Aerospace: The Troubled Blue Yonder

HAVING always professed their faith in know-how, Americans have built empires of technology unparalleled in the world. The largest and for at least 25 years the most exciting of these has been the aerospace industry--the high-performance, high-speed realm of planes and missiles. Each year it has received barely conceivable billions from the national treasury, and each year its products seemed to transport Americans higher, faster and farther than ever before. After the U.S. Senate voted last week to shoot down the supersonic transport, which would have been the costliest commercial product in the nation's history, there were widespread new fears about the future of this proud industry. Barring the increasingly slim chance that the SST contractors will be able to continue work with private financing, the Senate vote killed--or at least postponed indefinitely--a machine that the U.S. had long assumed would be the basis of the next generation of commercial aircraft.

The SST decision was just the latest of many blows to the aerospace industry. The industry's biggest customer, the Defense Department, has cut back considerably on its orders for military planes and missiles. Following the course of the nation's disengagement from Viet Nam, defense funds have been pared for two straight years. The decreasing fervor for space feats has also hurt. The National Aeronautics and Space Administration this year has a budget of $3 billion, or a little more than half as much as three years ago.

The other major aerospace customer, the airline industry, has been set back by the general economic slump and is contracting for almost no new equipment. A confidential White House study estimates that airlines will suffer a $134 million loss on operations in 1971. Says Karl G. Harr Jr., president of the Aerospace Industries Association of America, in painful understatement: "We've got a severe weather problem."

Austerity Program

In the resulting turbulence, aerospace sales have fallen from a high of $28.9 billion in 1968 to an estimated $23.5 billion for 1971. Although the industry remains the nation's largest manufacturing employer, it has been forced to go on an austerity program and order massive job chopping (see box, page 78). Aerospace firms now employ just over one million Americans, down more than 25% from three years ago. The total is expected to shrink by year's end to 962,000, the lowest since 1958. Boeing, the contractor for the SST, expects to "bottom out" this year in the Puget Sound area at 29,500, down from 44,000 at present. Pink layoff slips will be sent to 7,000 at Boeing early this week.

To keep its employment high, the industry requires a steady flow of new development contracts. Aerospace labor is needed largely during the research and testing phases of a project. It is then that thousands of specialists have to draw patterns, cast molds, make tools --and build, test out and put together countless parts. Once a craft goes into production, machines can take over a much bigger part of the work. Because the SST was at a stage in which it had high manpower requirements, the Senate vote last week was a severe shock to the industry.

It is possible that the SST will rise again, if some future Congress decides that it is an economic or political necessity. Congress may well be forced to such a decision by international competition in the supersonic field. Two competitive planes, the Anglo-French Concorde and the Soviet TU-144, have been undergoing test flights for more than a year. Although British and French officials are still debating whether to continue bankrolling the Concorde, it is scheduled to begin commercial service in 1974. The Soviet TU-144 may make a dramatic appearance at the European Air Show this May and is due to start carrying passengers in about three years.

That raises the possibility that U.S. airlines might have to buy new equipment from abroad. "None of us would want to watch the Tupolevs go by," says Najeeb Halaby, chairman of Pan Am. Nor would Western airmen want to be dependent on the Soviets for spare parts. Eager for high prestige and hard currency, the Russians are making a determined effort to sell their TU-144, as well as many other planes, to airlines in the non-Communist world.

For the time being, many airline executives would like to see all the supersonics abandoned, or delayed for some years. The airlines are stretching out orders on all previously ordered equipment, including the new tri-jet airbuses that will go into service this fall. The reason: the lines are short of capital and are having a hard enough time filling their existing fleets.-

Focus of Resistance

From its inception as a largely Government-funded experiment in 1963, America's SST has drawn critical fire. No less a Jovian figure than Charles Lindbergh publicly questioned its advisability, and scientists were debating its possible faults right up to the moment of the vote. Although some of the rhetoric was wrapped in unconscionably scary language, there were at least two reasonable grounds on which to question the plane's viability. Ecologically, the SST would have been a noise polluter unless equipped with extra gear that would severely reduce its payload. Economically, it could have been an aerial Edsel. The plane's astronomical price tag (at least $40 million each v. $28 million for the less advanced Concorde) left doubts that enough buyers could be found to recapture the $1.3 billion necessary to build a prototype.

The SST became the focus of the rising public resistance against products that might harm the environment and against the expenditure of vast sums to bankroll "progress" that could be enjoyed only by the well off. Consumer activists have attacked products of industries as varied as autos and food. Yet no industry has been affected quite so dramatically as aerospace.

The jolt has reached thousands of small and intermediate-sized firms, from major subcontractors to the bars and bowling alleys where aerospace workers spend the nonessential parts of their paychecks. Times are especially perilous for the four titans of the industry, the billion-dollar corporations that serve as prime contractors and provide a strong source of support for whole cities. Though their individual states of health range from critical to fairly good, every one has been forced to cut jobs over the past three years, as the following employment figures show: 1968 1971 Lockheed 93,000 75,000 Boeing 102,000 44,000 North American Rockwell 114,000 76,000 McDonnell Douglas 124,700 92.000 By far the most desperately ill aerospace firm is Lockheed. It is struggling for survival after two grave errors. The company contracted to develop and build the huge C-5A cargo plane for the Air Force at a price that later seemed arbitrarily low. And it decided to bank on Britain's Rolls-Royce, Ltd. to deliver engines for its 256-passenger L-1011 TriStar super jet for a price too good to be true. Both the C-5A and the Rolls-Royce engine turned out to be riddled with "unk-unks," industry slang for "unknown unknowns." Last October, after cost overruns on the C-5A had enraged Congress, the Air Force reduced its order from 115 to 81, which resulted in a loss to Lockheed of $200 million. Worse yet, Rolls-Royce collapsed under the burden of unexpected costs on its contract, leaving Lockheed with exactly 17 engines to put on the 178 TriStars that it had sold.

Prospect of Delays

With help from the White House, Lockheed has been trying to renegotiate its contract with the British government and get the engines. Last week the two sides continued their meetings in Washington, still with no apparent result. If no deal can be made, Lockheed could still save the TriStar by buying engines from either Pratt & Whitney or General Electric. But that plan would put the plane's production even farther behind that of McDonnell Douglas' competing DC-10, deliveries of which are expected to begin later this year. Faced with the prospect of long delays, Delta Air Lines, one of the three major customers waiting for TriStars, has hedged its choice and ordered three DC-lOs. If other lines should follow, Lockheed might have to scratch its super jet.

The company's other major aerospace products--Poseidon missiles, C-130 cargo planes, S-3A antisubmarine planes and Agena satellites--are performing well and earning money. But the losses on its two flops are so huge that Lockheed is in deep trouble.

Boeing, for all its drastic job cutting, remains highly competitive in its longtime specialty, commercial aircraft. While some airlines have stretched out their orders, Boeing has searched hard for new customers overseas. Last year it landed nine--including Indian Airlines, Korean Airlines and Air Algerie--for various commercial jet orders. Their business was partly responsible for record sales of $3.7 billion. Boeing's earnings more than doubled last year, but, at $22 million, they were quite low relative to sales.

The company, which recently dropped its lease on one major assembly plant and turned two others into storage space, sees little chance to grow rapidly. The cancellation of the SST, which company designers labored on for more than a decade, casts a new pall over its future. The loss of the SST was a painful psychological blow as well as an economic setback. For the first time since the advent of jet travel, Boeing was deprived of work on "the big new plane" that the rest of the world would soon be discussing. The cancellation also meant the partial breakup of the company's supersonic engineering and design teams, not to mention its hopes for hundreds of millions in profits if the craft proved airworthy. Said a Boeing spokesman: "We wanted the SST badly--because it's the future."

Another of the aerospace majors, North American Rockwell, which produces an extensive mix of automotive and electronic products, has weathered the storm in aerospace fairly well. It h: s high hopes of getting substantial future contracts for the B-l bomber and NASA's space shuttle system. Last year's sales fell 9.6% to $2.4 billion, but earnings were stable at $64.7 million.

The current king of the hill in aerospace is McDonnell Douglas, which is on schedule with its DC-10 Trijet program and the lucrative F-15 military jet fighter contract. The company's astronautics division is hard at work on projects including NASA's skylab program and the Army's Spartan missile for the anti-ballistic missile system. The

F-4 Phantom jet has become a workhorse of the Viet Nam War. More than 4.000 of them have been produced so far, and the McDonnell Douglas executives optimistically expect the total to reach 5,000 before the planes become obsolescent. That hope may well come true, especially since the West German government announced last week that it plans to shift away from the accident-plagued Lockheed Starfighter and buy $1 billion worth of Phantoms.

The most distressing result of the industry's current misfortunes is the hardship borne by its laid-off workers. Many of the men and women who stopped working on the hornet-nosed SST prototype at Boeing last week had long service in the company. "I've been working on this plane for five years, and what really disappoints me is that I'll never get to see it fly," said one. "You really get attached to them."

There is now some question whether the U.S. can maintain its dominance of worldwide aerospace sales. Of about 10,000 commercial aircraft flying in the West, 85% were built in the U.S. The aerospace industry is the nation's No. 1 exporter of manufactured goods; last year its sales to foreign buyers amounted to $3.4 billion. If the U.S. loses the lead in aerospace, its balance-of-payments deficit (already running to $5 billion annually) could worsen considerably. Says Richard Marshall, vice president of DMS Inc., a defense marketing research firm: "The Senate vote on the SST lost us what might have been our leading export item from 1975 to 1990."

The biggest uncertainty of all for the industry is what will happen to it after the Viet Nam War ends. Actually, the leaders of companies that have a large stake in commercial planebuilding believe that peace will be a boon to them. They point out that the war has distorted the economy and brought about the need for deflationary policies in 1969 and 1970. This, in turn, led to business sluggishness, which crimped air travel and the sales of commercial planes. There is a widespread feeling in the industry that, until the war is over, the economy is going to remain in a state of suspension. One of the benefits of a return to peace will be that people will increase their air travel.

The peacetime prospects of military contractors are not entirely bleak. Defense Secretary Melvin Laird recently said that the Pentagon will begin to place greater emphasis on modernizing weapons than on maintaining high manpower levels. Leaders of the Armed Forces are readying new orders for several long-deferred weapons systems, including the B-l strategic bomber and the airborne warning and control system (AWACS). The awards will begin in mid-1971. At about the same time, NASA expects to begin awarding its next big space contracts for a project that had been deferred partly by the high costs of the war. The new contracts will be for a reusable shuttle vehicle and a permanent space station. Together, they will enable astronauts to rocket out to an elaborately equipped space home and return on the same vehicle. Almost every major aerospace company has started bidding for parts of this project.

Plotting A New Course

These orders, in addition to ongoing projects like the ABM Safeguard missile (now budgeted at $1.3 billion) will pump some fresh funds into the post-Viet Nam aerospace industry. They are far from sufficient, however, to spin it back to the rich-living days of the 1960s, when newspapers regularly carried whole sections of aerospace help-wanted ads. Moreover, unless the Soviets score a major technological breakthrough similar to Sputnik, there is little chance that the U.S. will decide to undertake another moon-sized aerospace project in the near future. Given the widespread antiwar sentiment in the U.S., the chances of becoming involved in a new war are even slimmer. Thus, the aerospace industry stands to collect a smaller share of the rising gross national product in the years ahead.

One of the most important legacies of aerospace's golden age in the '60s was the creation of an extraordinary pool of manpower. As Boeing Vice President Oliver C. Boileau points out: "Our industry is unique for its technology and for its program planning process --systems management." The sharply trained, highly motivated aerospace teams are a national asset that should not be allowed to dissolve and drift apart. For that reason, and because the

U.S. needs a vibrant aerospace industry for obvious defense and research purposes, it is important to ask: What should the nation do about its aerospace industry?

Economist John Kenneth Galbraith suggests that the defense industry, which includes many aerospace contractors, should be nationalized. He argues that "we recognize the reality of things, which is that the large, specialized defense contractors are really public firms." Under his plan the Government would buy out shareholders in any firm that reached a certain level of dependence on Government business by exchanging U.S. bonds for their securities. There is logic of sorts in Galbraith's idea: it would allow the nation to keep skilled teams intact by guaranteeing them steady employment, even in slack times.

On the other hand, the takeover of private corporations appeals to few Americans. "Government intervention is the problem, not the solution," says Economist Milton Friedman. "Has a nationalized Post Office worked well, or schools, or housing? The system we have is one of profits and losses, and the losses are just as important as profits." In other words, companies that cannot make it in the marketplace should drop out. A nationalized industry usually becomes a political plaything, not subject to the pressures for efficiency or the need for a profit. In addition, the ownership of defense companies is already so diffuse (stock in the 100 largest contractors is held by some 31 million persons) that nationalization would cause a great public outcry.

Another plan is for the Government to preserve the privacy of its dependent contractors but give them new kinds of work. Supporters of the idea suggest that the U.S. should pick out one of its seemingly insoluble problems, such as air pollution or the lack of mass transportation, and instruct an aerospace company to attack it in the same fashion as the ten-year moon project. The company would take on the problem, separate its components, analyze ways to deal with them, project a schedule for solution and build some of the hardware. Says Assistant Secretary Harold Finger of the Housing and Urban Development Department: "The industry's capability in hardware, software, management, planning, evaluation, analysis and programming--all can be applied to the national problems of housing, pollution, waste management."

The idea is also attractive because it has already shown glimmerings of success in some cases. The Aerospace Association's President Harr estimates that the industry now handles $2.5 billion worth of non-aerospace business annually, including urban studies, pollution control and housing. For example, the Rohr Corp., a subcontractor of airplane parts, two years ago began studying rail-transit problems and has since won a profitable, $66.7 million contract to construct cars for San Francisco's new rapid-transit system. Railroads of all kinds are the projects most often mentioned as possible conversion targets for the aerospace industry. Says Dr. Richard Michaels, research director of Northwestern University's transportation center: "There is no way to make rail passenger service profitable with the technology we have today. It is a natural problem for the space industry."

Other authorities are far less sure. Most of the projects run by aerospace companies were taken on in an attempt to diversify against a slowdown in their main activity. As many balance sheets now attest, the companies did not secure insurance against such a turn of events. A. Scheffer Lang, head of the transportation division of M.I.T.'s department of civil engineering, recalls a transportation study undertaken several years ago by planners at North American Aviation. "They demonstrated very clearly that they didn't understand the problems," he notes. "Technology per se is the easiest part. They couldn't get their heads around to understanding the situation within which one has to market."

Dollar Overkill

The trouble is that aerospace men have been trained to be much more concerned about technical excellence than about costs. Often, when a bug developed in a large federal project, the industry's solution has been to pour on more research, more analysis, more management--and charge it all to the Government on a cost-plus basis. Lang calls that technique "dollar overkill." Unless the prevailing mentality in the industry changes, it will not be well suited to handle environmental problems. At present there simply are not enough zeroes attached to existing research funds. "You're talking about hundreds of millions of dollars a year compared with billions for defense and space," Lang says. Dean Albert J. Kelley of Boston College's school of management believes that the aerospace industry is simply not geared to any market but the monolithic one offered by the Government, which is "about an inch wide and a mile deep." In commercial business, he observes, "you tend to have more of a horizontal market. You have a lot more little sales. Making this transition is the companies' greatest problem."

Perhaps the most intriguing objection to conversion of the industry comes from the industry itself. Many men in aerospace chose their careers at least partly for the romance of exploring "the last frontier." Chris Kraft, deputy director of Houston's Manned Space Center, remarks: "If you think I'm going to sit around for ten years worrying about car exhaust and property rights for new roads, you're full of crap."

Even so, those who are wedded to aerospace as both job and life-style are fewer in number than the workers who would be only too happy to find new employment. The industry's decline has presented the nation with an elite corps of unemployed whose average education and skills far outrank those of the jobless at large. "If I were in this Administration," says Economist Robert Nathan, "I would have top experts flying out to Seattle right now to find out what talents this group offers and where the men can be put to work."

To put them to work, the Government will have to help retrain many of the jobless veterans of aerospace and help redirect others into different industries. Washington is doing little of that. Its unimaginative performance augurs poorly for the even larger conversion to peacetime that will come later. At M.I.T. and the University of California, HUD has opened about 25 cram courses to prepare technologists for public-service jobs. One of the few programs that provide extensive retraining is run at the University of California at Irvine, where participants study for a master's degree in environmental engineering. But only 34 people are taking the course.

Even before the SST vote, it was clear that government at all levels should be doing far more for retraining the displaced persons of aerospace. Having en couraged many of them to pursue narrowly technological careers in a patriotic enterprise, the nation's officials are all but duty-bound to provide a chance for them to use their skills. Last week's action in the Senate only strengthened that obligation by freeing SST funds for other purposes. Another reason the lawmakers should be eager to help: if aerospace unemployment becomes an overwhelming problem, there may be rising public pressure to reverse the decision against the SST and other projects.

Down to Earth

The companies, or at least those that worked on the SST, apparently have something coming from the Government. Under the Transportation Department's contract with Boeing, most of the private contractors' expenses are probably recoverable, though their hoped-for profits certainly are not. Boeing alone expects to collect $52 million from Washington. Since each of the big corporations still holds sizable Government contracts, there is a chance that all will survive, though some in considerably diminished form. Still, aerospace is a merger-prone industry, and it would not be surprising if Lockheed or some of the industry's larger subcontractors found shelter in some richer corporations. Says William McKee, former Federal Aviation Agency administrator: "The hard truth is that the country really doesn't have a requirement for several major commercial jet builders. The way the market is going, something's got to give."

In the meantime, the industry's chiefs have learned several hard lessons. Like other real-life Cinderellas, leaders of aerospace sometimes displayed an unconscious arrogance, in their case the arrogance of commanding an elite knowledge. After their recent letdown, aerospace men will not soon again believe that the public is willing to spend unlimited sums for advances that might be technologically great but would have benefits for relatively few people. In a recent speech, Richard D. De Lauer, executive vice president of Los Angeles' TRW Inc., told his fellow aerospace men: "The aerospace industry must somehow convince the public that it represents a resource to be strengthened, and not a profit-grabbing, self-seeking industry which is diverting national resources from more important endeavors. We must explain to people that aerospace is an industry which possesses the advanced technology resources that can help solve many of our social and civil problems, but that this is only part of what must continue to be a balanced application of science and technology on many fronts." If this balance is to be achieved, the ingenious aerospace chiefs have to find ways to direct more of their skills to down-to-earth problems, and the Government will have to scratch up more resources to retrain their workers.

*One happy result of emptiness aloft is that the airlines, in a new space race, are giving the passenger more room to stretch out and roam around in during flight. At least three lines are offering five-across (instead of six-across) seating on conventional 707 and DC-8 jets. Last week American Airlines started advertising its huge new lounge area with a stand-up bar in the tourist-class compartments of the jumbo 747.

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