L.A.'S DEFENSE PAYOFF AEROSPACE SHOWS SIGNS OF TAKING OFF FOR FIRST TIME IN DECADES.

Byline: Lisa Friedman Washington Bureau

WASHINGTON - Defense spending in Southern California has nearly doubled under President George W. Bush, a review of Pentagon contracts shows, and economists say they are seeing the region's aerospace industry take off for the first time in nearly 20 years.

Throughout California, Pentagon contracts for everything from missiles to jet engines reached $28.7 billion in 2003 - an amount equal to about a quarter of the state government's entire annual budget or 100 times the box office receipts for Hollywood's recent blockbuster ``Spider-Man 2.''

Los Angeles County alone saw military spending rise to $10.6 billion last year from $7.6 billion in 2001. It was the nation's second-biggest recipient of defense contracts for 2003.

San Diego and Orange counties also ranked among the top 15 beneficiaries.

``You've seen a huge surge, and we're getting ready to feel it on the ground,'' said Jack Kyser, head of the Los Angeles Economic Development Corp.

``Aerospace companies are advertising (job openings). It's been a long time since you've seen aerospace firms advertise in the general public. It's about to turn the corner.''

Since entering office in 2001, Bush has overseen the largest increase in defense spending since the Ronald Reagan buildup of the 1980s that launched Southern California's aerospace glory days.

Last year, the Pentagon awarded $202.6 billion in defense contracts nationwide, a 19 percent increase over 2002 and a 38 percent increase since Bush became president.

In California, the contracting rose even faster - about 44 percent between 2001 and 2003. And with defense spending in the state poised to reach $30 billion for the first time since 1984, economists say they are optimistic that the aerospace industry is finally getting back on its feet.

There are, however, some wrinkles in California's financial face-lift.

When adjusted for inflation, defense spending in the state is actually nowhere near Cold War levels. And, economists point out, California contracts represent an increasingly smaller percentage of defense spending nationwide.

``It's very much a resurgence, but it's still the end of a lengthy decline,'' said Tim Ransdell, director of the California Institute for Federal Policy, a Washington, D.C.-based think tank devoted to California issues. When it comes to jobs, however, the future appears optimistic.

While Los Angeles County continues to lose aerospace employment, Kyser noted that the job loss rate has slowed considerably and predicted gains in the next reporting period.

Aerospace jobs in Los Angeles County declined 10 percent in 2003 from the previous year, dipping from 44,100 to 39,500. In 2004 the county estimated the level at 38,800 jobs, about a 2 percent decline.

Kyser said job gains have not followed the pace of the money because employment reports tend to lag behind actual hiring. Also, he pointed out, the aerospace industry has witnessed a large number of retirements recently, and recent hirings are largely balancing out losses.

``This is an industry that has been in quite a funk for a long time, and people have gotten out of the business,'' Kyser said.

But, he added, ``We expect it to go positive in July, which is exciting. These are high-wage, benefit-paying jobs.''

Pentagon data also show:

--Defense spending gains in Los Angeles County have paled in comparison with San Diego County, which saw a 76 percent increase since 2001. Riverside County also slightly outpaced L.A. County.

--A $3.7 billion contract awarded to Boeing/McDonnell Douglas to continue work on C-17 cargo jet production in Long Beach was the state's largest contract of 2003.

--The Pentagon spent about $5 million last year in Hollywood, mostly buying the rights to film and television shows to entertain troops and their families overseas.

The Pentagon contracting figures don't include troops' salaries, military retirement benefits and other such expenses. What they do include are contracts for everything from turbofans and gears to soft drinks and even program licensing for children's TV shows like ``Strawberry Shortcake.''

McDonnell Douglas/Boeing was the largest defense contractor doing work in California, landing about $5.2 billion in 2003 defense contracts.

About 7,000 Boeing employees in Long Beach work on the C-17 Globemaster III cargo jet, one of the Pentagon's flagship projects in California.

Each plane costs about $188 million and is designed to take off and land on runways as short as 3,000 feet. It has become the air choice in Iraq, carry about 500 tons of supplies each day to troops in Iraq.

Boeing already is looking to expand its C-17 production when its contract for 60 such planes ends in 2008.

``Certainly we're having conversations with our customer about what the future might look like,'' said Boeing spokesman Gary Lesser.

Also, last year Boeing received $127 million to continue modernizing the C-130 military airplane, and about $100 million to upgrade the B-1 Lancer bomber. A combined 925 employees work on those Long Beach projects.

Meanwhile, Boeing's El Segundo operations did about $800 million in satellite defense work last year, while operations in Palmdale work on the B-52 bomber, the F/A-22 Raptor and an unmanned combat aerial vehicle.

Northrop Grumman, which landed $3.1 billion worth of California contracts in 2003, has about 1,185 employees at Air Force Plant 42 assembling unmanned aircraft like the Global Hawk, and projects like the F-35 joint strike fighter in Palmdale are expected to add more jobs in coming months.

Money also is pouring into smaller companies like ATK Missile Systems (now Alliant Techsystems) in Woodland Hills. The company received $12.1 million last year as part of a $223 million contract to develop the Advanced Anti-Radiation Guided Missile, fired by fighter jets.

ATK spokesman spokesman Bryce Hallowell said the research and development of the missile will be done in Southern California while production will eventually be moved to West Virginia. In the meantime, he said, the project is expected to add local jobs.

``There's a unique talent base in Southern California of aerospace engineers that is really unmatched,'' he said.

The aerospace industry and defense were once the pillar of Southern California's economy. At its peak in 1984, the Pentagon spent $30.1 billion in the state for contracts that employed 274,000 people. In Los Angeles County alone, aerospace jobs accounted for 10 percent of the national total.

With the end of the Cold War, however, Pentagon budgets shriveled, bases closed and defense money - and jobs - steadily declined. It reached a low in 1999, when the Pentagon spent only $17.3 billion in California.

While California contracts topped $28.6 billion in 2003, and are posed to rise again in the coming year, the spending represents only about 15 percent of total government defense contracts nationwide, compared with 23 percent in the 1980s.

The defense buildup following Sept. 11, 2001, Ransdell said, ``is good news for the California economy, but it still hasn't reached even the level of 20 years ago.''

Kyser, however, was optimistic that the spending boost will stick around for a while.

``Some people say defense spending is going to taper down, but the threat level won't,'' Kyser said. ``With Iraq, it's really going to stimulate a lot more spending.''

Lisa Friedman, [phone]

lisa.friedman(at)langnews.com

CAPTION(S):

photo, chart

Photo:

Boeing C-17

Chart:

DEFENSE CONTRACTS ON UPSWING 

SOURCE: Department of Defense; Daily News research