Defense Spending Expected to Brace Regional Economy.

Forecasters expect the local defense industry to shore up Los Angeles' economy this year, as a nationwide slowdown is in the making.

Although the defense and aerospace industry in L.A. is no longer the formidable force it was 10 or 20 years ago, it still packs enough of a punch to offset the local impact of slower GDP growth, as well as slower growth in construction spending and international trade.

"The increases in defense spending will function as a buffer zone and mitigate the impact of slower GDP growth," said Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University. "The corporate headquarters of the prime defense contractors have disappeared from the area, but there is still a lot of activity in Los Angeles in terms of the number of subcontractors that are based here."

Adibi, who presented his 2001 L.A. County forecast last week, said he expects defense spending to take off in the second half of 2001. On average, defense spending is projected to increase by 12.6 percent this year, compared to 5.8 percent in 2000 and a 6.2 decrease in 1999.

"What is important is that the increases in defense spending are not going towards more personnel but towards products, which is more beneficial to the local economy," said Adibi. "And I expect that under a Bush administration we can expect even larger increases in defense spending."

Historically, Republican administrations have been more generous in defense spending and, during last year's campaign, president-elect Bush committed himself to building up the military.

Nevertheless, not all local aerospace and defense contractors are breaking out the champagne yet, and some are adopting a more cautious, wait-and-see attitude.

"We are keeping our fingers crossed," said Bradley Spahr, president and chief executive of Composite Structures LLC in Monrovia. "We have not seen a significant pickup in orders for this year yet, but it is certainly possible that we'll start seeing some of the benefits of increased defense spending later on this year."

Composite Structures manufactures, among other things, the blades for Boeing Co.'s Apache helicopters. If the Pentagon has more money available for operations and maintenance programs, Spahr believes that the impact for local subcontractors could be felt in the very near term. That is because replacing parts of existing helicopters and planes does not require the same lead time as ordering brand new equipment.

A substantial influx of orders in the coming years may stem and, to some extent, reverse the decline of the L.A.-based aerospace and defense industry, which has been underway since the early 1990s.

As of November 2000, the aerospace and defense industry employed 48,100 people in L.A. County, down from as many as 122,900 in 1989. Still, the remaining companies, which are almost all small and mid-sized subcontractors, represent a significant economic presence and appear set to stay in Los Angeles.

"At the secondary level, we haven't seen a further shakeout for the last two years," said Spahr. "I don't see the local aerospace going into fast growth mode either, but it seems to have stabilized."