Major Cuts at the DWP
Facing a $4 billion debt in its electric power generating operations and the future deregulation of the power market, the Los Angeles Department of Water and Power may undergo a dramatic reorganization that would stabilize the agency’s finances without the need for a rate hike.
New chief S. David Freeman, who was appointed DWP general manager by Mayor Richard Riordan last summer, has proposed a five-year reorganization plan designed to save about $2.1 billion. Under the plan, 2,000 of the 7,000 electrical generation employees who are mostly managers and engineers would be laid off by Feb. 1 without large severance payments.
Freeman also proposed selling most of the DWP’s 600 cars, merging the agency’s helicopter fleet with the one owned by the Los Angeles Fire Department and possibly selling the DWP’s San Fernando Valley office.
If implemented, the proposal would be the most dramatic in the history of the DWP.
Riordan has expressed his support for the plan, which will undergo an extensive debate in the City Council. While the council has been historically wary of large-scale layoffs, the fact that user rates would not increase is expected to help the proposal’s chances.
Boeing Blues
Seattle-based Boeing Co.’s chairman Philip Condit indicated that his company is ready to cancel some major passenger jetliner programs carried out at its Long Beach Douglas Aircraft division. Though Condit did not specify which programs would close, analysts predict that Boeing will most likely cancel the MD-80 and MD-90 aircraft families.
The future of the Long Beach facility, however, is likely to be secure because Boeing is getting close to announcing its backing of the new MD-95 jetliner currently in development at Douglas. The fate of the 10,000 Douglas employees remains more uncertain.
The 450-acre Long Beach complex is scheduled to undergo a detailed review regarding its profitability. Boeing intends to completely integrate Douglas’ operations with its own, and as a result may transfer some production activities from its Puget Sound facility to Long Beach. The decision regarding the Douglas facility will be made in February.
Shrinking Oil Profits
Atlantic Richfield Co. and Unocal Corp. posted lower third-quarter earnings, due in part to lower worldwide oil prices.
L.A.-based Arco’s profit fell 10 percent this quarter because of the lower oil prices and a lower profit margin from its chemicals business; its profits from operations fell from $479 million to $431 million. However, the company still outperformed analysts’ estimates because refining profits on the West Coast were higher than predicted.
El Segundo-based Unocal’s profit fell by 20 percent, also due to lower worldwide oil prices and because of decreased U.S. production of oil and natural gas. Earlier this year, Unocal sold its refining business to Tosco Corp. It consequently could not offset the losses with profits from the sale of gasoline.
Oil prices for the third quarter averaged $19.80 per barrel on the New York Mercantile Exchange, compared with $22.30 for the like period a year ago.
Cathedral Purchase
Ira Yellin, a developer who has restored several downtown historic landmarks, obtained the exclusive option to buy the 101-year-old St. Vibiana’s Cathedral.
Yellin and Roman Catholic Archdiocese officials confirmed that Yellin Co. has an option on the earthquake-damaged cathedral until the end of 1998.
Yellin announced that he would like to attract the U.S. Immigration and Naturalization Service to a proposed office site next to the cathedral and convert the church into a reception center.
A spokeswoman for the INS, which has been considering a plan to relocate its L.A. headquarters, said the agency is not currently interested in the site.
Yellin is also considering a plan to turn the cathedral into a social center that would lie in the midst of a housing complex.
The cathedral so far has been saved from demolition by preservationists, who took the archdiocese to court. Yellin’s option would not prevent the archdiocese from demolishing the church if it gets permission to do so by the city, though Yellin hopes to renovate the existing structure.
Republic’s Expansion
In a move that will make it a major player in the local automotive market, Florida-based Republic Industries Inc. is buying the Southern California Auto Group and its 20 dealerships.
The deal is just the latest move in Republic’s expansion in the retail auto market. Republic also announced last week the purchase of Hollywood Nissan in Florida, Sutherlin Automotive Group in Georgia, Hillard Auto Group in Texas and BMW of Bellevue in Washington. Republic now owns almost 200 dealerships in 17 states, and is the largest single owner of new-car dealerships.
Company President Jerry Heuer has said that over the next year and a half, Republic intends to buy other dealerships in California, as well as open six of its used-car stores and a used-car reconditioning facility in Southern California. Republic already owns Magic Ford in Valencia and Champion Chevrolet in Valencia.
Republic’s AutoNation superstores are warehouse-style car retailers offering low prices, haggle-free deals and a wide selection of new and used cars.
Unemployment Boosts Gang Violence
A report released last week concluded that the single most significant factor contributing to L.A.’s gang violence problem is unemployment in gang-turf communities.
The researchers, a group of doctors from Harvard Medical School, USC and UCLA, determined that per-capita income and employment influenced the gang-related homicide rate more than other economic, social or demographic factor.
Consequently, the study suggests that community economic programs promoting employment would be the most effective way of reducing gang violence.
Some criminal justice experts have questioned the study, concerned that the conclusion is too sweeping. One sociologist pointed out that gang homicides almost exclusively occur in minority neighborhoods, which introduces a multitude of factors that the study did not examine, such as a lower rate of public social services.
Arena Finally Approved
A development agreement for the $300 million downtown sports arena was finally approved by the City Council last week.
The Council’s 12-1 vote allows developers to obtain financing and begin preliminary work on the project. Construction could begin as early as January, according to developers, and may be completed in late 1999.
Under the financial and environmental agreements, developers will receive $12 million from the Community Redevelopment Agency toward the purchase of land for parking lots.
Council members said corporate advertising will assist developers Philip Anschutz and Edward Roski in repaying the city for $58 million in bonds. A $100-million corporate sponsorship deal with Staples has yet to be finalized.
Northrop Wins Settlement
Northrop Grumman Corp. won a $20 million settlement last week from the Justice Department, ending a legal saga that began in 1986 over the MX missile guidance system the aerospace company was contracted to build for the government.
Northrop filed a claim in 1988 against the federal government for its allegations of improper billing in the firm’s contract to build a guidance device for the MX. The claim was held in abeyance until a related matter passed through the courts. Northrop won the related claim in 1996. The Justice Department subsequently agreed to pay the settlement, which was included in the company’s third-quarter earnings.
Compiled by Sara Fisher
