Hughes Agrees to Buy Convair Missile Units

Hughes Aircraft agreed Monday to acquire the missile operations of General Dynamics for $450 million in what would be the first major aerospace industry realignment to cope with a dwindling defense market. The move threw 4,500 San Diego jobs into jeopardy.

A General Dynamics executive said Monday that there is a “reasonable likelihood” that at least 2,000 Convair Division employees who work on the Tomahawk cruise missiles will be relocated or laid off. The other 2,500 Convair Division missile employees already were scheduled to lose their jobs in August, 1993, when the advanced cruise missile program dies, Michael C. Keel, General Dynamics executive vice president, said.

But Keel said it will take “a few short months” to come up with a concrete plan for merging the two missile operations and determining the employees’ fates. Optimally, he said, the reorganization would merge all missile-assembling operations at one giant plant, probably either at General Dynamics’ Pomona plant or Hughes’ Tucson plant, both of which have vast unused space.

The announcement Monday, even though expected, stirred fears among employees about the uncertain future, and promises from local politicians to fight any large-scale flight of jobs. But there was little surprise about the deal, as General Dynamics has been saying for months that it planned to shed its missile manufacturing and other non-core businesses.

San Diego Mayor Maureen O’Connor on Monday pledged to carry on “friendly” discussions with Hughes Aircraft Co. But O’Connor, who played an active and successful role last year in the fight to stop Southern California Edison’s planned merger with San Diego Gas & Electric, also said she would consider antitrust action if it seems likely that local jobs are to be sent out of town.

But industry analysts gave her little chance of success. Mergers, employment shrinkage and job movement will become more common, they said Monday, and soon are expected in the armored vehicle, combat aircraft and defense electronics industries.

The defense industry until now has resisted a major reorganization that would eliminate massive excess production capacity built up during the Cold War.

Hughes, a unit of General Motors, agreed to issue 21.5 million shares of GM H-class stock, valued at a minimum of $450 million, to General Dynamics for its California-based missile operations, including the Convair operations in San Diego and the 4,300-employee Air Defense Systems division in Pomona and Rancho Cucamonga.

The Hughes deal is subject to a definitive agreement, expected in two to four months, and must be approved by the federal government. Under the initial agreement, General Dynamics will retain control of most of its plant and property, excluding the Navy-owned factory in Pomona.

Hughes will take over the firm’s contracts, working capital, work force and equipment. The H-class stock would be sold in a public offering, but GM will guarantee that the H-class stock will bring a minimum of $450 million.

The deal will have significant consequences for the U.S. defense industry, as well as the 9,600 employees at General Dynamics’ missile operations concentrated in Pomona and San Diego, and 7,500 employees at Hughes in Canoga Park and Tucson.

Although both corporations have been major players in the tactical missile business for four decades, they were eclipsed during the 1980s by Raytheon Corp. and faced a difficult future competing for shrinking Pentagon orders.

The merger will put Hughes missile sales on a par with Raytheon at about $2.5 billion annually and provide Hughes with a stronger position in some key missile technologies, experts noted.

“It is a big positive step,” said a senior Hughes missile executive. “It gives us the scale to spread overhead costs and allow us to compete against Raytheon.”

But economies of scale mean little to Convair’s San Diego employees, many of whom fear their jobs will either be eliminated altogether or moved elsewhere. Tucson, where Hughes’ 2.2-million-square-foot plant will soon be half empty, is a rumored site for the consolidation, as is the 2.1-million-square-foot Pomona facility.

“The acquisition addresses the overall problem of overcapacity in the defense industry,” said David McPherson, vice president and general manager of General Dynamics air defense systems division in Pomona. “You are going to see more of this happening.”

The consolidation would also cut employment significantly, but thousands of jobs already were expected to vanish as defense orders fall during the 1990s. Both Hughes and General Dynamics have cut thousands of jobs since defense contracts peaked in 1987.

Although San Diego, like most other cities, has seen defense-related jobs leave in dribs and drabs during the past four years, a relocation of all or a significant part of Convair’s 4,500 jobs in San Diego would represent by far the single most severe blow to the area’s employment base.

A Hughes executive said the company has not even begun identifying which facilities to close, many of which are owned by the Pentagon. It just formed a team to examine the issue.

Hughes operates other missile facilities in Alabama and Georgia. Besides Pomona and San Diego, General Dynamics has missile operations at a Navajo Indian reservation and in Camden, Ark.

General Dynamics already is transferring its Rancho Cucamonga work to Pomona, but even after that consolidation it will use only 75% of its Pomona plant, McPherson said.

“The industry has to face up to the fact that some things will have to be closed,” McPherson said.

Officials at both Hughes and General Dynamics said they doubt that the combined missile operations can be immediately put at a single facility. Even though Tucson would have the capacity for all the work, the relocation cost could be prohibitive, Hughes and General Dynamics executives said.

The consolidation is expected to mainly affect such facilities as San Diego, Camden and smaller plants in the South, the executives noted.

It remains unclear whether Hughes will attempt to consolidate the two missile engineering staffs, situated in Canoga Park and Tucson.

SAN DIEGO workers were confused and angry about the lack of information coming from their employer. D1