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Orange County Defense Firms Don't Expect Big Job Cuts

1989 THE YEAR AHEAD. Fifth in a series of reports on trends affecting Orange County businesses and their employees. Today, a look at reduced defense spending and its impact on aerospace contractors.

December 29, 1988|DAVID OLMOS | Times Staff Writer

As the new year nears, the prospect of a stingier defense budget is causing concern among some Orange County aerospace and defense contractors.

But even though one forecast predicts a 3% decline in the number of aerospace jobs in Orange County in 1989, executives at some of the largest county aerospace and defense operations aren't expecting major employment cutbacks.

Industry executives say healthy growth in commercial aircraft and space programs should offset some of the cuts in defense business. And they note that the outlook for some Pentagon outlays, such as the purchase of sophisticated electronics gear, actually is brighter.

In Orange County, the number of jobs in the aerospace industry is estimated at 95,900 this year, about the same as in 1987, but the count is expected to decline by 2,900 in 1989, according to estimates in a Chapman College economic forecast.

County aerospace jobs have risen by 20% during the past 5 years, mostly in response to the Reagan Administration's defense buildup. In 1983, local aerospace firms employed 80,000.

Nationwide, the number of jobs in the aerospace industry dropped by 21,000 to 1.3 million in 1988, according to the Aerospace Industries Assn. The trade group estimates that the industry will lose another 14,000 jobs in 1989.

Industry sales declined for the first time in 17 years to $111 billion, down from $112 billion in 1987.

Parker Bertea Aerospace President Robert H. Rau says the outlook is mixed for the Irvine-based company, which divides its business almost equally between military and commercial aircraft. Rau predicts employment will grow 5% to 8% from its current level of 3,400.

Parker Bertea, a unit of Cleveland-based Parker Hannifin Corp., manufactures fluid systems and components for a wide range of commercial and military aircraft.

"The commercial side is . . . growing and is very strong," Rau said. "If the economy stays healthy, then that growth will certainly continue."

But after 5 years of double-digit growth in its defense business, Rau sees military sales "flattening out" during the next couple of years.

Lawrence M. Harris, an aerospace analyst with Bateman Eichler, Hill Richards, said an expected increase in civil aerospace business should offset declining military sales for the overall industry.

Aerospace companies involved in National Aeronautics and Space Administration space programs and certain segments of the defense business should fare better than those that depend primarily on big-ticket military programs, he said.

One military sector where prospects appear bright is defense electronics, an area in which Orange County is particularly strong.

"While there may be fewer new programs," Harris said, "there will be electronics upgrades to improve weapons' accuracy, communications and things of that nature."

In contrast to Parker Bertea, which can look to commercial contracts to pick up the slack for faltering defense sales, Anaheim-based Interstate Electronics is heavily dependent on Pentagon business.

Interstate makes test instruments, missile-tracking systems, displays and signal processors.

Interstate President Richard A. Foster said he is pessimistic about the outlook for Pentagon spending. He anticipates that growth in defense outlays will lag behind the rate of inflation by 3% to 5% annually for the next several years.

"Some of my colleagues are more optimistic than I am," Foster said. "I think there are still some rose-colored glasses left over from the first 6 years of the Reagan Administration. But now we've got to grapple with this deficit, and defense will have to take its share of the cuts."

Despite the defense cutback, Interstate's employment should increase by more than 100 people to about 1,700 next year. Most of that increase, however, will be attributable to the transfer of Figgie International's Hartmann Systems division, which makes computer terminals for the military, from Long Island, N.Y., to Anaheim. Figgie is Interstate's parent company.

Several defense firms say they are just beginning to feel a slowdown in work on major projects that began during the Reagan Administration's massive defense buildup in the early and mid-1980s.

Employment at Hughes Aircraft's Ground Systems Group hit a peak of about 15,000 in 1984-85 but has fallen steadily ever since, dropping by 800 jobs to 11,800 in the past year. Scott Rayburn, a spokesman for the Fullerton unit, said employment will remain stable in 1989.

"We had a lot of business that came here in the early 1980s," Rayburn said. "Those contracts are now completing production phases, and there simply isn't the need to sustain that work force."

Despite the continued decline in jobs, Rayburn said the business outlook is "very strong" for Ground Systems. "In the current defense climate, an increase in business does not automatically equate to increases in employment," he said. "The key to any company's success now in the tight market is being competitive."

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