The defense operations of Hughes Electronics Corp., long a symbol of Southern California's dominance of the U.S. aerospace industry, will be acquired by East Coast rival Raytheon Corp. in a proposed $9.5-billion deal announced Thursday that may cap a half-decade-long spree of defense mergers.
General Motors Corp., which owns Hughes, chose Raytheon's offer over a rival proposal from Northrop Grumman Corp., a Los Angeles defense company that eagerly sought Hughes' defense assets to help guarantee its leadership role in the industry.
The Hughes sale marks another painful step in Southern California's loss of influence in the U.S. aerospace industry. At one time, half a dozen major aerospace firms were headquartered in Los Angeles; today only Northrop Grumman remains.
Raytheon executives also raised the prospect that more aerospace layoffs may be coming in the aftermath of the Hughes purchase.
When the Hughes deal is completed, which is expected this summer, Raytheon will absorb about 40,000 Hughes Aircraft workers, including 15,000 in Southern California, who produce military radar systems, missiles, torpedoes and a variety of defense electronics. About 2,900 of those workers are in Orange County.
As with other aerospace mergers, many jobs are expected to be eliminated as Raytheon and Hughes eliminate overlapping functions and excess factory space. And the overlap could be especially acute in this deal because both companies are major producers of missiles and radar.
But Orange County is likely to weather things without much upheaval, economists and defense industry analysts say.
"It is not positive news, but it is not anything to worry about," said Esmael Adibi, director of Chapman University's Center for Economic Research.
The Hughes deal will lift Raytheon, based in Lexington, Mass., into the top tier of defense companies behind Boeing Co. and Lockheed Martin Corp. The Hughes assets will expand Raytheon's annual sales to about $21 billion, with $13 billion coming from defense.
The sale of Hughes' defense group--which carries the venerable Hughes Aircraft Co. name and dates back five decades to its development by the late billionaire Howard Hughes--also likely marks the last of several giant marriages among defense contractors in recent years.
The companies have been furiously merging to adapt to massive post-Cold War cuts in Pentagon weapons spending, and Hughes was one of the last major players still standing. Just a month ago, Boeing agreed to buy McDonnell Douglas Corp. for $13.3 billion in the biggest aerospace merger in history. That deal was announced just days after Boeing closed its $3.2-billion purchase of Seal Beach-based Rockwell International Corp.'s defense and aerospace operations.
The Raytheon merger "represents the best opportunity for Hughes' defense business to remain a competitive participant in the industry," GM Chairman John F. Smith Jr. said at a press conference in New York.
Only weeks ago, Raytheon also outbid Northrop Grumman for Texas Instrument Inc.'s defense operations. Northrop Grumman's back-to-back losses resurrected questions about whether Northrop Grumman has the size and clout to remain a defense leader in the 21st century.
Northrop Grumman Chairman Kent Kresa dismissed the questions Thursday, saying his company would still flourish because it remains competitive in its markets, which now mainly involve complex surveillance gear and other defense electronics.
Kresa said in an interview that Northrop Grumman also will never overpay in a merger, and that GM got his company's most sensible bid. "We're not going to chase something that won't pencil out for our shareholders," he said.
Raytheon Chairman Dennis J. Picard told the press conference that there will be job cuts during the next two years as part of the company's plan to cut costs by 10%. While he did not provide exact numbers, that could mean cuts affecting hundreds if not thousands of positions.
But Picard said Raytheon also is hiring in some areas, and "our hope is . . . the amount of people we hire will offset the reductions we have."
In Orange County, Hughes has 2,400 employees in several missile and radar units at its 350-acre Fullerton campus. Some observers believe that Raytheon ultimately will transfer that work to other facilities, laying off some employees and transferring others.
The fate of the remaining Hughes workers in the county--438 at the Hughes Microelectronics Division plant in Newport Beach and 60 at Hughes Data Systems Division headquarters in Irvine--also is uncertain.
The job losses, however, won't slow down the county's employment or economic growth because they would occur over many months and would be spread over a wide area, said Chapman's Adibi and Cal State Fullerton economist Anil Puri.