Northrop to Lay Off 2,700 in Downsizing

Striking another blow to the local aerospace industry, Northrop Grumman Corp. said Monday that it will lay off an additional 2,700 workers in Southern California, bringing the company’s planned job cuts in the region to about 7,000 over the next 28 months.

The announcement, which comes a month after Lockheed Martin scrapped plans to merge with the Los Angeles aerospace giant, is part of Northrop’s effort to trim costs as it gears up to compete against larger rivals.

Northrop will reorganize its business units nationwide, reduce its companywide work force to 46,000--a nearly 15% drop--by the end of 2000, and will further consolidate facilities. The overall cuts total 10,500, but will be partially offset by the addition of 2,500 jobs in Northrop’s information technology and electronics units.

The effort will cost the company about $60 million in charges this year, but will produce yearly savings of about $300 million once it is completed.

“These are very difficult things to have to do, but it’s a necessary part of our business,” said Kent Kresa, Northrop’s chairman, president and chief executive officer. “This is to ensure that we will not only survive but thrive in the future. . . . And if you’re going to do that, you have to become very efficient in what you do.”

Northrop’s retrenchment comes after major regional layoff announcements earlier this year from Boeing Co. and Raytheon, setting the stage for a noticeable economic dip in 1999 and 2000, when the planned cutbacks begin.

In California, Northrop’s latest job cuts will hit hardest at its military fighter plant in El Segundo and its commercial aerospace unit in Hawthorne, although other area facilities may also be affected.

Northrop reiterated its previously announced plans to cut 4,300 jobs from its signature B-2 Stealth bomber project, which is winding down. Most of those jobs are based in Northrop’s Pico Rivera plant, which will be closed in 1999 as the remaining B-2 refurbishing and upgrade work continues in Palmdale.

L.A. Aerospace on a Roller Coaster

Taken together, the Northrop reductions will slash its Southern California payroll by about 7,000 over the next few years--chopping more than 40% of its regional work force of 16,800.

The numbers include temporary and contract employees as well as full-time workers, Northrop officials said, and it’s unclear how many positions will be eliminated through attrition and retirements.

Still, observers say it may be too soon to declare an end to the current mini-revival in the region’s aerospace industry--which last year saw its employment base rebound after hitting lows in late 1995.

“Aerospace in the Los Angeles area is sort of on a roller coaster,” said Jack Kyser, chief economist at the Los Angeles Economic Development Corp. “We’re in a period of many transitions.”

Indeed, the traditionally cyclical aerospace industry no longer seems to move either up or down. Instead, companies now tend to move both directions simultaneously, depending on factors such as mergers, overseas markets and which key programs are included in the federal budget.

Northrop has been in the spotlight of late because it spent more than a year pursuing a merger with Lockheed Martin, only to have it collapse amid a tense standoff with federal antitrust officials.

But while Northrop’s sweeping restructuring is related to the failed merger, most of the layoffs are not.

The bulk of the overall cutback stems from one program: the B-2 Stealth bomber. The bomber program, which employed 13,000 workers at its peak, was such a force within the company that for years the aircraft was synonymous with the name Northrop.

But in recent years, the company has pushed to diversify and has built strong defense electronics and information systems businesses. That diversification paid off as the company said Monday it will add 2,500 such jobs in the next few years.

On Monday, a joint venture led by Northrop’s growing information technology group landed a $2.2-billion contract from NASA and the Air Force to provide base operations support at several sites.

Additional growth could come, ironically, in the very plants facing cuts.

At Northrop’s Hawthorne facility, the work force cuts are tied partly to economic troubles in Asia, which have dampened demand for Boeing’s 747 passenger jet. As Asian customers postpone jet orders, the production line has slowed in Hawthorne, where Northrop employees build the 747 bodies as well as other components.

“The bad news is that we don’t have that business now, but the good news is that the need [for the planes] is still downstream,” said Kresa, adding that future production is bound to pick up again.

Transition to New Jet Fighter

In El Segundo, Northrop faces a slowdown in production of one version of the F/A-18 before it can increase to full production of a newer version of the fighter aircraft. The company is expected to win Pentagon funding for more than 500 of the fighters--potentially adding back jobs.

Northrop’s other job cuts stem from reorganizing its operations into just two sectors and one subsidiary, down from five divisions and a subsidiary--a shuffling that will eliminate about 2,100 management and support staff jobs throughout the company.

The subsidiary, Logicon, has already moved its headquarters to Herndon, Va., and there will be some management jobs lost at its former base in Torrance.

California will also lose its one Northrop division headquarters, the Military Aircraft Systems Division in El Segundo, which will be folded into the new Dallas-based Integrated Systems & Aerostructures Sector.

The other operating group, called Electronic Sensors & Systems Sector, will be based in Baltimore.

Northrop said the market setbacks will delay its goal of hitting the $12-billion revenue mark to 2003, instead of a year earlier.

Industry analysts viewed the restructuring and layoffs as a much-needed move to thin down the company to prove to Wall Street investors and others that it can hold its own as the nation’s fourth-largest aerospace company--even among much larger rivals.

“They’re trying to show Wall Street, ‘Look, we’re becoming more competitive,’ ” said Renee Gentry, senior analyst at The Teal Group, a Fairfax, Va.-based consulting group specializing in aerospace and other industries. “They’re in a very tricky position.”

Roger Threlfall, an analyst with JP Morgan Securities, added that Northrop had to consolidate to stay competitive.

“The reality of the day is that there is an intense rivalry that Northrop has to respond to,” Threlfall said. “You’ve got to face reality and make the tough decisions.”

Still, Wall Street investors didn’t budge from their current, pessimistic view of the company’s prospects as a stand-alone company.

Northrop Grumman’s stock price, which went into a downward spiral as the prospect of its merger with Lockheed Martin faded and then disappeared, fell 13 cents on Monday to close at $68.69--still light years away from last February’s 52-week high of $139.

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Losing Altitude

Aerospace employment* in the five-county Southern California region has dropped by almost half in the last 10 years in the aftermath of a prolonged recession and the end of the Cold War:

220,400 employed in 1997

Note: Figures include Los Angeles, Orange, San Bernardino, Riverside and Ventura counties.

* Includes computer manufacturing, communications equipment and electronic components manufacturing, and manufacturing of aircraft and parts, space and navigation equipment and measuring and control devices.

Sources: California Employment Development Department, Los Angeles Economic Development Corporation

Researched by JENNIFER OLDHAM / Los Angeles Times