Continued difficult times seen for defense industry

SUNDAY OUTLOOK

April 02, 1995|By Ted Shelsby

The nation's defense contractors have eliminated more than a million jobs since Pentagon spending began its sharp decline in 1988. Maryland, the fifth-most defense-dependent state in the country, has felt the brunt of these cuts. Three of the state's largest defense contractors, Lockheed Martin Corp., AAI Corp. and Westinghouse Electric Corp., have eliminated more than 12,000 jobs in recent years.

The bad news for defense workers continued last week when the Johns Hopkins University Applied Physics Laboratory -- one of the nation's largest defense research institutions -- announced that it will cut its work force by about 350 jobs because of defense-spending cutbacks.

What is the outlook for employment in the defense industry? Will layoffs bottom out anytime soon, or are there more difficult years ahead?

Richard A. Bitzinger

Analyst, Defense Budget Project

We are by no means at the end of the downsizing or consolidation process in the defense industry. We are probably going to see about another half-million jobs gone in the defense industry by the end of the decade.

Based on Pentagon figures, defense employment peaked in 1987 at 3.7 million. It's now down to 2.6 million. The high-side estimate is that the industry will lose 800,000 more jobs by the year 2000.

There is still a lot of pain left out there to be perpetuated. Between one quarter and one third of the defense jobs in Maryland in 1992 will be lost by the end of the decade.

Paul H. Nisbit

President, JSA Research

There are going to be more difficult times ahead. It takes a long time, perhaps a couple of years, before any increase in military spending approved by Congress actually makes its way through the system and has a favorably impact on contractors. And we have yet to see the bottom of the decline in defense spending.

The Clinton administration seems totally uninterested in any new weapons program and it seems it is very unlikely to change that direction in the foreseeable future.

It has slowed or quit producing all of our older systems. The F-16 fighter plane is no longer being acquired by the U.S. government. It is only foreign orders. If it weren't for foreign orders, the line would be closed. The same is true of the F-15. The F-14 is gone.

Merger mania will continue as long as the market for defense goods continues to shrink because to survive in this market, companies have to have critical mass.

Stephen S. Fuller

Professor of Public Policy, George Mason University

The answer to that question depends upon where you live. Defense spending primarily for services and research and development in the Washington area, including Montgomery County, went up by 22 percent last year.

Companies involved in communication and information technology, software services and systems integration are doing fine. While the lion's share of this business is in Northern Virginia, there is some in Montgomery and Prince George's counties.

Companies in the Maryland suburbs of Washington have not felt the impact of the decline in defense spending nearly as much as the big suppliers in the Baltimore area, including Westinghouse Electric Corp.

The one bright spot is that the government can only defer purchases and defer maintenance so long before it catches up with them.

So the downsizing that has been affecting Westinghouse since the recession of 1991, I think, is pretty well over.

I think 1996 and 1997 are going to be lean years, but once we get through that, procurements will begin to pick up again, and employment should stabilize.

One of the biggest changes on the horizon has to do with base closing. We should start feeling that in fiscal year 1997 or 1998 as personnel cuts are made in uniform and civilian employment.

Virginia Lopez

Executive director, Aerospace Research Center of the Aerospace Industries Association

There are some signs that the employment situation in the defense and aerospace industry is getting a bit better, but I don't think it has totally bottomed out yet.

Department of Defense spending probably won't bottom out until maybe 1997.

Some of the figures I have seen recently [indicate that] procurement spending may be going up again next year, but research and development spending will be declining until the turn of the century.

To stay competitive, all the companies are going through this consolidation period. I don't think we have seen the end of this by any means.

They are hacking at their costs, so I don't think we have seen the end of work-force reductions.

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