Aerospace: End of the Gravy Years

IT is axiomatic that industries most dependent on Government contracts are the first to feel the pinch of a budget cutback. So it is with aerospace, which has become the nation's largest manufacturing employer, with 1,300,000 workers, mostly on the strength of Government purchases stretching back to World War II. Lately the industry has suffered a succession of blows: a slowdown in space exploration, a $6.9 billion cutback in Washington's defense budget, and a fall-off in orders for commercial aircraft. As a result, aerospace-men have come down with a severe case of what they call the "unk-unks"--the "unknown unknowns."

In some ways the industry is only suffering a temporary lull--though it is not likely to see soon again the triple boom in space, defense and commercial-jet sales that made the late '60s its gravy years. The cutback in Government contracts coincides with the beginning of the end of production runs on the first generation of jet transports. Full production of the wide-bodied airbuses, the McDonnell Douglas DC-10 and Lockheed 1011, will not begin until 1972, and Government contracts for such major projects as the B-1A supersonic bomber and a space-shuttle vehicle have yet to be awarded, or funded by Congress.

Aerospace sales in 1969 fell 4.1% from the boom year of 1968, to $28.3 billion; a further drop to $27.7 billion is expected in 1970. Profits, 3.2% in 1968, will probably slide to 2.3%. The biggest impact, however, is on employment, which dipped by 119,000 in 1969, and is still declining. In the space program alone, the number of jobs has dropped from a peak of 420,000 in 1965 to 190,000, and is expected to level off at 144,000 next year.

Strapped for Cash. The impact has fallen unevenly among large aerospace corporations. Boeing, which began 1969 with 134,322 employees nationwide, trimmed its work force by 26,000 before the year ended, and plans to cut back by another 18,000 in 1970. The company's problem is primarily cash flow. Airlines do not pay for new aircraft until they are delivered, and Boeing is more than three months behind schedule in production of its $23 million superjet 747. Forced to finance the production line from its own and borrowed money, the company is strapped for cash, and has cut its payroll.

North American Rockwell was the prime contractor for the Apollo command and service modules and thus a prime loser when the space program was curtailed. Then last December, in the competition for the contract to build the F-15 Air Force fighter, the company lost out to McDonnell Douglas. North American Rockwell started firing, and plans to reduce its work force from 61,000 in December to 55,000 by

April. The company's electronics division has not lived up to its billion-dollar promise. Two weeks ago, North American Rockwell put the division's brand-new, $23 million plant at Laguna Niguel, Calif., up for sale. Next day, J. Leland ("Lee") Atwood, North American's president for 22 years, stepped down. The vacancy will not be filled. Instead, Chairman Willard F. Rockwell Jr. will take over as chief executive officer and leave aerospace operations in the hands of Robert Anderson, who came from Chrysler as executive vice president two years ago.

McDonnell Douglas is in considerably better shape. Its St. Louis complex will be kept busy producing the F-15 fighter, a contract that could eventually be worth $8 billion. But in the company's California plants, employment has dropped from 71,000 to 56,000, reflecting space cutbacks and dwindling orders for DC-8s and DC-9s. Grumman, despite a contract with a potential value of $5 billion to build the Navy's Mach 2 F-14 fighter plane, expects to lay off 1,200 engineers this year.

Lockheed's problems center around the giant C-5A transport, which overran cost estimates by $1 billion in development. The Air Force has cut back its C-5A order from 115 aircraft to 81, and the final estimates of the loss to Lockheed have yet to come in. Overall, Lockheed is feeling less pinch than most of its competitors. It expects to increase its total work force this year by 2,000, to 100,000, as production begins on its L-1011 airbus. Similarly, General Dynamics plans no cutbacks in its 70,000-man labor force during 1970 --unless the Air Force cancels plans to buy 40 more of the controversial F-111 swing-wing fighter-bombers.

The slowdown has been noticed least at Los Angeles' Northrop Corp., which is farther ahead than any of its competitors in diversifying. Northrop's current contracts range from building a telecommunications network for Iran, to making fuselages for the Boeing 747, to work on the P530 tactical fighter. In the six months from August to January, Northrop boosted sales by 16% over a similar period in 1968, to $295,942,000.

Seattle Pessimist. So large is the aerospace industry that the fortunes of whole communities are bound up in the fate of individual companies and even single contract awards. In Seattle, one out of every six jobs depends on Boeing, and unemployment is heading toward 6%. The company's cutbacks will cost the city an estimated $500 million worth of business this year. A current Seattle jape defines a pessimist as a Boeing worker who leaves his car running in the parking lot. Rather than move away, most unemployed Seattleites are dipping into their savings, waiting until business turns up again.

Cape Kennedy has suffered the most from the slowdown in the space program. Employment has dropped from 24,000 a year ago to 17,500 today, and "pink-slip psychology" lends a frantic tone to Friday night parties at the local Hilton. Houses that sold for $25,000 a year ago now bring $1,500 less. Space contractors organized an employment service and invited more than 100 organizations--life insurance companies, boat builders, even the CIA--to interview laid-off employees. They found 600 jobs for 2,000 men. One $15,000-a-year engineer wound up packing groceries in a supermarket for $1.65 an hour.

The aerospace companies are banking on new Government contracts to set production lines humming again. The largest single award in the offing is for the BIA bomber. Boeing, North American Rockwell and General Dynamics are competing. The Air Force wants 240 B-lA's, at a total cost of between $11.8 billion and $12.6 billion. But Congress is already disenchanted with cost overruns on the C-5A transport. And as long as there remains a possibility of some agreement with the Soviet Union on strategic-arms limitation, there remains some doubt that Congress will vote money to build the B-lA. Among other contracts in the offing are: a new "freedom fighter" for export to allied nations, the Safeguard anti-missile program, a new submarine-launched missile, a land-based missile to replace the Minuteman, and the space shuttle.

Only a few years ago, none of that work would have been seriously questioned. The aerospace industry grew to its present size in response to Washington's demands during the cold war and the race to the moon. Now, the companies and their laid-off employees are unhappily adjusting to a switch in national priorities that they could not have foreseen. The U.S. still needs an innovative and relatively large aerospace industry. Yet the overriding new concern with social needs and the environment makes it unlikely that the industry will regain the pre-eminence that it enjoyed as recently as two years ago.

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