The Pentagon has sent shock waves through Maryland's already battered military industry by targeting several major weapons systems for potential delay or elimination.
The proposed cuts -- though still preliminary -- are designed to generate funding for military pay raises and help plug an estimated $80 billion defense budget deficit over the next five years.
But they take aim at some of the biggest military contracts in Maryland, which, if implemented, could seriously hurt the companies as well as the state's economy.
They include three contracts at Westinghouse Electric Corp. and one at the Martin Marietta Corp. complex in Middle River -- each with sales potential of between $1 billion and $5 billion each.
Two other programs on the "hit list" -- one for the development of a high speed amphibious craft for the Marine Corps and another for an aircraft flight simulator -- are being counted on by beleaguered AAI Corp. in Cockeysville to help stabilize its business base and end a long employment slide resulting in more than 2,000 layoffs in recent years.
The proposals were listed in a memorandum from Deputy Defense Secretary John M. Deutch that was leaked to the press last week.
If implemented, these proposals would be a staggering blow to Maryland's economy, says Anirban Basu, an economist with the University of Baltimore's Regional Economics Studies Program.
Mr. Basu said they could result in the loss of thousands of good-paying jobs that he described as "the backbone of the state's economy."
The loss of so many highly educated defense workers would also "rob Maryland of one of its greatest competitive advantages" -- the brain power that it is counting on as the "foundation for the state becoming a major player in world of high technology," Mr. Basu said.
These workers, he said, would most likely go to other areas of the country -- such as Washington state, North Carolina's famed Research Triangle and Texas -- to seek employment on similar, but non-defense technologies.
Maryland is the nation's fifth-most Pentagon-dependent state in the nation, and while it prospered during the Reagan administration's military build-up, it has suffered greatly since the fall of the Berlin Wall and the end of the Cold War.
The state's three biggest defense contractors -- Martin Marietta, Westinghouse and AAI -- have already eliminated more than 12,000 jobs since 1988. The decline in military spending is cited as the chief reason that states like Maryland and California are lagging behind the nation's economic recovery.
Clinton administration officials have emphasized that no decisions have been made on the programs included in Mr. Deutch's memo, but officials at several companies say it is nonetheless causing anxiety.
It's the kind of thing "we have nightmares about," said L. Gary Riley, a vice president at Lockheed Corp. and manager for the company's $71.5 billion F-22 stealth fighter plane program. Delaying the F-22 for four years is one of the options included in the Pentagon's document.
Such a delay does not necessarily mean that the program will be canceled, Mr. Riley pointed out, but he said that it could be a step in that direction. A delay or cancellation of the F-22 would be a big setback for the Westinghouse division in Linthicum.
Westinghouse builds the radar for the plane -- the military's next-generation fighter -- and Richard A. Linder, the division president, has called it a huge contract that the company is counting on.
Mr. Linder has previously compared it to the company's contract to supply radar for the F-16 fighter plane, which over the past 15 years was the division's biggest single contract. More than 3,000 units were produced, generating $5 billion in sales.
1991 layoffs
When the Pentagon canceled the Navy's A-12 attack plane in early 1991, Westinghouse was forced to lay off 1,200 workers.
Mr. Deutch's memorandum directs the armed forces to consider changes to at least five other programs that could have a direct impact on Maryland defense contractors:
* Canceling the Army's new Comanche scout helicopter.
* Slowing down the production of Arleigh Burke-class destroyers.
* Canceling the Marine Corps' V-22 Osprey.
* Canceling the Marine Corps' high-speed Advanced Amphibious Assault Vehicle.
* Delaying the introduction of a new trainer aircraft by up to seven years.
A slowdown in the production of the Navy's Arleigh Burke-class destroyers concerns Martin Marietta's plant in Middle River where about 300 workers are involved in the production of a rocket launching system used on the ships.
The vertical launching system is a cluster of canisters that fit below deck on ships. They store and launch a variety of missiles against aircraft, submarines or land-based targets.
Donald Carson, a spokesman for the Baltimore County complex, said the launchers represent one of the plant's biggest programs, having accounted for $2.3 billion in business since 1977. He said it's important to the profitability of the division, and that a delay in orders would be a significant setback.
To offset any loss in Navy business, Mr. Carson said, the company is looking at foreign markets in the hope of selling the system to Germany, the Netherlands, Spain and Turkey.
A slowdown in production of the Arleigh Burke destroyers would also affect Westinghouse's plant in Sykesville. Workers there build an anti-submarine warfare combat system, technically labeled the SQQ-89, that is used on the ships.
SQQ-89 is designed to detect enemy submarines at greater distances than is possible now, track their movements and guide an assortment of weapons, including missiles and torpedoes, to destroy them. Company officials have said that SQQ-89 could be a $5 billion program in the long-term.
Mr. Deutch's suggestion to terminate the Army's Comanche helicopter would affect Westinghouse's operations in Linthicum. The company builds an assortment of equipment for the helicopter, including a target detection system and the computer system that serves as its "brain" to coordinate and process all the functions of the craft's electronics.
The company has said the program has the potential of 'f generating more than $1 billion in new business.
Jack Martin, a Westinghouse spokesman, said the Comanche, F-22 and SQQ-89 program "are important to our Electronic Systems business unit, but it's much too early to predict what impact a program delay [or cancellation] could have on our operations."
He declined to say how many jobs are associated with the programs.
But Westinghouse can ill-afford to lose any more defense business or get caught up in any stretching out of orders, said Kent A. Newcomb, an analyst who follows the company for A. G. Edwards in St. Louis.
"You stretch out the programs and you stretch out Westinghouse," he said.
Westinghouse slump
That doesn't bode well for a division trying to regain its momentum. Westinghouse's defense arm has suffered a 19 percent drop in sales since 1991, a period in which operating profits have fallen to $81 million from $207 million. And the slide continues. For the first six months of this year, sales are off 23 percent and operating profits are down nearly 40 percent.
Mr. Newcomb said that Westinghouse, like most other defense contractors, has already trimmed just about all the fat from its system. And if the government eliminates more business, it would have no alternative but to trim its work force once again.
Mr. Linder has said on numerous occasions over the past year that he does not anticipate additional layoffs -- unless something unexpected happened to some of its large defense contracts.
At AAI's complex in Cockeysville, Maurice P. Ranc, vice president and general manager of defense systems, said the company would suffer "a heavy impact" from the cancellation of the Marine's Advanced Amphibious Assault Vehicle and delay of the Air Force's new trainer aircraft program.
They are both major programs for AAI, one of the fastest-growing companies in the state during the defense build-up, but one that suffered greatly in recent years.
The company's operating income has dropped from $19 million in 1991 to a deficit of more than $20 million last year. Employment has been slashed by two-thirds to slightly more than 1,000.
AAI is teamed with United Defense Corp. (formerly FMC Corp) to build the Advanced Amphibious Assault Vehicle, commonly called AAAV, for the Marine Corps. A production contract was expected to be awarded next year and a win by AAI would represent between $100 million and $150 million in new business.
The company has about 20 people working on the vehicle at this time and Mr. Ranc said a production contract would more than double that number.
AAI is also vying for a contract worth between $200 million and $300 million to build a flight simulator to be used in conjunction with the new trainer plane. While the ground-based flight simulator was not talked about in Mr. Deutch's memo, Mr. Ranc concluded that if the production of the plane were delayed for seven years, the simulator would also be delayed.
Mr. Ranc said he believes that some of the programs on the Pentagon's list will be canceled or significantly altered, but said it is too soon to guess which ones might survive.
"We are monitoring the situation very closely," he said, "and we will be very anxious to see what the military services say when they present their budget proposals. We believe the Marine Corps will go back and say, 'We really need the AAAV.' '"
Another Marine Corps program slated to be canceled is the V-22. This is the aircraft that takes off like a helicopter and flies like an airplane. The V-22 is a good example of a military program with an indirect economic impact on Maryland.
The craft is built by the Bell helicopter unit of Textron Inc. in Fort Worth, Texas, but about a dozen Maryland companies are involved as subcontractors. One of them is Intercap Graphics Systems Inc. in Annapolis. The company provides the software used in creating complex computer graphics used by assembly workers and in training manuals.
Company President Jack Biddle said the firm's $27,000 V-22 contract from Bell also allows it to continue the development of leading-edge computer graphics technology that he hopes to sell to General Motors Corp. in a few years to boost the productivity of its auto assembly plants.
Without the V-22 contract, Mr. Biddle said, the company would be unable to develop the technology now for other possible commercial uses down the road.
Christi Hawley, a legislative analyst with Maryland's Washington lobbying office, said that Westinghouse and Martin Marietta have both brought Mr. Deutch's memo to the attention of the state's Department of Economic and Employment Development office. She said, however, that they are only "proposed changes at this point and there is nothing we can do."
Mr. Basu, the University of Baltimore economist, disagrees. He said defense workers earn well above the state average income and are a factor in stimulating home sales, retail sales and other economic activity.
"As scary as the short-term implications are," Mr. Basu said, "the long-term implications of losing these jobs are even more troubling."