Rocketdyne Future Put Into Question By BRAD SMITH Staff Reporter The largest aerospace employer in the San Fernando Valley, one of the largest remaining manufacturing companies in Los Angeles, may shut down local operations entirely by the end of the decade. The business case for Rocketdyne Propulsion and Power, a division of the Chicago-based Boeing Co. that employs some 3,000 people at facilities in the San Fernando Valley and Ventura County, may face “a cliff” as early as 2009 unless there are substantial changes in how the federal government deals with the aerospace industry, said Byron Wood, the company’s chief executive. Rocketdyne currently designs and builds engines for the space shuttle and the Delta II and Delta IV satellite boosters, along with other products that generate an annual payroll of $320 million and a purchasing budget of $140 million for Los Angeles-area vendors. “We’ll be making space shuttle main engines and the (Delta IV’s) RS-68 for as long as those programs are around,” Wood said. “The SSME will last at least until 2010, and maybe beyond, and the RS-68s, I think the government will stick with (the Delta IV) until at least 2008-09.” But Wood, a 41-year veteran of Rocketdyne who expects to retire within two years, is blunt about the company’s prospects absent change. “I look at somewhere between 2009 and 2010 as when the cliff might hit,” he said. The problems facing the space propulsion industry mirror those that have led to huge realignments across the U.S. aerospace industry in recent years: increased competition from European and Asian manufacturers, shifting U.S. government priorities, and an American aerospace industry with infrastructure that dates back to the Cold War. The same business pressures that led to the disappearance of such venerable names in aerospace as McDonnell-Douglas have hit the rocketry sector as well; the difference is the three major engine manufacturers Rocketdyne, Hartford, Conn.-based United Technologies Corp.’s Pratt & Whitney subsidiary and Sacramento-based GenCorp Inc.’s Aerojet division remain independent. Merger seen That has led to widespread anticipation from analysts the number of engine manufacturers will be reduced in the near future, either through a merger and acquisition or a joint venture involving one or more of the current suppliers. “It’s somewhat like what the same situation was among the big aerospace prime contractors,” said Jon B. Kutler, chairman of Jefferies Quarterdeck, a Los Angeles-based investment banking firm that specializes in aerospace companies. “They all consolidated when the budgets were declining, and now, with the consolidation there are fewer players, so you see profits in their earnings reports.” Proposals for such action and rumors about the major players have been widespread; in 2000, Aerojet and Pratt & Whitney announced a joint venture, but that deal later fell through. In recent weeks, Rocketdyne has been the subject of subject of similar speculation, in part because of statements Wood has made before the Presidential Commission on Space Exploration and at an industry conference on space propulsion. Wood has suggested a “national” space propulsion effort that would involve the federal government, academia, and the space propulsion manufacturers. Without a major change in how the government does business, he said, there may not be enough work for spacecraft propulsion to remain a viable business for any of the trio’s parent companies. “The big corporations (are not) willing to make an investment in research because they don’t see how they get it back,” Wood said. “The big companies have been burned; look at the companies that put a lot of their own money into (the abortive) Orbital Space Plane, and the OSP got canceled earlier this year.” Along with the OSP project, the industry has been whipsawed by changes in priorities, from NASA and both Republican and Democratic administrations in the White House. Changes in the past decade have included major shifts over the space station; various ideas for space shuttle replacements; expendable boosters versus reusable ones; the debate over small, simple satellites and space probes over large, complex, but more capable craft; and the differing needs of the commercial, military, and civil sectors of the space launch industry. Wood says the lack of consistent policy from Washington has led to unwillingness by corporate managers to bankroll the propulsion divisions; that in, in turn is leading to a steady drop in the industry’s ability to ramp up for any new project. “They’re starting to get gun shy,” Wood said. “How many times do we have to get burned to get the message?” His opinions are shared by many within the cyclical, even “boom and bust,” industry, analysts said. “You have very high fixed costs because everybody has to come into work no matter how many engines you’re making,” said John Pike, director of Alexandria, VA-based GlobalSecurity, a defense policy group. “When your company only has one production line, and you have to be set up to deal with your peak years, it’s a real rough business to be in.” In order to reduce some of those fixed costs, Rocketdyne has reduced its workforce and is selling off much of the existing infrastructure; parts of the landmark factory in Canoga Park have been sold for redevelopment, and the company is in the middle of moving most operations from the Canoga property, where about 1,300 people work, to a nearby plant called the De Soto facility. Staffing changes By 2006, some 2,500 Rocketdyne employees will be at De Soto, with only 600 at Canoga. Half of the existing 50-acre Canoga plant will be vacant and up for sale. The company will also have about 300 people at a West Hills facility who may be moved to De Soto and another 200 at the 2,800-acre Santa Susana Field Lab in the Simi Hills. The company is engaged in a massive environmental remediation effort at Santa Susana that could be complete in 2007; at the end of that effort, Boeing will only retain about 90 acres of the site. Those reductions, and the possibility that Rocketdyne could leave the Valley entirely in the future, is a major concern to local and state government officials. State Sen. Richard Alarcon, a San Fernando Valley Democrat who chairs the Senate Labor and Industrial Relations Committee, said government must act to retain high wage aerospace employers in California. “To me, it is just as important as runaway production in the movie industry; Rocketdyne has been an anchor of the economy in the Valley,” said Alarcon, who is also a candidate for mayor of Los Angeles. “I want to insure it continues to be, whether it is under Boeing’s corporate seal or another we have to fight for these jobs.”