Military Contractors: Dismantling the War Machine

By John Greenwald

After months of predictions, the long-awaited peace dividend began arriving last week -- in the form of pink slips for thousands of defense workers. Connecticut-based United Technologies (1991 revenues: $21.2 billion) announced plans to slash nearly 14,000 jobs, or 7% of its work force, with more than half the cuts coming from defense and aerospace programs.

"It's very frightening," says Richard Whitehead, 45, a machinist and layoff victim at the company's Pratt & Whitney jet-engine plant. "When you're told that your job is lost, your feelings just go cold. For my trade," he adds, "there's nothing else out there. I don't know what I'll do."

The chill is spreading across the U.S. as the end of the cold war pushes military contractors into the sharpest cutbacks since World War II. Still reeling from the loss of 200,000 jobs since Ronald Reagan's military buildup peaked in 1987, the industry could lose 500,000 more jobs by 1995. "There's going to be a rapid shrinkage in the next 36 months," says Howard Rubel, who follows defense and aerospace for the C.J. Lawrence securities firm. "Whole divisions are going to vanish. Long-term planning now means 'How are we going to get people out the door tomorrow?' "

Every week seems to bring a new spate of plans for reducing defense spending. While the Bush Administration would reportedly whack $50 billion out of a $1.89 trillion five-year military budget, some leading Democrats want to slash as much as $150 billion. Not to be outdone, the Pentagon has been tinkering with a cost-saving plan to finance the research and development of new weapons without actually buying them -- an idea that horrifies the defense industry.

One of the most endangered weapons systems is the Northrop B-2 Stealth bomber, a radar-evading aircraft that costs $850 million apiece and provided half the company's $4.1 billion of sales during the first nine months last year. The Air Force has already trimmed B-2 orders from 132 planes to 75. According to TIME's sources, White House aides met quietly with Northrop officials last month to discuss a possible halt to the project, which employs 13,000 in the Los Angeles area, once work is completed on the 16 B-2s now in production.

Cancellation of the bomber would be the latest blow to California's struggling aerospace and defense industry, which accounted for 15% of the state's economy in the late 1960s but only about 7% today. "The average worker has been laid off and called back many times," says Bonnie Sherman, a vocational counselor for jobless defense employees in Southern California. "They used to say, 'That's O.K., I'll run over to Northrop or Hughes.' But the government isn't giving these corporations the contracts they are used to," she adds. "We're in a peace economy now."

Peace threatens other big-ticket items as well, like the $3 billion Seawolf nuclear submarine that the Electric Boat Division of General Dynamics is building in Groton, Conn. Since completion of its Los Angeles-class attack submarine, Electric Boat has depended heavily on the Seawolf to keep business humming. But while work on the first Seawolf is under way, experts say the Navy is unlikely to get any more of the 12 subs it once sought.

Some firms are beefing up their civilian operations to soften the loss of military business. McDonnell Douglas is phasing out production of such lucrative aircraft as the F-15 Eagle fighter and the AV-8B Harrier fighter- bomber. To help take up the slack, the St. Louis-based firm agreed last year to join forces with Taiwan Aerospace Corp. to build a new generation of commercial jetliners. At the same time, overseas contracts and proposals to modernize McDonnell Douglas military aircraft now in service could salvage additional jobs on the firm's production lines.

Overhauling used aircraft could also bring a measure of relief to Grumman, a Long Island contractor that has reduced its labor force by more than 11,000 workers, or nearly one-third, since the mid-1980s. The firm's problems stem from government cancellation of such workhorses as the F-14 Tomcat fighter and the A-6 Intruder attack jet. But Grumman president Robert Myers discerns a silver lining. "Grumman could benefit from major reductions in defense spending because the system would have to exist with the equipment in use," he says. That could mean lucrative contracts to service and modernize thousands of Grumman aircraft in the U.S. arsenal.

Unfortunately for defense firms, the budget crunch is accompanied by a projected drop in foreign sales, traditionally a vital source of business. While prospective foreign buyers may have salivated over the performance of U.S. high-tech weapons in the gulf war, the Bush Administration has been urging arms control in hot spots like the Middle East. "The world is becoming a friendlier place," says Philip Friedman, an analyst for Morgan Stanley. America's struggling masters of war must thus adjust their sights both at home and abroad.

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CREDIT: TIME GRAPHIC BY STEVE HART

[TMFONT 1 d #666666 d {Source: Bureau of Labor Statistics}]CAPTION: THE PRICE OF PEACE: DECLINING DEFENSE JOBS

With reporting by Jeanne Reid/Boston and Bruce van Voorst/Washington