Aerospace industry eyes dot-com demise with glee

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NEW YORK (Reuters) -- Dot-com woes could not have come at a better time for America's defense and aerospace industry, whose pool of engineers has dwindled to near crisis levels as science and technology talent jumped ship for tech startups.

While some Internet companies are falling apart, defense industry leaders say technical workers are beginning to return, slowing the high rate of attrition and turnover that has worried aerospace executives, legislators and Wall Street.

Still, the problem of depleted talent pools remains serious. U.S. defense contractors have a graying work force that is quickly nearing retirement, fewer recruits from a college population that increasingly opts against studying science, and young technicians eyeing higher wages in other sectors.

"It's still very much a burning platform, this attrition issue," said Phil Cheney, vice president of engineering at Raytheon Co. "Now we're getting some people back and in this environment we welcome them back. They're good people, but we're not anywhere near where we want to be."

Northrop Grumman Corp., which makes communications and information technology systems for surveillance and battle management, said staff turnover has reached 25 percent.

Jim Roche, president of the company's Electronic Sensors and Systems Sector, told an investors meeting that 12 percent of his employees and 6 percent of managers soon will be eligible to retire. "We have had difficulty with staffing," he said.

In 1999, 42 percent of the U.S. aerospace work force was between the ages of 45 and 64, according to the Aerospace Industries Association. About 1 percent was older than 65 while, at the other end of the age spectrum, only 17 percent of the aerospace work force was between 25 and 34.

"We are aware our work force is older than usual," said James Fetig, spokesman for Lockheed Martin Corp., which makes jet fighters, missiles and communications and control systems. As the industry consolidated, he said, senior workers were kept on, contributing to the higher average age of employees.

"If they were all to retire at one time in huge lumps over the next five to 10 years, that would be an issue," Fetig said. "But it's very doubtful."

Executives at Raytheon, Litton and Northrop Grumman echoed Fetig's view while industry watchers noted that the retirement issue makes holding on to younger workers more crucial.

Seasoned engineers, particularly software systems engineers, have been courted by Internet startups, high-tech and software firms touting cutting-edge technology development and golden stock options packages.

As stock prices crumbled, some of their employee stock options became worthless, helping decimate Internet companies. Since the first half of 2000, some once high-profile Web startups have gone belly up, laying off workers and selling out to larger firms as their stock prices deflated.

That has brought engineers crawling back, executives said.

"With the bursting of the dot-com bubble, we're beginning to see a lot of people coming back," said Tim Long, vice president of strategic communications and market development at Litton PRC, the information technology group of military shipbuilder Litton Industries "People are coming back to companies that have a sense of adult supervision," he said.

As for the next generation of technical talent, industry executives and human resources departments say recruiting became harder as the number of high school graduates pursuing science degrees tumbled. The slide began in the 1980s. The number of bachelor's degrees in engineering and engineering technologies fell 16 percent between 1986-1987 and 1991-1992 and another 3 by 1996-1997, the most recent Department of Education data shows.

In the 1996-1997 school year, 61,185 bachelor's degrees were awarded in engineering, the lowest level since 1975.

"Enrollments at engineering schools have definitely dropped, and meanwhile the requirement for people keeps growing," Raytheon's Cheney noted.

As the number of engineering degrees fell, the popularity of biology, education, health sciences and visual arts jumped, the Education Department says. That has pushed some firms to start recruiting even earlier to encourage high schoolers to take engineering courses and then jobs with defense contractors.

Litton, the largest builder of non-nuclear ships for the U.S. Navy, has coordinated outreach efforts with high schools, particularly in Northern Virginia, to combat its roughly 19-to-20 percent turnover rate.

Raytheon, maker of missiles and weapons control systems, said it tries to reach high school and elementary school-age children, giving money through a foundation for science-related education. The company's retirees also have formed a group that tutors students in their local school systems.

With high school recruiting efforts and the trickle of workers returning from dot-com stints, companies are cautiously optimistic about having begun to ease fears of a brain drain threatening the nation's defense technology.

But industry analysts caution against dismissing the issue altogether.

"While the massacre of the dot-coms may have tempered some of the allure of jobs outside of defense, anecdotal evidence suggests that most defense companies will have to manage this issue very tightly," Merrill Lynch analyst Byron Callan said.

"We think that this is a very important issue for the defense and aerospace sector because the cash will not flow and the earnings will not grow without people who can design, develop, produce and support new products and services."

Copyright 2000 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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Raytheon Company
Litton
Lockheed Martin
Northrop Grumman
Aerospace Industries Association of America
U.S. Department of Education
Merrill Lynch

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