Aerospace/20″/mike1st/mark2nd
By DANIEL TAUB
Staff Reporter
The future of L.A.’s aerospace industry won’t be as glamorous as it was in the days when aircraft assembly lines dominated the area. Instead, it will depend on the region’s large base of subcontractors.
Over the next several years, these local subcontractors operating clean rooms, software houses and metal-bending shops from the Antelope Valley to the South Bay will follow the lead of their customers: merging and acquiring in order to survive.
Why? Because the subcontractors’ customers primary aerospace contractors have themselves merged with one another to the point where only a few major companies now remain. And the remaining “primes” driven by the cost cutting that came as a result of their mergers, a more competitive environment and economic troubles in Asia are more interested than their predecessors in squeezing subcontractors for all they’re worth.
In the old days, if Lockheed Corp., for example, didn’t want to pay enough for a fuselage section, a metal fabricator could go to Martin Marietta and sell that company a similar part. That enabled subcontractors to keep their prices high. Today, however, that’s not possible.
Subcontractors are merging “so they can become better suppliers for their key customers,” said David Van Buren, president and chief executive of Tecstar Inc., a City of Industry-based maker of solar panels for Lockheed, Loral Space & Communications, Boeing, Orbital Sciences Corp. and others. “I should expect this consolidation activity to really stay very busy during 1999.”
Tecstar itself reflects the consolidation activity. In 1996, while many of the primes were still merging in large numbers, Tecstar bought a Durham, N.C.-based electric systems division from Honeywell Inc. That division is now one of the Tecstar’s three main units.
“We continue to look at firms that might be attractive in that same regard,” Van Buren said, echoing the consolidation tendencies of many subcontractors.
Because L.A.’s subcontractor base is dominated by small businesses, many with fewer than 50 employees, mergers and acquisitions are not expected to result in a large number of layoffs. In addition, any potential losses are likely to be offset by the growth of the space industry. Given the presence of companies like Tecstar and Hughes Electronics (the world’s largest satellite maker), Los Angeles is well represented in that arena.
“I don’t see major layoffs,” said Jon Kutler, president of Century City-based Quarterdeck Investment Partners Inc., an investment bank specializing in the aerospace industry. Kutler added that further layoffs in the defense and commercial airplane areas, which have been weakened by the economic crisis in Asia, will be offset by growth of space.
That area is being driven by the large demand for commercial communications satellites, which are used for everything from relaying computer data to direct-to-home satellite television services. Demand for the rockets that launch those satellites into orbit is growing as well. That’s not only helping large companies like Hughes Electronics Corp. and Boeing Co., but their smaller suppliers.
Furthermore, Kutler said, many jobs in the commercial plane and defense areas are easily transferable to space so not only will growth in space offset declines in the other sectors, but the workforce is likely to be largely comprised of the same people.
Indeed, aerospace employment in L.A. County seems to be remaining steady at least over the last couple of years. That employment, however, is down substantially from its peak of 1990, when there were 123,300 aircraft and parts workers in the county. This year, the number is about 64,100.
In one area with a large number of aerospace subcontractors, the fabricated metal products sector, L.A. had 48,400 workers in November. That was the same number of workers as in the previous two months and up 0.8 percent from its year-earlier level.
