Defense contractors brace for slide

January 21, 1992|By Ted Shelsby

A year ago, workers at many of the 1,400 small- to medium-sized defense contractors in Maryland were putting in long hours to supply the Persian Gulf War effort.

Now they must be wondering if they'll have a job this summer.

"There's no stability in military contracting, not anymore," said Robert E. Castor, an executive vice president with LBL Group Inc., a Lansdowne machine shop with 40 workers.

According to a study by the Maryland Department of Economic and Employment Development, 57 percent of companies surveyed said they will be cutting the ranks of their work force if Pentagon spending continues to decline as expected.

Indeed, 7 percent of these companies saw the possibility of firing between half and three-quarters of their workers if the Pentagon cuts come, while 25 percent said they might have to eliminate from one-quarter to half of their workers.

Sixty-eight percent of these companies said they anticipated cuts ranging from 1 percent to 25 percent of workers. The results were based on responses from 154 of 454 military contractors surveyed by DEED.

Maryland defense contractors are involved in the production of a wide assortment of war equipment, including Beretta handguns, nerve gas detectors, torpedoes, missile launchers, uniform jackets, and radars for the F-16 jet fighter. On any given day, according to the U.S. Department of Defense, these companies are working on contracts worth more than $17.5 billion.

While the vast majority of Maryland defense contractors are expected to survive the expected Pentagon budget cuts, Pradeep Ganguly, associate director of research at DEED and the report's author, said he expects a "handful of companies to go out of business."

Lansdowne-based LBL Group could have been in that category today, but Mr. Castor had the foresight years ago to see the problems pointed out in the state study.

After nearly losing the corporate battle of survival when the Pentagon suddenly canceled the production of the Sergeant York anti-aircraft gun in 1985, LBL began looking for new markets. Today, only about 35 percent of the company's work is related to Pentagon programs, down from about 70 percent two years ago.

The latest in a series of three studies on the impact of military spending on the state, the DEED study comes at a time when there is mounting pressure in Washington to slice the defense department's budget and use those dollars to doctor the nation's ailing economic health.

Just last week Senate Majority Leader George J. Mitchell, D-Maine, called for a five-year defense cut of $100 billion -- double the reductions reportedly being sought by the White House -- that would be used to help end the recession and plan for the country's future.

Some defense industry stock analysts warn that the cuts could be even greater. "We believe a major overhaul [of the defense budget] will be forthcoming following the 1992 presidential election," Paul H. Nisbet, an analyst with Prudential Securities, said in a recent industry report.

With this in mind, Mark L. Wasserman, the state economic development secretary, said yesterday that, considering the importance of the defense industry to Maryland's economy, "we implore that the president and Congress be extremely careful as they go about the process of defense business downsizing."

According to the DEED study, defense-related jobs account for 8.2 percent of Maryland's civilian employment, compared with 5.7 percent for the nation as a whole. Last year, Maryland ranked ninth among the states receiving money from Pentagon prime contracts.

Mr. Wasserman said yesterday that he plans to write letters to about a dozen small defense contractors inviting them to participate in a round-table discussion to help come up with ideas on how the state might help them adjust.

He also noted that Marsha Schachtel, who has been involved in economic development in Maryland for 20 years, was recently named his executive assistant with orders to concentrate on the state's heavy dependence on Pentagon spending.

Other findings of the state survey include:

* Smaller companies are more defense-dependent than larger companies.

* Nearly 70 percent of the companies anticipate obstacles making it difficult for them to diversify into new markets. These include finance and capital, competition and problems developing new expertise.

* If layoffs take place, each worker category would be affected.

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