The Endgame in Aerospace: A Disaster Waiting to Happen?

Abstract

In the golden years of the 1980s, 12,000 Southern California firms were linked to the aerospace/defense market. Since 1989, the year when the Berlin Wall fell, Southern California lost 175,000 (44.7%) of its high-tech jobs. The aerospace/defense industry is faced with, arguably, the biggest downturn since the end of World War II. The industry is expected to remain in a state of flux until the year 2000, bottoming out in 1996–1997. Prime contractors and firms that provide complete sub-assemblies are considered first and second tier firms. Firms that provide less than complete sub-assemblies are considered third tier suppliers and firms that provide “piece materials,” e.g. rivets, screws, fiberglass ducting, etc. are considered fourth tier suppliers. Third and four tier firms, comprised largely of small subcontractors, will be most at risk. Many have failed, while others in search of a more stable business climate will shift their focus entirely on commercial products and serves. The future viability of many third and fourth tier firms will be determined in large measure by how well they adapt to their new commercial marketplace. Empirical investigations of the effects and reaction to declining aerospace/defense industry on the firms, are virtually non existent. This study identifies the strategic thrusts third and four tier suppliers are pursuing to offset the industry decline and assesses how that fits with theory, and second, it assesses how successful the third and fourth tier suppliers are in coping with the biggest downturn in the aerospace/defense industry since the end of World War II.