Business Update with Mark Lacter

Possible aerospace layoffs; behind the body scanners

KPCC business analyst Mark Lacter talks about how the aerospace industry in Southern California could face some layoffs; he also talks about the Southland company behind airport body scanners.

Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, we've seen layoffs hit several industries - you've spied one more that could fall prey...

Mark Lacter: It's aerospace Steve, which still has a pretty substantial presence in Southern California despite all those years of downsizing - mostly because the Defense Department is still willing to spend huge amounts of money on two wars and all the terrorist threats. But now that the deficit is becoming such a priority in Congress, there’s talk about some serious cutbacks. Actually, the Pentagon already had been going through an review about the way it spends its money, and the focus appears to be shifting its emphasis away from the current generation of ships and planes. The major aerospace companies that make that stuff have been preparing for the shift.

Julian: Wasn't it Northrop that talked about layoffs a few months ago?

Lacter: Right, several hundred jobs were eliminated at its facilities in El Segundo and Redondo Beach (remember that Northrop is one of the largest private employers here, even though it's moved its headquarters to Virginia). But it's not just the big guys that would be hit - smaller subcontractors could be in trouble if one of the programs they’re involved in is eliminated. Now, this is where the rubber is going to meet the road in Washington, because if Pentagon spending gets reduced, it means lost jobs in those same Congressional districts that have relied on their representatives to keep the money coming in. Great example is the fight over the C-17 cargo plane that's built by Boeing in Long Beach – that one employs 5,000 people directly, and thousands more indirectly.

Julian: ...the plane DOD wants to kill...

Lacter: Yes. For several years, the Pentagon has tried to phase out the C-17 program, but each year California's Congressional delegation has come to the rescue. Well, can you imagine what would happen if this year Congress decides to stop rescuing the C-17, especially with L.A. County’s high unemployment rate. Suddenly, deficit reduction might not seem like such a great idea. California Rep. Buck McKeon who is expected to become chairman of the House Armed Services Committee, says that defense cuts are a very bad idea - that they undermine the country's global position. But what they also mean are possible job losses in McKeon's district, which includes the Antelope Valley, and that's not a great thing.

Julian: It's a tug of war.

Lacter: It really is, especially in the House and especially among the new Republican majority. The one area that's pretty much exempt is anything having to do with counterterrorism, intelligence, and homeland security. In the L.A. area, there are around 170 companies that are involved in this kind of work (that’s according to the Washington Post), although good luck trying to find out what kind of work that is or how much the government pays for it. But the good news is that those jobs, whatever number there might be, should be around a while.

Julian: You mentioned homeland security... I suppose the company that makes full-body scanners is doing all right...

Lacter: More than all right, Steve. The company is called OSI Systems, it's based in Hawthorne, and its stock has almost doubled in value over the past year. And all this because it makes those X-ray scanners for airports, which are not going away, despite all the fuss we've been hearing about. Also, the company makes scanners for cargo, which is obviously a growth industry. OSI made more than 200 of the body scanners that are in operation at airports, and it has orders for several hundred more - and that's just for airports in the U.S. Obviously, terrorism threats are a global business as well. Now, OSI has at least one major competitor in the industry, and there probably will be others as the technology gets fine-tuned, but the moral of the story is that anything having to do with security is in good shape, even with the economy still struggling and even with Congress making noises about cutting the deficit.

Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes business blogs at LA Observed.com and at kpcc.org.


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