L.A. contractors score well in Pentagon spending spurt.

Star Wars benefits locals but B-2 program is braked

Reeling from a year of massive jobs layoffs and crash-and-burn economic forecasts, Southern California's defense industry found blue skies in Congress' $291 billion defense budget, with most local weapons programs escaping the federal spending ax.

Among the area's winners were contractors with Strategic Defense Initiative programs, the ambitious missile defense system that received $1 billion more in funding than in 1991. Lockheed Corp.'s C-130 cargo plane and Litton Industries Inc.'s shipbuilding business also gained.

Additional funding will flow to local aerospace firms, though not of the big-ticket nature of the 1980s military build-up.

Consider TRW Inc., which employs roughly 14,000 Southlanders mainly in the South Bay and Dominguez Hills. It got $107 million for a U.S. Army air defense system and three times that amount for subcontracting work on Lockheed's advanced tactical fighter program.

"L.A. certainly didn't do worse than anyone else," said defense analyst Wolfgang Demisch of UBS Phillips & Drew in New York. "It wasn't like your local programs went through the congressional meat-ax."

But, Northrop Corp.'s controversial B-2 bomber program received only $4.4 billion, with no funds for aircraft beyond the 15 already approved by Congress. Lockheed, meanwhile, saw its hopes to restart the F-117 stealth fighter production line evaporate.

The defense package also reflects a decline in money for existing fighter planes, a setback to companies like Hughes Aircraft Co. and Litton, which make avionics and radar systems for the F-14, F-15 and F-16 jets.

One existing program that did skirt federal cuts was McDonnell Douglas' F/A-18 Hornet fighter. Congress doled out $2 billion for 48 new F-18s and further testing. That news was welcomed at Century City-based Northrop, a major F-18 subcontractor at its El Segundo manufacturing facility.

But many analysts warned that the 1992 spending plan could be the "last hurrah." By 1993, funding for a slew of huge weapon programs will run out and two years later the Pentagon is expected to have lopped 20 percent off its budget.

The 1992 defense package, signed by President Bush late last month, is down only 1.4 percent from 1991 in real terms, despite all the rhetoric about perestroika-triggered peace cuts.

"The fact of the matter is that when it comes to defense there is a big difference between what's talked about and reality," said Liz Galtney, director of the Project on Government Procurement, a liberal Washington-based think tank. "What gets the headlines are program cuts but when it comes down to it, it's hard for politicians to cut programs because of jobs."

SDI, commonly known as "Star Wars," will also maintain local jobs this fiscal year as part of backroom political tradeoff to trim B-2 funding.

Though dramatically scaled back from its original mission as a protective "Astrodome" against incoming Soviet missiles, SDI will continue to provide Southland firms with hundreds of millions of dollars in research and development contracts. In the 1992 fiscal year, which began Oct. 1, $4.1 billion was earmarked for SDI.

Under current plans, SDI has been reconfigured into a system called "Global Protection Against Limited Strikes." Designed to counter smaller attacks by Third World nuclear powers, SDI would consist of interceptor-missile batteries based on the ground. Later, the Pentagon would deploy 1,000 spaced-based missiles -- called "Brilliant Pebbles" -- that track and destroy enemy projectiles.

TRW's space and defense division in Redondo Beach received funds to proceed next year on a four-year, $326-million Brilliant Pebbles pact. Like Rockwell International Corp. and Lockheed, TRW also got $5 million to research SDI sensors called "Brilliant Eyes."

Lockheed's missiles and space unit in Northern California also received further funding for a Star Wars ground-launched missile system.

Two years ago Lockheed held nearly $800 million in SDI contracts. Analyst Demisch estimated the Calabasas-based company gets $100 million of its annual $10 billion in revenues from Star Wars.

Spokesmen for both Rockwell and Hughes were both unavailable for comment on their SDI work.

"SDI became a stronger program than most would have guessed. It did very well," said Prudential Bache analyst Paul Nisbet. "Though it's pretty diffuse, it's as much an L.A. program as anything drifting around."

Perhaps one reason Los Angeles County contractors scored well was that most cuts have occurred in Pentagon manpower -- not hardware. Also, the Defense Department has already halved the $120 billion it used to spend yearly on weapons programs.

If there is any "hot area," it's in Pentagon money for R&D -- a specialty of many local defense companies -- which rose 10 percent from last year.

"The technology will be kept alive to develop and design weapons but not necessarily to build them," said Marcus Korin, an analyst for the Center for Defense Information, another think tank in Washington.

That concept hasn't been lost on aerospace brass. During the year, 26,000 private defense jobs were lost locally, leaving about 230,000, according to the Los Angeles County Economic Development Corp.

The UCLA Business Forecasting Project estimates that the county aerospace unemployment rate will be 6.5 percent next year, compared to a staggering 10.4 percent for this year. Hardest hit in 1992 will be companies focusing on aircraft and parts and missiles and space, according to UCLA.

Said John Mellen, TRW's director of strategic planning and analysis, "A diversified company like us or Hughes take fewer hits in this environment than a company with a few big airframe contracts -- unless you happen to be on the ATF."

Here are some key elements of the spending package and how they affect local companies include:

* Northrop is the prime contractor on the B-2, with half its revenues coming from the project. Congress allocated only $1 billion for new aircraft, estimated at $895 million a copy, and that funding was placed in a frozen account.

Northrop does come out ahead on the F-18 project, however.

* Lockheed's only big loss was the decision not to fire up new the F-117s, which garnered high praise for its performance during the Persian Gulf War. Though Lockheed received funding for most of its other projects, the work will be done outside of Los Angeles County.

A major surprise was a $1.2 billion appropriation for 42 more C-130s, a military cargo plane. Other appropriations included $1.6 billion for Milstar, a satellite system; $1.6 billion for the ATF, now called the F-22; and $1.1 billion for the Trident missile system.

* Litton says it did fairly well. The package appropriates funds for five new Aegis class destroyers, which cost between $250 million and $270 million apiece. The Beverly Hills-based company expects to receive contracts for at least two of the ships. Also carried over from the 1991 defense budget is a $500 million allocation for a Litton-produced military landing ship. Litton's shipbuilding business is in Mississippi.

* Douglas Aircraft Co. The Long Beach-based division of McDonnell Douglas Corp. got $1.53 billion for four new C-17s, though the program remains behind schedule and over budget. The Air Force had asked for six of the cargo aircraft.

* General Dynamics Corp.'s air defense systems division, with operations in Pomona, says its Standard, Stinger, Rolling Airframe and AAAM missile programs, as well as its Phalanx weapons system, received funding in the budget.

Like most local firms, it was forced to lay off workers last year, when the military budget was slashed 11 percent.