John Byon has reason to be concerned that Boeing Co. has announced it has directed suppliers to stop work on the C-17 military cargo plane.

As president of Venture Aircraft Inc. in Compton, Byon gets more than a quarter of his business from the C-17, making the sheet metal subassemblies for the massive aircraft.

But Byon is not panicking. With plenty of warning about the plane's shaky funding, he's been looking for other work.

"The C-17 shutdown will no doubt take a toll on our company. But we have a lot of new work that we've already established that should help us to offset this loss of work," Byon said last week.
And therein lies the surprise.

Amidst all the doom and gloom predictions of big layoffs sweeping through the Southern California economy following Boeing's announcement, the impact on the more than 600 local suppliers for the C-17 appears at first blush to be fairly minimal.

Sure, Boeing's main assembly plant in Long Beach will be devastated as up to 5,500 jobs are lost or shifted out of state. And some local companies highly dependent on the C-17 may have to make some layoffs. But thanks to a two-year lead time to transition out of the likely doomed program and a strong commercial aerospace sector, many suppliers are confident they will emerge with few, if any, layoffs.

"Because the commercial aerospace sector is rather robust right now, you have a potentially very bad news situation being turned into a 'We can survive this,' attitude among suppliers," said Jack Kyser, chief economist with the Los Angeles County Economic Development Corp.

Vast supplier chain

The network of C-17 suppliers is huge. Nationwide, there are roughly 700 direct suppliers for the program in 42 states, with hundreds more indirect suppliers. In California alone, there are 346 direct suppliers accounting for 12,000 jobs and $3.8 billion in economic impact, according to Boeing.

For every direct supplier, there are at least two indirect suppliers, which helps explain the large number 632 to be exact of companies supplying parts or services to the program in Los Angeles County. That means tens of thousands of jobs in L.A. County somehow tied to the C-17 program.

The suppliers range from huge aerospace competitors like Los Angeles-based Northrop Grumman Corp. to mid-sized companies like Los Angeles-based Ducommun Inc. to small firms like Valencia-based Aircraft Hinge Co.

This vast network of suppliers evolved by design and is typical among prime contractors for military projects. Spreading contract dollars around builds political support in Congress that has in the past made it hard to cut funding.

So far, though, that strategy has had only limited effect for the C-17. The Air Force has ordered 180 of the cargo jets since the program began; 154 of those have been delivered. Congress has added enough funding for three additional planes while foreign governments have ordered another 15; that's only enough to keep the program going another six to nine months, extending the production closing date from late 2008 until mid-2009.

Beyond this, no additional planes have been ordered or funded, despite a full-court press from the California congressional delegation and from Gov. Arnold Schwarzenegger. And because of the long lead time needed for C-17 components from suppliers, Boeing notified its suppliers via e-mail on Aug. 18 that it was halting all future parts orders.

While most of the attention was focused on Boeing's Long Beach plant where 5,500 workers assemble the plane, the impact of that decision rippled through the supplier community. That impact is likely to be modest at most companies but not all. Some local companies will be hit hard if the C-17 program comes to an end.

Take Compton-based Forming Specialties Inc., which makes curved frame parts for the skin of the C-17. The military cargo plane brings in $3 million a year in orders for the company, "just under 50 percent of our business," said owner Darrell Madole.

"If this program ends, it will cause layoffs here," Madole said. "We'll try to diversify, but it's awfully hard to make up for all that lost business."

Madole said layoffs among his 32 employees could come as early as next year unless the program is extended. Exactly who would be laid off and when the layoffs would occur have not yet been determined.

While Forming Specialties was the only company the Business Journal contacted that said layoffs were likely, several other facilities indicated layoffs were possible if their C-17 work could not be entirely replaced.

One such supplier, Gardena-based Brek Manufacturing Co., makes floor panels, bulkheads and wing components for the jet, which comprises about 38 percent of its $40 million a year in revenues. Brek president Jon Stannard said the timing of Boeing's e-mail was crucial.

"This was huge; we learned they extended the program by a few months, but just as important, for the first time they drew a line in the sand on the end date," he said. "While we're disappointed to see the program come to an end, it makes it easier to plan from a business perspective if you know when a program is ending."

Stannard added that the company has pursued other work, including contracts for another Boeing aircraft, the 787 "Dreamliner" commercial aircraft, which is scheduled to begin production assembly at Boeing's Everett, Wash., plant next year. The Dreamliner would be a large plane capable of carrying up to 330 passengers.
"We've also got some orders coming in from Japan," he said.

Stannard said that given the current strength of the aerospace industry, he was confident that most of the C-17 work could be replaced. This bears up the observations of industry watchers, who say the commercial side of the business is doing well.

Strong commercial sector

"Commercial aircraft builds are very strong," said Jon Kutler, a longtime industry investor who recently founded the investment firm Admiralty Partners Inc. "For most quality suppliers there is likely to be other work to replace the C-17 loss," Kutler said.

But whether all the work can be replaced remains the biggest unanswered question, which is why some suppliers are not categorically ruling out layoffs.

Pomona-based Consolidated Precision Parts Inc. indicated there might be a few layoffs among its 375-person workforce at two local subsidiaries if the program ends, though that was far from certain.

One subsidiary, Cast Parts Inc., employs 247 making alloy castings, some of which go on the C-17 thrust reverser (which acts to slow the plane in preparation for landing). The orders comprise roughly 20 percent of the unit's business.

Customer support manager Alan Hill said Cast Parts was looking for other contracts to fill the void that would be left if the C-17 program ends as now scheduled in 2009. "Potentially, there could be layoffs if we cannot find enough business to replace this," he said.

A similar outlook could be found at the other subsidiary, Consolidated Foundries. That facility makes parts that go on the wings and doors of the cargo jet; most of its products go through another C-17 supplier, Dallas-based Vought Aircraft Industries Inc.

While Consolidated Foundries' C-17 work only comprises between 10 percent and 15 percent of its business, if that work cannot be completely replaced, it could affect its standing among banks and financiers, said sales manager Ernestine Trufant. "We would probably have to lay off some workers," she said.

Meanwhile, at Ducommun, any talk of layoffs is "premature," according to company chairman and chief executive Joseph Berenato. Ducommun's Aerostructures division supplies fuselage panels and the leading edges of the wings for the C-17.

As the oldest continually operating company in California (founded in 1849), Ducommun has weathered countless business downturns, allowing Berenato to take the long view.

"Eventually, all programs come to an end," Berenato said of the C-17, which represents about $27 million in annual sales for the company, or 9 percent of its total $300 million in sales.

"We're hoping for new contracts on other projects," he said. The Boeing 787 plane "is a good place to look because it's a brand new aircraft," Berenato said.

But betting on the commercial sector to make up for lost C-17 work can be risky, especially if there's another terrorist threat or an economic slowdown that forces a downturn on the commercial side.

"It could be a much different picture if the commercial side deteriorates because of another terrorist attack or increasing financial instability among the airlines," said Brek's Stannard.

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