an aerospace parts distributor, for $47.3 million in cash and stock.
“It’s absolutely a repeat of the majors,” said Jon Kutler, president of Quarterdeck Investment Partners Inc., a Los Angeles aerospace investment and research firm. “My concern is that, for the most part, it’s outsiders buying up L.A. companies, just like it was among the primes. We lost the battle of the prime contractors. If this isn’t corrected, you’ll find in five years we’ve lost the battle of the subs, and we’ll have significantly less employment in this sector.”
The effect so far on local employment appears fragmentary. Fairchild’s purchase of Kaynar Technologies resulted in 200 local employees being laid off. Fairchild also plans to close factories in Placentia and Santa Ana and combine those operations into an existing Fairchild facility in Torrance.
“Part of our plan and the selling of the Kaynar acquisition to the marketplace has been to consolidate production, eliminate two smaller facilities,” said Jeffrey Kenyon, vice president of finance for Fairchild.
But L.A. County’s overall fabricated metals products category, which includes much of the aerospace subcontractor base, had a workforce of 49,900 in June, according to the California Employment Development Department, up from a low of 44,900 in 1996 (though down from a high of 71,300 in 1984).
With Boeing, Lockheed Martin and the European Airbus Industrie growing primarily through consolidation, it long has been expected that their suppliers would have to merge as well to compete for a shrinking number of contracts.
Furthermore, prime contractors Boeing chief among them are reducing the number of subcontractors used and looking for cost-efficiencies among those that remain. That has spurred further consolidation, especially in L.A., which has a disproportionately large number of Boeing subcontractors.
But why are L.A. subcontractors being bought by outsiders rather than the other way around? Some speculate that when the primes were acquired by outsiders, local subcontractors found themselves with less business and aging facilities. As a result, those firms became acquisition targets for newer, more technologically up-to-date firms based out of the state.
Rohit Shukla, president and chief executive of the Los Angeles Regional Technology Alliance, said the comparatively high cost of doing business in California has meant that L.A. eventually would lose much of its labor-intensive manufacturing base.
But in its place, he maintains, is more creative and intellectual work that brings higher-paying jobs.
“It is not intrinsically a bad thing to happen to Southern California anyway,” Shukla said. “(L.A.’s) got to realize that its space in the world is specially aimed toward design, prototyping. Everything else, including manufacturing, is going to necessarily migrate elsewhere, where cost is a more essential driver.”
