By Lorraine Mirabella, The Baltimore Sun
7:54 PM CDT, October 20, 2011
Northrop Grumman Corp.'s plan to eliminate as many as 800 jobs — the second steep reduction for the Linthicum-based Electronic Systems division this year — could presage cutbacks by other federal contractors and further blows to the state's economy.
Federal deficits — and a budget-cutting mood in Washington — have left Maryland companies less and less able to rely on government work, analysts said Thursday. Defense giants such as Northrop Grumman are particularly vulnerable, they said.
"With that kind of uncertainty hanging over the budget, it's beginning to affect the planning of companies in the defense sector," said Todd Harrison, a senior fellow for defense budget studies at the Center for Strategic and Budgetary Assessments in Washington. "You're seeing them starting to reposition themselves and downsize in certain areas."
And with additional cuts on the horizon, and no increases likely over the next decade, Harrison expects the trend to continue.
Even as Northrop Grumman was announcing its cuts Thursday, state officials moved to retain 1,250 high-paying jobs at another large employer, Bechtel Power Corp., which was considering a move to Virginia.
The state's Legislative Policy Committee, which includes Senate and House of Delegates leaders, approved a $9.5 million loan package for the Bechtel Corp. subsidiary that designs and builds energy projects. The package from the state's Sunny Day Fund includes a $2 million loan and additional loans of up to $7.5 million, all of which require the company in Frederick County to retain the 1,250 jobs through 2018.
House Speaker Michael E. Busch called the loans a great investment and an anchor for the community at a time when other states are trying to lure Maryland businesses away. Added Senate President Thomas V. Mike Miller, "We are doing our best to be sure that everyone who has jobs keeps them."
Northrop Grumman, one of the largest private employers in Maryland, announced that voluntary buyouts would be followed by an undetermined number of layoffs through January.
Most of the cuts are expected at the division's main campus just northwest of Baltimore-Washington International Thurgood Marshall Airport and facilities in Annapolis, Sykesville and Elkridge, said Jack Martin Jr., a company spokesman. The rest of the cuts will be made at facilities across the nation.
Electronic Systems, which makes airborne radar, navigation systems and other military equipment, has 17,000 employees nationwide, including 7,625 in Maryland.
"These workforce reductions are based on the current business outlook for Electronic Systems and the anticipation of further defense spending reductions," Martin said in a statement. The company is expecting "an increasingly competitive and challenging business environment."
Electronic Systems has seen its workforce decrease since January 2009, when it employed about 8,600 workers in Maryland. The cuts announced Thursday are the second round this year for the company, which announced in May it would cut 500 Baltimore-area jobs, also through buyouts and layoffs.
While the Department of Defense and Congress continue looking for defense cuts, especially in areas such as new weapons systems, "one of the ways that defense and national security is going to continue to be robust is by investment in all kinds of information technology," said Ray Bjorklund, chief knowledge officer for Deltek, a consultant to government contractors. "The kinds of adversaries that the U.S. is facing now are much more in the cyber-world."
That's a growing area, but defense contractors don't always have the flexibility to quickly adapt to the types of projects available.
"They can't move their bench from one project to another, and it's probably going to be at least five to 10 years of much-reduced spending," and workforce reductions, Bjorklund said.
Last year, federal spending in Maryland, largely in government contracting and individual assistance, dropped by nearly $1.4 billion, representing the steepest decrease since 1996, the Census Bureau reported recently.
"There's no question that Maryland finds itself in a more vulnerable position than other states because of the proximity to Washington," and its reliance on federal contracts, said Alexander M. Sanchez, the state Department of Labor, Licensing and Regulation secretary.
But Sanchez and others said it's too early to tell just how deep any upcoming budget cuts will be or how they will affect Maryland-based jobs. Displaced or laid-off workers from Northrop Grumman and other defense contractors have the advantage of possessing skills that employers still desire — even amid high unemployment, he said.
Northrop Grumman is facing problems because the government is purchasing fewer of the contractor-built radar systems for defense aircraft, said Aris Melissaratos, the state's former secretary of economic development and a former chief operating officer for the Electronic Systems group.
Much of the company's future business will "depend on what happens in the budget … but there are no large production programs in defense and Pentagon plans, so production has stayed at low levels," he said, perhaps at only a couple of systems, instead of dozens, a month.
Northrop plans to offer voluntary buyouts in the next few days. Those employees would leave the company by the end of the year.
The number of buyouts will determine how many workers will face layoffs by the end of January. The reductions are expected to affect jobs across the spectrum, from engineering to manufacturing, quality assurance to business support positions, Martin said.
State officials hope that most of the job losses will happen through buyouts and attrition, and won't have as significant an impact as the overall numbers might indicate. Northrop Grumman's earlier reduction resulted in far more workers requesting a buyout than could be accommodated, said Karen Glenn Hood, a spokeswoman for the state Department of Business and Economic Development.
"I don't think they have an idea of how it will go this time," she said. "It's always difficult when a company has to shed jobs, whether voluntary or involuntary."
At the Northrop Grumman Federal Credit Union branch east of the airport, about three miles from Electronic Systems' headquarters, former employee Jim Collins said that he took voluntary retirement in June during the last round of buyouts.
Collins, of Severna Park, worked in business management and said it was apparent the company had seen a decrease in business that was going to affect the bottom line.
"The company's really good at trying to keep people," Collins said, adding that he believed the company has done its best to limit the number of layoffs.
Melissaratos believes the future still remains bright for the high-tech defense company.
"The company has always carefully balanced the need for workers and their affordability for those workers, he said. "It's an incredible operation. I would hope that [employment] stabilizes. The nation does need to maintain its technical superiority in defense."
Baltimore Sun reporters Steve Kilar and Annie Linskey contributed to this article.
Northrup Grumman Corp., Electronic Systems division
Employment in Maryland: 7,625
Total employment: 17,000
Announced job cuts: Up to 800, mostly in Maryland