The defense industry in the Tri-Counties is headed for its biggest shakeup in decades. Longtime players are cutting jobs while younger firms see growth as the Pentagon draws down its two foreign wars and focuses on strategic threats.
Raytheon, a major Goleta employer, confirmed layoffs that will affect about 160 of its jobs in Goleta. A company spokesman said the changes will bring the Massachusetts-based defense contractor’s head count on the South Coast down to about 1,400.
But other firms in the area that work on space-based communications and small drones say they are seeing growth and adding jobs. They are the beneficiaries of changing priorities as the Department of Defense shifts from a decade of warfare to focusing on smaller operations to nip threats to the United States in the bud or take out targets such as Osama bin Laden, who was killed in a raid in Pakistan on May 2.
How deep the cuts will be and where they will fall have not been worked out. Defense Secretary Robert Gates floated a $100 billion figure earlier this year, and in recent days U.S. Sen. Barney Frank, D-Mass., has sought $200 billion in cuts. Whatever the figure, the U.S. is withdrawing combat troops from Iraq and facing public pressure to draw down forces in Afghanistan.
Defense companies that also serve the industrial and commercial markets will likely fare the spending cuts better, said Richard Whittington, an analyst with Tech Indicators who follows both Teledyne Technologies and United Technologies. Both companies have operations in the Tri-Counties and include a mixture of defense and commercial and industrial work. He said defense cuts are likely to be “pretty hefty.”
“The layoffs at Raytheon are just the tip of the iceberg,” Whittington said, speaking generally about pure defense firms. “I think it’s going to be quite substantial and greater than what the defense companies have been expecting. But I think commercial aviation and industrial infrastructure expansion globally will more than offset the cuts for the diversified [companies].”
Raytheon is one of those pure-play defense companies. The Massachusetts-based firm operates two divisions in Goleta: a vision systems business that makes infrared equipment and an electronic warfare business that makes signal jammers and radar warning systems. In March, the company said it would cut about 46 positions at its vision systems business.
More recently, Raytheon spokesman Ron Colman said the electronic warfare division is moving most of its manufacturing operations to other Raytheon facilities in Texas and Mississippi. The change will affect 114 positions.
That doesn’t necessarily mean 114 people will lose jobs — the company will try to relocate workers or place them in other positions — but the Raytheon ranks will thin.
Colman and other officials at Raytheon have stressed that they remain committed to Goleta. Jon Kasle, a spokesman at Raytheon headquarters, said any perception that Raython is a Cold War-era defense contractor dependent on big weapons the U.S. no longer needs is wrong. He said the firm supplies mostly smaller electronic systems that can go into a variety of military technologies and doesn’t make planes and tanks.
“Only two contracts across Raytheon had sales of over $500 million in 2010, and about 50 percent of our total sales are driven by over 15,000 contracts,” Kasle told the Business Times via email. “For a company with annual sales of $25 billion, I think you can see the power of a diverse range of programs and contracts.”
Deals and growth
There are signs that the Pentagon will still fund a lot of economic growth in the Tri-Counties. The defense arm of pyrotechnic firm Special Devices in Moorpark was purchased by Ensign-Bickford Aerospace & Defense Co. in 2010 after Special Devices reorganized.
After buying the Special Devices business, the Connecticut-based Ensign-Bickford firm recently purchased the entire 265-acre Special Devices complex and its 166,628 square feet of warehouse, manufacturing and office buildings for an undisclosed amount.
Property records show that the hilltop complex, located just off the California 118 and 23 freeways, has an assessed value of $22.5 million. That number can vary greatly from asking or listing price, however. While Ensign-Bickford could not be reached for comment about its plans for the campus, real estate experts noted the firm has room to expand in Moorpark, which is home to a large skilled work force.
Special Devices made pyrotechnics that went into space and missile systems — the kind of thing that would help a rocket stage separate. Space, communications and drones appear to still be on the Pentagon’s priority list.
After a short bidding flurry, Camarillo-based defense electronics firm AML Communications was purchased by an Irvine chipmaker for $28 million last month. AML makes electronics that go into unmanned aerial vehicles and signal-jamming equipment.
Also in Camarillo, Lucix Corp. is seeing huge sales growth based on a contract with Boeing that ultimately traces its funding back to NASA. But Lucix CEO Mark Shahriary said the company is also seeing a boost from a military-based satellite communications contract. It is working on components that will help the military replace its AWACS planes, the huge Boeing 707s fitted with disc-shaped antennae.
“Every time an airplane takes off, in order for it to communicate with headquarters, they need an intermediary. [With the system Lucix is helping supply] the signal goes directly by satellite and directly to headquarters,” Shahriary said. “Actually, we’re growing quite fast.”
Another defense firm seeing sales improve is AeroVironment, which employs about 500 people in Simi Valley designing and building small, hand-launched drones. In the war in Afghanistan, troops have used the drones to see what’s over the next ridge on front lines where small arms skirmishes have dominated the fighting and reconnaissance is key.
“This has been a different threat environment from what the U.S. has faced for the past 50 years,” said Steven Gitlin, a spokesman for the firm. “In the previous threat environment, the focus was largely on armored divisions and naval vessels and aircraft.”
AeroVironment also has a commercial division that is building out charging stations for the Nissan Leaf and other electric vehicle technologies. Gitlin said the company is working to apply its drone know-how to commercial markets.
“Some of our technologies find an early, large market in the defense space. We don’t think the market opportunity for small unmanned aerial vehicle systems is limited to military customers,” Gitlin said. “Law enforcement, first responders, even companies that have to inspect widely distributed assets like pipelines and wire lines could use our system to great effect.”