Bracing for an Economic Nose-Dive : Business: If Hughes Aircraft moves General Dynamics’ missile production out of San Diego, the shock wave would be felt far and wide.

The impending sale of General Dynamics’ Convair missile business and other San Diego-based operations has Andy Loehr “extremely concerned,” and it’s easy to see why.

Loehr’s family owns Tools & Metals, an El Cajon-based distributor of metal cutting tools and abrasives that depends on Convair for about 30% of his sales. So, Convair’s deal announced this week to sell its missile business to Hughes Aircraft--and Hughes’ admission that there is a “likelihood” that those operations will be relocated away from San Diego--hits Loehr very much where he lives.

“Obviously I’m not pleased, not only about General Dynamics but about the whole goddamn city,” Loehr said. “Manufacturing in San Diego has been declining, especially aerospace manufacturing, for some time and so has our business base. We are having to go farther to get less. I just got back from Texas, trying to develop customers. I’m not going to lie down.”

The announcement that General Dynamics Convair Division, a fixture of the city’s corporate scene since 1935, is being sold and might leave the city produced shock waves throughout the community--waves that spread far beyond its thousands of employees to reach Loehr and 600 other San Diego County subcontractors and suppliers as well as local charities.

None of which speaks to the blow that a Convair departure would be to the prestige and psyche of a city that has witnessed the flight and failures of many of its top corporations in recent years.

Although only Convair’s 4,500-employee missile operations are to be sold to Hughes, General Dynamics also announced plans to unload Convair’s aircraft fuselage business and its electronics division as soon as “appropriate deals can be made,” sales that could affect an additional 6,000 employees in San Diego.

The city’s chance of retaining General Dynamics’ missile operations is open to question. Arizona Gov. Fife Symington last week unveiled a far-reaching series of tax incentives designed to attract a Convair relocation to his state, which might start a bidding war for Convair jobs that San Diego is ill-equipped to fight.

General Dynamics would become only the latest in a recent flow of heavy manufacturers out of San Diego and Southern California to states where labor is cheaper, regulatory laws looser and taxes and fees lower.

The stakes are high: The city stands to absorb the biggest single hit in jobs and economic loss since the early 1960s. And, whereas Convair--and by extension the city--always has been the victim of highly cyclical defense contracts, the current situation carries the prospect that many of these jobs could be leaving for good because of the winding down of the Cold War and the restructuring of the defense industry.

General Dynamics’ total payroll of 13,500 may represent only 1.6% of the county’s employment base--down from an astounding 15% in 1961, when it employed 47,000, but the loss of Convair’s missile operations and its 4,500 jobs would “send a certain shock wave through the system,” San Diego Economic Development Corp. President Dan Pegg this week.

That’s partly because General Dynamics workers are a stable and well-paid force, Pegg said. But it’s also because hundreds of San Diego companies stand to lose a major customer.

Despite the enormous dimensions of the Convair operation--perhaps best represented by the towering sheds along Pacific Highway next to Lindbergh Field where the company assembles cruise missiles and aircraft fuselages--the San Diego firms most likely to be hurt by its departure are small businesses.

Its 600 local suppliers and subcontractors supplied $57 million worth of goods and services to Convair last year, and a high percentage of them are small companies with no more than 50 employees, said George Chandler, regional director of the U.S. Small Business Administration.

“I am sure there’s going to be a ripple effect that will impact a lot of small business subcontractors and vendors,” Chandler said.

Those smaller companies, whose selling points are prompt and personal service, are much more at risk of losing Convair business than larger, out-of-town subcontractors such as United Technologies, which provides cruise missile boosters.

AJ Manufacturing of Escondido is one of those small companies at risk. Winner of General Dynamics “Subcontractor of the Year” award earlier this month, the company provides tooling to Convair for missiles and MD-11 manufacturing. Convair accounts for 30% of the company’s business.

“Obviously it’s a big deal for us,” AJ Chairman Bill French said. His company provided tooling for aircraft launch tubes for cruise missiles, but he said it does more business selling products for Convair’s MD-11 program, which is also on the sales block and rumored near a sale to Taiwanese interests.

“My fear would be if they were allowed to sell everything out to Taiwan. That would put everyone in a fix,” French said, adding that he thinks local government should offer Hughes financial incentives to keep Convair here.

Equally concerned is Loehr of Tools & Metals, who said he is worried not just about Convair but “the exodus of other companies” as well. “We sell to (Chula Vista-based) Rohr as well and they’re cutting back. It’s not looking good,” Loehr said.

This isn’t the worst loss of General Dynamics-related jobs San Diego has ever seen. At one point, about 30 years ago, it cut almost half its work force as part of the cyclical nature of defense work.

During World War II, jobs at Consolidated Aircraft, Convair’s predecessor, rose to 45,000 in 1942 from 934 in October, 1935, when Reuben Fleet relocated the company here from Buffalo, N.Y. The company--and San Diego’s economy--boomed as the company became the world’s largest aircraft manufacturers to supply the war effort, turning out record numbers of B-24 Liberator bombers and PBY seaplanes.

But when peace came in 1945, jobs at Consolidated plummeted by 3,500, setting a pattern that would hold San Diego’s economy hostage for decades to come. In 1961, Convair jobs reached a record 47,000 before declining to 26,000 two years later. The next year, local housing prices declined, one of the few years that has ever happened, said Max Schetter, research chief of the Greater San Diego Chamber of Commerce.

The 1980s boom in San Diego County, when jobs, housing and population growth all outpaced state and national rates, came as a direct result of the Reagan Administration’s defense buildup. In past years, economists could have attributed the current recession to the inevitable downturn, with the comfort the industry would eventually rebound.

But today’s layoffs are more than cyclical, said Harley Shaiken, a UC San Diego professor who studies the nation’s workplace. Post-Cold War restructuring is changing the face of the defense-contracting industry. The proposed Hughes-Convair deal is the first of several major mergers expected in the industry.

Steven P. Erie, an associate professor of political science at UC San Diego, views the ongoing defense industry consolidation as the latest chapter in a nationwide economic restructuring that began in Rust Belt cities more than 20 years ago.

“Aerospace and defense shielded Southern California from the economic impact felt by cities like Pittsburgh and Cleveland 20 years ago,” Erie said. “Now it’s Southern California’s turn, and (people) don’t like it.”

Officials in San Diego tend to agree with that bleak assessment.

“It’s kind of like on Dec. 7, 1941, the California economy went to war and never came back,” Greater San Diego Chamber of Commerce President Lee Grissom said. “Well, it’s now coming home and the question is, what do we use to replace it?”

What sort of chance does San Diego have of keeping Convair here? San Diego City Manager Jack McGrory said this week that he and other members of a task force formed Monday to court Hughes will not know those odds until Hughes sits down with him and others and “we hear what their needs will be.”

Local leaders concede that they have few options for competing with the state of Arizona, which hopes through its incentive offers to lure a Hughes consolidation to the company’s largely vacant 2.2-million-square-plant on the outskirts of Tucson.

But McGrory said Friday that the city owns land in areas such as Eastgate Technology Park near University Towne Centre and on Otay Mesa that it could negotiate sale or lease options, presumably at favorable rates.

Also, the city can authorize tax-exempt industrial development bonds with which Hughes could finance capital expansion. Such bonds were issued earlier this year on behalf of National Steel & Shipbuilding Co., McGrory said. The city also stands ready to offer job training assistance programs to Hughes, he said.

In addition to the Nassco shipyard, the city also gave incentives earlier this year to Solar Turbines that ended up persuading the manufacturer to keep its operation in San Diego instead of relocating, as it has threatened.

Whatever the particulars of San Diego’s incentives package, city leaders left little doubt they will do whatever they can to keep Hughes from moving Convair jobs. And because of the significance of a move of so many jobs out of state, Gov. Pete Wilson will be “very much a part of the negotiations,” said Jeanne Winnick, a California Department of Commerce spokeswoman.

“The significance of this is that we’re looking at the beginning of an extremely important trend that will affect this state, probably one of the first major reorganizations that we will see in the defense industry,” Winnick said. “We have to stay on our toes and look at this from a broad perspective overall.”

Convair Manpower in San Diego ‘35: 934 ‘42: 44,963 ‘61: 46,696 ‘91: 8,808 Source: General Dynamics Convair Division