In Military Towns, Contractors’ Windfall Is Not Doing Much Trickling Down
By PETER T. KILBORN
New York Times February 17, 2003
TUCSON— Velma Maxson works 15 hours of overtime a week at Raytheon’s four-square-mile complex here, molding fiberglass components for radar-packed air-to-air missiles. At Don Martin’s precision machine shop, Competitive Engineering, bad memories of the dot-com crash have faded with orders trickling in from Raytheon, Honeywell and Boeing.
But Steven Dreher had to shut down his Tucson butcher shop and deli in December. A few days after the terrorist attacks on Sept. 11, 2001, guards at the Davis-Monthan Air Force Base here turned away Mr. Dreher’s truck, with 1,400 pounds of sausage for a pilots’ cookout, and after that the catered-party business dried up.
Outside the base, Mark Aldulaimi’s used-car lot has no shoppers. ”Everybody’s scared,” Mr. Aldulaimi said. ”Nobody wants to spend their money.”
In Washington and on Wall Street, the experts are speculating about what a war with Iraq might do to the nation’s economy. But the effects are already being felt in cities where military bases and weapons plants are economic mainstays, and the news is grim.
A wartime economy might be good for merchants of missiles and rockets, but it is putting a damper on everything else.
Local businesses remain in the doldrums, with many fearing that war and the continuing threat of terrorism will only make things worse.
In Tucson, for example, and in other military towns large and small, the march to battle has kept military contractors humming, but their windfall has not been widely shared. They are doing more without hiring many workers or spending more money locally.
The military base and contractors in Tucson, with a population of 514,000, are busy cranking up. But they are islands in a sea of worry and indecision. The word for the Tucson economy, said Marshall J. Vest, the director of economic research at the University of Arizona’s business school here, ”is ‘hesitation.’ ”
Unemployment, normally about 3 percent here, is close to 5 percent. Shopping has fallen off, and with it the city’s sales tax collections. The roads need work. Tucson’s sunny and dry high season is well under way, but tourism — as vital a part of the economy as the base and the military contractors — is down.
”They’re all struggling — premium restaurants, hotels, resorts,” said Mayor Robert E. Walkup, a former aerospace executive.
Mayor Walkup and local economists like Mr. Vest have been expecting some recovery in other areas this year, but anything other than a lightning-strike war lasting just days or weeks unravels their calculations.
”My attitude without a war is very positive,” Mayor Walkup said. ”We’d see growth of 3 percent this year. My attitude with a war is concerned. We would see a falloff of zero to minus 2 percent.”
Apart from the weapons makers, only residential real estate seems immune to war jitters. With the rout of the stock market, said Susie Hall, a real estate agent, house buyers are sending more money her way. Her firm sold a record $1.5 billion in houses last year, and she sees the same this year.
Tucson’s military industry is recovering from a decade of contraction, consolidation and reduced spending after the Persian Gulf war. The Raytheon plant now employs 10,300 workers. When it took over the missile building business from Hughes Aircraft six years ago, Raytheon had 6,600 employees.
In the late 1990′s, Raytheon and the other contractors began cost-cutting and efficiency programs that are paying off. Though stung by recent Securities and Exchange Commission investigations, the parent Raytheon Company, in Lexington, Mass., reported last month that with rising military sales, its loss for the fourth quarter last year had dropped to $15 million from $162 million in 2001. Its sales for all of last year reached $16.8 billion, up from $16 billion in 2001.
In Tucson, officers of Raytheon’s missiles systems business, which accounts for $3 billion of the company’s sales, say orders are up for submarine and ship-launched Tomahawk missiles; the Advanced Medium-Range Air-to-Air Missile, or Amraam; and air-to-ground, laser-guided Paveway bombs.
The Paveway comes in a three-part kit. Raytheon makes an electronics-packed front end and the fin assembly for the back. Preparing for an attack, the Navy puts a bomb in between and hangs it under the wing of a fighter.
Jon Jones, the company’s vice president for strike weapons, said, ”We have stepped up production of those kits since Sept. 11 from a trickle, all for international customers, to well over 1,000 a month.”
But with more efficient production, big employers like Raytheon have met the increase in military spending with few new jobs to bolster the economy.
Raytheon has spawned a vast local industry of subcontractors to assure it immediate access to parts and supplies. In mid-January, Raytheon called in the whole supply chain of missile component companies to prepare them to bid on a new classified missile.
One supplier is the seven-year-old Tucson plant of Lourdes industries, with 14 workers. It assembles bunches of wire and cable harnesses solely for Raytheon. The plant, near the airport outside Raytheon’s fence, is ”real close to Raytheon” in all respects, said Ronald D. Orr, the Lourdes manufacturing manager.
The Breault Research Organization, an optical engineering and software company, makes a part for the Tomahawk. Promoting Tucson as the site of an ”Optics Valley” sibling of Silicon Valley, the company’s chairman, Robert P. Breault, leads an association that has drawn scores of optical engineering companies to town.
A few years ago, Mr. Breault said, one of his officers bid $500,000 below the $2 million he should have offered to win a Raytheon contract. Promptly, Breault Research was losing money. ”Raytheon then pulled me through it,” Mr. Breault said. ”They let me rebid the contract. They didn’t want to lose us. They have an attitude that if they can, they will develop a local industry.”
From Raytheon on down, the city’s military manufacturing industry is a century removed from classic textile mills or automobile factories. ”This is a high-tech, low-volume industry,” said Mr. Martin, the owner of Competitive Engineering. As such, he said, it will be the last of the nation’s receding manufacturing industries to move production abroad.
Competitive Engineering, which has 75 employees, is just across a road from Raytheon’s new engineering group building. At the plant, soundproofed, van-size red and green boxes house machines that bore, mill, carve and turn steel and aluminum castings into parts for missiles, airplanes and computers.
Raytheon and most of these plants are craft and engineering shops. Assemblers, inspectors, testers and processors work in cells and cubicles, not on production lines, performing multiple tasks, not one. Ventilation systems stir most of the noise. The plants have only two customers, the Pentagon and the person — soldier, sailor, pilot — the industry calls the warfighter.
It is the warfighter who the industry’s workers say inspires them most, whatever their politics or thoughts about Iraq. ”I don’t want to go to war,” said Ms. Maxson, the Raytheon employee. ”I understand we make missiles. I know they’re going to be used on something. I prefer to think they’re going to be used for testing.” But however they’re used, she said, ”they need them to work perfectly.”
Like warfighter, surge is a term that peppers the conversations of military-related workers. ”We haven’t had a surge of any significant amount,” said Louis Chavez, general manager of the Honeywell plant. Military orders have been climbing 2 to 5 percent for a couple of years, Mr. Chavez said, but lately ”we’ve had surge-capability requests from the Department of Defense” to report how fast the plant can respond to surges in orders.
Workers at these companies, though they earn relatively good wages — typically $19 an hour at Raytheon — seem as hesitant as everyone else about their spending.
Lelia Mejia was sitting at a bench at Competitive Engineering, scraping metal burrs from a newly machined palm-sized part for Honeywell, with a scalpel-like knife. ”I’m trying to pay off all the credit we had — the car, the Visa,” Ms. Mejia said.
The fortunes of the Air Force base here, Arizona’s largest with 8,300 members of the military and 1,600 civilians, could be darkening. It does not make anything, so it spurs the economy much less than Raytheon does. Still, in an economic impact analysis for September 2001, the base said it disbursed $375 million in wages a year and spent $251 million locally for housing, asphalt, cement, lumber and various services.
Those figures, which Mr. Vest says account for 2 percent of Tucson’s economy, could shrivel starting in 2005, when the base could become a target of the government’s Base Realignment and Closure Commission, known as BRAC.
War or no war, said Lt. Col. Joe Whaley, the officer assigned to manage the base’s defense against closing, ”BRAC is coming.”
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