New Heights for Region's Aircraft Maintenance Business
L.A. may have lost its once-mighty role in the aerospace industry, but it has become a multi-billion-dollar center of aircraft maintenance and upgrade work that's steadily growing each year.
From classified work on the B-2 bomber to flight-control systems on commercial airplanes, the so-called "after-market" work can mean profit or loss for some smaller subcontractors.
Total revenues countywide from maintenance, modification, repairs and upgrades are expected to reach $3.1 billion this year, up from $2.8 billion in 1998, according to David Myers, president of the Greater Antelope Valley Economic Alliance.
Employment has climbed to 10,300 positions from 7,000 in 1998 and is projected to increase by 3,000 jobs annually through at least 2005, industry sources said.
"The biggest issue is that U.S. military hardware is getting old," said Jon Kutler, president of Quarterdeck Investment Partners Inc., a Century City defense investment bank. "We're not buying enough airplanes and ships to keep the average life at a level which avoids major repair costs. It takes more (money) to keep an old one deployed than a new one."
The largest single employer: Northrop Grumman Corp.'s B-2 bomber program in Palmdale. It will generate $407.6 million in maintenance and upgrades this fiscal year, up from only $50 million in upgrade work in fiscal year 1999, the year before production on the plane ended.
Its 1,100 employees restore the 21-plane fleet's outer skins and its radar-evading coating, install new communications systems and reconfigure the weapons bay and software so the plane can simultaneously carry a variety of precision-guided weapons. Congressional and defense officials have criticized the B-2 for being in need of expensive maintenance too often. Cracks have also been found in the aft portions of 16 of the planes.
Raytheon Co., which has formed a company-wide business unit to focus on after-market work, just landed a $116 million contract for its El Segundo-based Air Combat and Strike Systems plant to upgrade radar systems on the Air Force's F-15 Eagle fighter jet.
The market has become so important to Moog Inc.'s Aircraft Group in Torrance that it now accounts for 35 to 40 percent of all revenues and makes the difference between the business unit turning a profit or not, company officials said. After-market work increased to a projected $39 million this year, up from $20 million in 1998.
About 100 of the Torrance facility's 425 workers maintain the leading edge flap actuation, wing fold and weapons bay door systems they built for military aircraft like the Navy F/A-18 and Air Force F-16 jet fighters andC-5 cargo plane and B-1 bomber.
Employees also work on the flight control systems on commercial airplanes, such as Boeing Co.'s 747, 767 and 777.
"We're working harder across the board to pursue that area of the business because that is where the profit is," said Dan Aynesworth, director of a Moog unit of mergers and acquisitions. "If you've got a production contract, there is no guarantee of securing the after-market (contract). If you're in the systems and equipment business, you need the after-market to make the bottom line come out right."
Aynesworth would not reveal profit margins for after-market and production work, but Kutler said spare parts manufacturing produces the industry's highest profit margin.
Closure of production on many lines of aircraft, as well as the closure of military bases where much maintenance work is performed, plays a role in the market increase.
But analysts and defense officials attribute most of the increase to an under-funded fleet of jet fighters and bombers designed for Cold War battles and have since been over-utilized in the Persian Gulf, Kosovo and Afghan wars.
The Pentagon is now focusing on producing next-generation jet fighters, such as the Navy's F/A-18 Super Hornet, now in full production, the Air Force's F-22 Raptor, which began light production last fall, and the F-35 Joint Strike Fighter, which should begin full production within a decade.
The increases in maintenance contracts have come amid two production setbacks in Palmdale: the loss of the Space Shuttle maintenance program, costing 450 jobs and the $50 million to $160 million NASA spent per vehicle; and the closure of SR Technics' commercial airline maintenance facility, which employed 565 people and was billing $27 million annually.
Other local after-market operations include:
- Lockheed Martin Corp.'s 650 Palmdale employees who maintain and perform avionics upgrades on the Air Force's fleet of 51 F-117 Black Birds, the original stealth fighter.
- Honeywell Engines and Systems' 300 employees who maintain and upgrade the Torrance plant's environmental control systems for Navy F/A-18 and Air Force F-16 jet fighters, Boeing 737s, 747s and 767s and the heat transfer system for the International Space Station. Company officials would not reveal revenue figures except to say they increased 6 percent per year since 1998.
- Boeing's Long Beach-based C-17 cargo plane operation brings in tens of millions of dollars in upgrades annually, although the majority of work is done in San Antonio.
"What L.A. County is becoming from an aviation standpoint is the maintenance and modification center of the world," said Myers. "Our aerospace industry used to build planes. Now we design and fix them."
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