Monday, Jan. 23, 1978

Stability Comes to Aerospace

The prognosis: no thrills, but also no chills

For the highly cyclical U.S. aerospace industry, stability had been as elusive as a wispy contrail against a clear blue sky. Just when things were going well, something would go wrong. Recession, the climax of the Apollo moon-landing program, President Carter's scrapping of the B-l bomber project: all these riddled industry profits and caused huge layoffs in Southern California, Seattle and other aerospace centers. Currently, the industry is making an upward thrust, fueled by fat military and commercial order backlogs. But the present climb is expected to level off at a comfortable plateau, and the old boom-or-bust days may be gone forever. Says a California analyst: "For the next ten years there will be no thrills. But there will be no chills, either."

One reason the industry is more immune to the ups and downs of old is its shrinking size. Two decades ago, California had 272,500 people employed in aerospace industries. That number has dwindled to 142,600, accounting for only 1.5% of California's work force of 8.7 million people. In Seattle, Boeing, the world's largest maker of commercial airliners, now has 53,000 workers on its payroll. That figure is well below the record 101,000 it employed in 1968, even though Boeing has a $5 billion order backlog for its 747 jumbo jets, 727 midrange airliners and the radar/computer systems for the Air Force's new AW ACS (for Airborne Warning and Control System) surveillance aircraft and cruise missiles.

Another factor favoring stability is that aerospace companies are becoming diversified, which means that proportionately less of their profits depend on sales of machines that fly. North American Aviation, which was hurt badly in 1963 by the cancellation of the B70 bomber, has been born again as Pittsburgh-based Rockwell International; its 1977 sales of $5.9 billion (and earnings of $144 million) include pocket calculators and Admiral television sets as well as the space shuttle. Northrop owns the George A. Fuller Co. of New York City, a large general contractor that also maintains airplanes. Planemakers are attempting to avoid concentrations of employment, dispersing some work from the West Coast and building aircraft in several states to cushion the economic impact of possible setbacks. McDonnell Douglas, for example, makes F4s in St. Louis.

In general, a calm born of renewed certainty has overtaken the industry. A number of new weapons systems are on the horizon. Moreover proponents of the B-l--notably Rockwell International, which still has 6,000 people at work on prototypes--are lobbying furiously on behalf of their aircraft, and hope that the supersonic bomber project may be revived. Commercial airlines seem content to replace aging planes with existing models or variations that are more advanced in terms of fuel economy and noise.

Foreign buyers of U.S. aircraft exercise a stabilizing influence, even though U.S. planemakers do not necessarily like the way they do it. Increasingly, overseas purchasers are demanding "offset" arrangements--the right to assemble parts of planes they buy in their own factories.

To sell Canada 18 CP-140 surveillance aircraft, valued at $700 million, Lockheed had to agree to spend $900 million in that country. Such deals ultimately result in a smaller piece of the action for U.S. planemakers; by the same token, there is less economic pain if orders are canceled.

The prospect for the industry is a long period of moderate, steady growth, extending into the '80s. By 1985, according to one Lockheed economist, the world's airlines will have to spend up to $57 billion to replace present fleets of arthritic 707s and DC-8s. The expectation is that most airlines will turn to wide-bodied jets, to reduce mileage and passenger seat costs. Currently, Boeing engineers are working on the specifications for a new 180-to 200-seat jet, which it hopes United and Delta will buy; the plane would seat seven abreast and, Boeing claims, effectively compete with McDonnell Douglas' DC-10 and Lockheed's TriStar L-1011. Meanwhile, Lockheed is coming up with a sleeker version of the L-1011, to be delivered to British Airways next year. McDonnell Douglas, already flush with orders for its DC-10s and DC-9s, is gearing up to produce a stretched DC-9 "Super 80"; the company claims it will be the quietest and most fuel-efficient plane ever flown.

This year, says the Department of Commerce, aerospace industry shipments could reach $37 billion, a 30% jump over last year. That would make aerospace the fastest-growing segment of U.S. manufacturing. About $9 billion worth of U.S. planes will be sold overseas, possibly narrowing the yawning U.S. trade deficit of $11 billion.

This file is automatically generated by a robot program, so viewer discretion is required.