Aerospace's next shakeout will be subcontractors.

Reverberations from the monumental consolidation of the aerospace/defense industry, capped last week by Boeing Co.'s plan to buy McDonnell Douglas Corp. for $14 billion, are shaking up L.A.'s sprawling community of aerospace subcontractors.

Consolidation among the "big boys" is expected to trigger a similar wave of mergers and acquisitions among local subcontractors, aerospace industry observers said.

And, possibly more significant, is that the consolidation is expected to bring local subcontractors greater opportunities in the commercial aircraft sector.

Many in the largest aerospace companies - including representatives from Lockheed Martin Corp. and McDonnell Douglas - say that increased demands from commercial airlines will mean more work for the local subcontractors.

"There could be fewer customers by name, but if there's more work - which is what we anticipate as a result of this merger - I think that for our chain of suppliers, that's good news," said Tom Downey, a spokesman for Douglas Aircraft Co., the Long Beach-based commercial aircraft division of McDowell Douglas.

As the defense business continues to drop off, the commercial passenger jet business is booming. Non-Department of Defense aerospace industry sales, which include sales to airlines and foreign governments, are projected to be $43 billion for 1996, an increase of 20 percent over 1995's sales, according to the Aerospace Industries Association of America Inc., a Washington, D.C.-based industry trade group.

On a percentage basis, sales to the Defense Department account for only 34 percent of total aerospace industry business, vs. 56 percent at the height of Cold War defense spending in 1987, the association reported.

In the commercial jet business, Boeing's merger with McDonnell Douglas will place the newly consolidated company as a strong competitor to Airbus Industrie, a European consortium that emerged as the largest supplier of commercial aircraft in the 1980s.

Some analysts project that the combined Boeing-McDonnell Douglas will enjoy at least 20 percent growth in commercial aircraft business over the next few years, compared with their current levels of business.

That projected surge will likely give a big boost to the thousands of local subcontractors that supply Boeing's and McDonnell Douglas' commercial aircraft units.

Another impact for local subcontractors: consolidation in their own world.

Such a scenario would be the reverse of what typically happens in industries undergoing consolidation, where larger companies tend to follow the lead of the smaller players, said Jon Kutler, president of Quarterdeck Investment Partners Inc., a Los Angeles-based investment bank that deals exclusively in the aerospace defense industry.

"Smaller companies usually consolidate first to match the capabilities of the bigger companies in the industry. (But) the aerospace defense industry has shown the opposite result," Kutler said.

Recent mergers and acquisitions - including the Boeing-McDonnell deal, as well as Boeing's acquisition in August of Rockwell International Corp.'s defense units - are exerting pressure on subcontractors to join forces in order to win future contracts.

Ross Anderson, president and chief executive of Santa Aria-based Astech Manufacturing Inc., which sells exhaust ducts to Boeing, said that he expects to see more subcontractors either go out of business or be acquired in the next few years.

"You will see the subcontractor base continue to shrink," Anderson said. "The ones that remain will be very, very lean and cost-effective."

Astech is also looking to acquire other companies to remain competitive. "Because of our success ... we're looking at several companies in Southern California to increase Astech's size," Anderson said.

While large-contractor mergers are acting as a powerful catalyst for subcontractor consolidation, an even more powerful factor is the dwindling U.S. defense budget, industry observers said.

"We see the Defense Department budgets continue to go down, so there are less dollars, so there are less programs, so you have to provide the best value to the big companies that get the contracts," said Brandon Belote, a spokesman for Woodland Hills-based Litton Industries Inc., a major defense subcontractor.

According to Aerospace Industries Association, industry sales to the Pentagon for 1996 will total $38.3 billion, a drop of $3 billion from 1995.

Both decreasing defense budgets and a growing commercial market will force local contractors to increase their consolidation and acquisitions to remain competitive.

It is "imperative for those companies to get more strategic and get more access to capital to remain competitive, or they will find themselves out of business," Kutler said.

Wolfgang H. Demisch, a managing director and aerospace analyst with BT Securities in New York, agreed, saying there will be "fewer, but larger players" among L.A.-area subcontractors.

"The subcontractors will have more responsibility pushed on them," Demisch said, adding that he expects the aerospace industry to follow the lead of the automobile industry, where larger, more-complex jobs have become increasingly outsourced to subcontractors.

Some subcontractors, such as AlliedSignal Aerospace in Torrance, a division of New Jersey-based AlliedSignal Inc., have already begun to make acquisitions to remain competitive.

"We have bought a couple of companies over the last couple of years, but we find our acquisitions to be more valuable when we do niche acquisitions," said Ron Iori, a spokesman for AlliedSignal.

Among AlliedSignal's recent acquisitions is Tulsa, Okla.-based LORI Cos., which performs engine maintenance work for Boeing. AlliedSignal also recently bought a division of Northrop Grumman Corp. that makes gyroscopes and other inertial movement products for space satellites and military jets.

"Acquisitions are one of the key ways we have identified to grow our company," Iori said.