An Awesome Outlook for Global Builders

There’s no predicting the future, but at a time when economists and business people argue whether the recession is ending, there seems little doubt about the exuberance of the engineering and global construction industry.

Action is everywhere for the gigantic U.S.-led business that builds power plants and factories, refineries and roads in every corner of the globe. Such companies as Fluor, Bechtel, M. W. Kellogg, Parsons, Jacobs Engineering and many others in Engineering News Record’s top 400 contractors are enjoying record revenue.

Even the fact that Kuwait’s rebuilding is going slowly hasn’t hurt the companies; they have plenty of work at hand and weren’t hungry for more in the Gulf War’s aftermath. And the stock market is approving: The publicly traded engineering firms such as Fluor and Jacobs trade at 26 times earnings, a big premium to the market’s average.

Yet it has all happened before. The engineering industry boomed with high oil prices and Middle East money in the 1970s and then busted terribly in the 1980s, when all the firms went through agonies of restructuring. Fluor slashed its work force from 44,000 to 14,000, cut expenses and debt. Now it’s back up to a 22,000 work force and ranks once again as the largest engineering and construction firm.

Jacobs Engineering, a smaller Pasadena firm that will go over $1 billion in revenue this year, shrank from 2,300 to 1,200 employees in the hard times. But now it employs more than 4,000 and will expand to 6,000 within the next two years.

The obvious question: Is something different this time or will the engineering business deflate again like a punctured balloon?

It’s not a balloon, says Joseph Jacobs, the 74-year old founder and chairman of Jacobs Engineering. Every industry, from oil to pharmaceuticals to baking, has to remake its plants to be globally competitive and to meet environmental regulations, he explains. And that spells opportunity. Shell Oil, for example, plans to spend $500 million to refit facilities for environmental requirements.

And Shell is far from alone. Analyst Stephen J. Dobi of the Smith Barney investment firm looks around the world and declares flatly: “Opportunities in engineering and construction in the ‘90s are of a magnitude rarely afforded.” Engineering companies will grow 20% a year for the next five years, Dobi predicts, while most economies will grow 3% to 5% a year. The outlook is awesome.

Where will the money for all that building come from? “Our clients, the big companies in oil and chemicals, have cash,” says Noel Watson, 54, president and chief operating officer of Jacobs. “And they have a five-year downturn in plant expenditure to make up for.” The outlook is awesome.

But, still, people worry about worldwide downturn, recession and worse. That’s because business isn’t neat and predictable--a thought that arises from Joe Jacobs’ forthcoming book, “The Anatomy of an Entrepreneur.”

The book, for which Jacobs is helping to finance publication, is a sometimes sentimental autobiography by a son of Lebanese immigrants who built a billion-dollar business. But the book is more than sentiment. There are real lessons in it--about starting and running a business, and about what a human adventure business really is, even a technical business that builds a potash plant on the Dead Sea in 140 degree heat.

To start a business, act, don’t hesitate. Jacobs, who has a doctorate in chemical engineering from the then-Brooklyn Polytechnic Institute, was working as a consultant to Kaiser Engineers in 1955 when the need arose for a chemical plant to make a key ingredient in aluminum refining. Kaiser people said to Jacobs, if you can do it, the plant job is yours. So he said yes and then repaired with an associate to the public library to figure out how.

Jacobs retired once but returned to active status in the bad times of the ‘80s, when he was 68 years old and had survived a heart attack and cancer. Now Noel Watson, a chemical engineer who joined the company in the 1960s, is heir-apparent. Watson has the job because when toughness was called for in the cutbacks of the ‘80s, he had it.

“To my mind the word restructuring is a ‘nice nellyism,’ ” Jacobs writes. It avoids the gut level where people are laid off. Engineering firms were overstaffed in the early ‘80s, so they bid low on jobs to give people work. But instead they wound up losing money. Tough calls were needed. Jacobs describes how one man tried to make up for his employees’ shortcomings by working seven days a week. He didn’t get the top job. Watson did because he made the tough moves and took the heat. And because he did, Jacobs employs more people than ever and will employ more. “We’re ready to hire 1,000 people in the United States,” says Watson.

In the Dead Sea project in Jordan, there were arguments--but not mainly between Arabs and Americans. Jacobs writes of an executive who didn’t want to move to Jordan and so tried commuting, flying 10,000 miles a month. But his absences took their toll; people on site undermined the executive. Jacobs admits that he never should have allowed it.

Given human frailties, it’s a wonder the work gets done at all. But it does. And the need for potash plants--and dams and airports and desalination plants--will continue. Although nobody can predict the future, it’s a good bet that engineering and global construction will be a key field in the ‘90s.