Bush budget mixed news for defense contractors: Douglas Aircraft Co. is one of proposal's big winners.

Bush budget mixed news for defense contractors

President Bush's proposed budget for defense spending over the next two years represents the most significant attempt yet to adjust to new world realities by significantly cutting some programs and adding funds to other projects, analysts said.

For the Los Angeles County defense and aerospace industries, there is both good and bad news in the $295.2 billion spending proposal for fiscal 1992 and $292 billion in fiscal 1993. The current year's budget for defense and aerospace is $298.6 billion.

One of the biggest winners in the proposal is Long Beach-based Douglas Aircraft Co., manufacturer of the controversial C-17 cargo plane, an aircraft that has been teetering on the brink of extinction because of cost overruns and delays.

According to the Defense Budget Project, a Washington-based, nonprofit research organization, Bush has proposed a 176 percent funding increase to $2.8 billion in fiscal 1992 and another 49 percent increase to $4.2 billion in fiscal 1993 for production of the C-17.

There is also good news in the budget for Century City-based Northrop Corp., manufacturer of another controversial product, the B-2 stealth bomber, which has also been near the brink.

Under the spending proposal, the B-2 project would receive $4.8 billion for four additional aircraft. The spending represents a 15 percent increase in current year spending for the B-2, the Defense Budget Project said.

Several Los Angeles County defense companies could benefit from the proposed increase in spending on the Strategic Defense Initiative, or Star Wars program. Under Bush's budget request, spending on SDI would increase from $2.87 billion this year to $4.58 billion in fiscal 1992 and $4.93 billion in 1993.

Among the local defense companies that could benefit from the spending proposal are Lockheed Corp., Hughes Aircraft Co. and the space and defense sector of TRW Inc.

And then there's the bad news.

Among the potential losses to area defense firms are the proposed cancellation of the Navy version of the Advanced Tactical Fighter.

The total ATF project is potentially worth $120 billion in business to either Northrop or Lockheed, which are competing for the contract. Under the Bush budget proposal, development of an Air Force version would continue but possible production of up to 450 of the aircraft for the Navy would be canceled. The Navy contract could be worth $40 billion.

Last year the Department of Defense canceled another Lockheed project, the P-7A anti-submarine aircraft, but recently the company said it was negotiating with the government to restart the program.

In the Bush proposal, no provisions are made for a continuation of the P-7A.

The budget proposal also cancels production of the rail-transported network of MX missiles, a Rockwell International Corp. product.

Even with the apparent success of missiles during the current Persian Gulf war, the Bush proposal reflects an early end to several programs that affect Los Angeles County defense companies.

The budget confirms the discontinuation of Stinger, Patriot and TOW missiles. TOW missiles are made by Hughes. General Dynamics Inc., which has a manufacturing facility in Pomona, makes the Stinger and Patriot missiles.

The budget calls for continued production of the problem-plagued AMRAAM air-to-air missile made by Hughes, according to the Defense Budget Project.

In addition to the Advanced Tactical Fighter and B-2, aircraft manufactured by Los Angeles companies that are affected by the budget proposal are the F/A-18 Hornet, an aircraft carrier-based warplane. Douglas Aircraft's parent company, McDonnell Douglas Inc. in St. Louis, is the main contractor on the plane but Northrop is a major subcontractor.

Production of the F/A-18 would be cut to 36 in 1992 and 20 in 1993 from the current funding for 48 aircraft. However, funding for development of an upgraded version of the aircraft would increase from $435 million in 1992 to $1 billion in 1993 under the Bush proposal.

In addition, a program to remanufacture F-14D fighters would be canceled and the budget reaffirms the Air Force decision to terminate the F-15. Hughes, based in Los Angeles, builds the radar system for the F-14s and F-15s.

According to the Defense Budget Project, the budget proposal, which now goes through a series of hearings in Congress, reflects current spending constraints because of the federal budget deficits and improved relations with the Soviet Union.

"The budget moves a significant number of next-generation weapons towards production that will create procurement funding increases in the mid-1990s," said Pete Schmidt, economic policy analyst at the organization.

He said most of the savings in the current spending proposal are the result of spreading funding out over several years for major projects and in cuts in the military force structure.

Several defense industry stocks soared on the release of the administration's budget proposal.

Northrop stock went up $3 to $24.12 a share on the New York Stock Exchange the day the budget proposal was released.

About half of Northrop's current revenues are from production of the B-2, which last fall was almost killed when the House of Representatives voted to discontinue the project.

Another winner was McDonnell Douglas, whose stock rose $2.25 to $41 a share because of proposed funding for the C-17 and development of a new version of the F/A-18.