TIME: Almanac 1993/TIME Almanac 1993.iso/time/020392/0203201.000

Text File | 1992-10-19 | 5.4 KB | 115 lines

                                                                                BUSINESS, Page 40

MILITARY CONTRACTORS

Dismantling the War Machine


America's cold war victory is just beginning to take a heavy
toll on jobs in the defense industry

By JOHN GREENWALD -- Reported by Jeanne Reid/Boston and Bruce van
Voorst/Washington


    After months of predictions, the long-awaited peace
dividend began arriving last week -- in the form of pink slips
for thousands of defense workers. Connecticut-based United
Technologies (1991 revenues: $21.2 billion) announced plans to
slash nearly 14,000 jobs, or 7% of its work force, with more
than half the cuts coming from defense and aerospace programs.

    "It's very frightening," says Richard Whitehead, 45, a
machinist and layoff victim at the company's Pratt & Whitney
jet-engine plant. "When you're told that your job is lost, your
feelings just go cold. For my trade," he adds, "there's nothing
else out there. I don't know what I'll do."

    The chill is spreading across the U.S. as the end of the
cold war pushes military contractors into the sharpest cutbacks
since World War II. Still reeling from the loss of 200,000 jobs
since Ronald Reagan's military buildup peaked in 1987, the
industry could lose 500,000 more jobs by 1995. "There's going
to be a rapid shrinkage in the next 36 months," says Howard
Rubel, who follows defense and aerospace for the C.J. Lawrence
securities firm. "Whole divisions are going to vanish. Long-term
planning now means `How are we going to get people out the door
tomorrow?'"

    Every week seems to bring a new spate of plans for
reducing defense spending. While the Bush Administration would
reportedly whack $50 billion out of a $1.89 trillion five-year
military budget, some leading Democrats want to slash as much
as $150 billion. Not to be outdone, the Pentagon has been
tinkering with a cost-saving plan to finance the research and
development of new weapons without actually buying them -- an
idea that horrifies the defense industry.

    One of the most endangered weapons systems is the Northrop
B-2 Stealth bomber, a radar-evading aircraft that costs $850
million apiece and provided half the company's $4.1 billion of
sales during the first nine months last year. The Air Force has
already trimmed B-2 orders from 132 planes to 75. According to
TIME's sources, White House aides met quietly with Northrop
officials last month to discuss a possible halt to the project,
which employs 13,000 in the Los Angeles area, once work is
completed on the 16 B-2s now in production.

    Cancellation of the bomber would be the latest blow to
California's struggling aerospace and defense industry, which
accounted for 15% of the state's economy in the late 1960s but
only about 7% today. "The average worker has been laid off and
called back many times," says Bonnie Sherman, a vocational
counselor for jobless defense employees in Southern California.
"They used to say, `That's O.K., I'll run over to Northrop or
Hughes.' But the government isn't giving these corporations the
contracts they are used to," she adds. "We're in a peace economy
now."

    Peace threatens other big-ticket items as well, like the
$3 billion Seawolf nuclear submarine that the Electric Boat
Division of General Dynamics is building in Groton, Conn. Since
completion of its Los Angeles-class attack submarine, Electric
Boat has depended heavily on the Seawolf to keep business
humming. But while work on the first Seawolf is under way,
experts say the Navy is unlikely to get any more of the 12 subs
it once sought.

    Some firms are beefing up their civilian operations to
soften the loss of military business. McDonnell Douglas is
phasing out production of such lucrative aircraft as the F-15
Eagle fighter and the AV-8B Harrier fighter-bomber. To help take
up the slack, the St. Louis-based firm agreed last year to join
forces with Taiwan Aerospace Corp. to build a new generation of
commercial jetliners. At the same time, overseas contracts and
proposals to modernize McDonnell Douglas military aircraft now
in service could salvage additional jobs on the firm's
production lines.

    Overhauling used aircraft could also bring a measure of
relief to Grumman, a Long Island contractor that has reduced its
labor force by more than 11,000 workers, or nearly one-third,
since the mid-1980s. The firm's problems stem from government
cancellation of such workhorses as the F-14 Tomcat fighter and
the A-6 Intruder attack jet. But Grumman president Robert Myers
discerns a silver lining. "Grumman could benefit from major
reductions in defense spending because the system would have to
exist with the equipment in use," he says. That could mean
lucrative contracts to service and modernize thousands of
Grumman aircraft in the U.S. arsenal.

    Unfortunately for defense firms, the budget crunch is
accompanied by a projected drop in foreign sales, traditionally
a vital source of business. While prospective foreign buyers may
have salivated over the performance of U.S. high-tech weapons
in the gulf war, the Bush Administration has been urging arms
control in hot spots like the Middle East. "The world is
becoming a friendlier place," says Philip Friedman, an analyst
for Morgan Stanley. America's struggling masters of war must
thus adjust their sights both at home and abroad.