When a major industry undergoes a period of massive consolidation, what happens to the worker at the metal lathe or the city whose identity lies in the factory logo?
Answers to these enduring questions are coming into clearer focus for the defense industry as a historic consolidation begun at the end of the cold war may now have run its course. Yesterday's expected merger between Raytheon Company and Hughes Electronics may be the last major change in the shape of an industry that, just a decade ago, had 10 major competitors but is now dominated by a multibillion-dollar trio.
While it will take years before the full impact of the reconfiguration on state and local economies is understood, subtle shifts are occurring. Arizona and Texas, for instance, are doing well. California continues to get hit. Overall, analysts say, a healthier defense-aerospace industry is emerging from the consolidations, which, in the long run, should be beneficial for many regional economies.
"The industry is finally becoming more balanced in terms of the market," says David Vadasof the Aerospace Industries Association in Washington. "Companies have resized to the marketplace, and will be more able to satisfy customer needs and compete internationally. That should be good for employment."
Defense jobs, of course, are not the flywheel of many local economies that they once were. In the seven years since the fall of the Berlin Wall, Pentagon spending has fallen 54 percent, and an industry that thrived on competition and diversification during the Reagan years has come through more than $40 billion in corporate consolidations.
That leaves a top tier of three giants: Lockheed Martin, Boeing-McDonnell Douglas, and Raytheon (assuming the Hughes deal, which at press time wasn't approved yet, goes through).
Production lines - and jobs - won't change overnight. It will take years for many existing contracts to play out. Take Lockheed Martin, formed by a merger of two aerospace giants three years ago. So far the new company has made few large-scale location or work force changes.
Even so, the state-by-state impact of the new consolidations is becoming more apparent. By acquiring the defense operations of Hughes Electronics, a subsidiary of General Motors, Massachusetts-based Raytheon would be the only major missilemaker in the country. It also would enjoy dominance in aviation electronics, having previously acquired the military businesses of Texas Instruments and E-Systems.
That means Texas may now become a hub of avionics, while missile production could be expanded at Hughes facilities in Arizona. California, meanwhile, may have lost its last best chance to remain the home of a major player. Had Northrop Grumman, a Los Angeles-based firm, won the Hughes bid, the Golden State would have secured a strong hold on the radar industry.
AS it is, southern California continues to hurt: A study released this week shows southeast Los Angeles County has lost 60 percent of its aerospace jobs since 1988.
Other regional shifts from the recent mergers will be difficult to gauge. Bethesda, Md., remains an important business center since it is the headquarters of Lockheed Martin. Seattle has taken on a more prominent role now that Boeing is buying McDonnell Douglas. But St. Louis, the long-time headquarters of McDonnell Douglas, remains the hub of defense aircraft production.
Consolidations aren't the only factor shaping the industry's new footprint. Cost and weather are factors, too. The Sun Belt states - Florida, Georgia, Texas, and Arizona - have become the favored locations for many defense operations, both because they are cheaper places to do business and because the weather is better for product-testing. "In the past five to 10 years, the business has shifted away from the coasts," says John Harbison of Booz Allen Hamilton, a Los Angeles consulting firm. "Georgia and Florida are lower-cost states."
But other factors are limiting the industry's ability to move or consolidate facilities. Existing plants, as one analyst puts it, are "an albatross."
There is an estimated 100-million square feet of excess factory space in the industry, most of which is unsellable either for environmental reasons or for design incompatibilities. Furthermore, factories tooled for military aircraft are not easily converted to commercial aircraft.
And one trend may provide the silver lining for states such as California and Massachusetts. Even as Pentagon budgets continue to shrink, more of each dollar is being devoted to research and development.
Advanced technology now accounts for the bulk of aircraft production costs. Companies, Mr. Harbison notes, appear to have concluded that there are important R&D advantages to being near the high-tech centers of Los Angeles, Silicon Valley, and Boston.