Washed It!

The wars in Iraq and Afghanistan have been good for Frank Amador Jr.’s business, a small Buena Park machine shop where workers make aluminum parts for the B-1 and B-2 bombers.

Sales have tripled since the war began, to $8 million a year. The payroll has doubled to 28 workers.

But now, after one of the biggest military buildups in decades, Amador is among the thousands of aerospace suppliers across Southern California bracing for a downturn, a slide that could have gut-wrenching consequences for an economy struggling to recover.

“It won’t be long before we’re all scrambling for business,” said Amador, who has been through a few boom-and-bust cycles over the last three decades. “I’ve seen this before. There’s a long road ahead. I just hope we can hold on.”

Aerospace has been one of the few bright spots in the region’s dismal economy, offering high-wage engineering, manufacturing and administrative jobs at a time when construction, real estate and banking work has grown scarce.

Nearly 5,500 aerospace suppliers — many with a handful of workers — collectively employ more than 130,000 people in California. Most of these small shops depend on subcontracts from giant defense contractors, which have announced a wave of job cuts in recent weeks, citing expectations of a protracted contraction of Pentagon spending.

Northrop Grumman Corp., the nation’s third-largest defense contractor and one of the largest private employers in the region, said last week that it would eliminate 500 jobs in its aerospace division, with most of the cuts expected to hit its sprawling facilities in El Segundo and Redondo Beach. Also last week, Raytheon Co. issued pink slips to about 130 employees in its Space and Airborne Systems division in El Segundo.

Boeing Co., the second-largest defense contractor, plans to trim its military aircraft business and cut workers, starting with 10% of the group’s executives. Boeing has more than 20,000 workers in Southern California at sprawling facilities in places like Seal Beach, El Segundo and Huntington Beach.

Top-ranked Lockheed Martin Corp., which operates its famed Skunk Works research facility in Palmdale, said last month that about 25% of its executives had opted for a voluntary retirement program designed to cut costs. More than 600 vice presidents and directors applied for the program.

“Eventually, these cuts will work their way down the supply chain,” said James McAleese, a lawyer in McLean, Va., who specializes in military contracts. “Prime contractors will squeeze their suppliers to bring down their costs.”

Paul H. Nisbet, a defense analyst who has been following the aerospace industry since the 1970s, expects that many small suppliers will be forced to go out of business, merge with rivals or cut employees to survive.

That’s what happened after the end of the Cold War in the early 1990s, in a downturn that fundamentally altered the defense industry.

The last time defense spending plunged, from 1989 to 1994, the amount that the Pentagon budgeted for research and buying weapons plummeted 20%. During that period, the U.S. aerospace industry job base shrank 25% nationwide.

California saw its aerospace industry employment drop 40%, the bulk of that in the Southland, as a quarter of the local defense industry suppliers went out of business, said Jack Kyser, an economist with the Southern California Assn. of Governments.

Those that survived cut back on workers, slashed employees’ hours or got into a different line of business altogether, Kyser said. Smaller firms were hardest hit because they tend to manufacture only a handful of products and for a small number of customers.

“We’re at an inflection point in the aerospace industry,” he said. “We have our fingers crossed that we don’t see cutbacks as we did before. But there are already indications that jobs are going to be cut.”

Pentagon officials confirmed that spending would slow, although they said this downturn would not be as severe as the last one.

“This is not the 1990s,” Ashton Carter, the Pentagon’s chief weapons buyer, said during a media conference last month. “But neither is it the 2000s, when we had double-digit year-on-year growth and we could always reach for more money.”

Citing the end of combat operations in Iraq and the rising federal deficit, Defense Secretary Robert Gates said he is looking to trim $100 billion from the Pentagon budget over the next five years.

“The golden era of aerospace has passed,” said Tom Captain, principal of Deloitte’s aerospace and defense consulting practice. “There is now a siren call for businesses to transfer from a hardware-based machine shop to a software-based technologically advanced firm.”

Aerospace suppliers brace for defense spending cuts

Mike and Ellen Kahara knew times were tough. They’d run up about $30,000 in debt on their credit cards and had fallen about $8,000 behind on their mortgage payments.

But they didn’t know how tough things had gotten until a stranger showed up at their Long Beach home last month to inform them that Wells Fargo had sold the house out from under them and that the new owner — a San Diego real estate investment firm — wanted them out as soon as possible.

“We were shocked,” Ellen Kahara, 32, told me. “We’d been given no notice by the bank. Suddenly we were being told that we had no home.”

Their shock was all the greater because they’d been told less than a week earlier that Wells Fargo had rejected their application for a loan modification. Within just a few days, the bank had turned around and sold the property — even though Wells had assured the couple in writing that it wouldn’t do this.

“I have never seen it happen anywhere near this fast,” said Laurence Clarke, a Los Angeles real estate attorney who has handled numerous foreclosure cases. “This is a particularly egregious situation.”

The Kaharas are in the same boat as thousands of other homeowners who have fallen behind on mortgage payments. About 4.5% of U.S. homes were somewhere in the foreclosure process during the second quarter, according to the Mortgage Bankers Assn.

You could say the Kaharas have only themselves to blame. They entered into a complex, interest-only loan when they purchased their two-bedroom house for nearly $300,000 in 2004. Before long, their monthly payments had risen to almost $3,000.

But, like many others, they also got hammered by the lousy economy. Mike Kahara’s small construction company foundered as business dried up. Ellen helped out by working as a nanny, but it wasn’t enough to keep them afloat.

“It was really stressful,” Mike Kahara, 34, recalled. “We kept asking our creditors what we could do to work things out. They just said we should make more money.”

The couple received a notice of default on their mortgage from Wells Fargo in August 2009. But a bank rep said there might be some hope. The Kaharas were advised to seek assistance through the Home Affordable Modification Program, a federal program intended to help homeowners by modifying loan terms.

In December, they were notified by Wells that they were eligible for a three-month trial loan modification that would lower their monthly payments to about $1,400. The Kaharas managed to make all subsequent payments in full.

After the three months were up, Ellen Kahara said, they were told by Wells that their case was still under review and that they should keep making the $1,400 payments. They did.

The bank continued requesting paperwork as part of its review process. Ellen said she called Wells on Aug. 9 and for days afterward to check on the status of their loan modification but never got a call back.

The Kaharas received a letter from Wells dated Aug. 11 saying that their application for a permanent loan modification had been rejected. The letter said the Kaharas would have 30 days to discuss other options available to them.

“No foreclosure sale will be conducted and you will not lose your home during this 30-day period,” the letter said.

But on Aug. 18 there was a knock at the door around 8 in the morning. Mike Kahara said a young man wearing a white polo shirt and dark slacks introduced himself as Sebastian Cruz of the investment firm Pacifica Cos.

Cruz said his firm had purchased the house and that he would offer the Kaharas $1,500 if they’d agree to vacate the property within two weeks.

He produced a document with Pacifica letterhead informing the Kaharas that their home “has changed ownership through the foreclosure process.” It threatened legal action if the couple didn’t move out.

“I thought it was a scam at first,” Mike Kahara said. “Then I realized he was serious.”

Suddenly, their house is taken over

Oakland could approve a plan Tuesday to set up four marijuana factory farms, a step that could usher in the era of Big Pot.

The proposal is a testament to just how fast the marijuana counterculture is transforming into a corporate culture. And it has ignited a contentious debate in Oakland that could spread as cities face pressure to regulate marijuana cultivation and find ways to tax it.

“Everybody knows it’s going bigger and big money is moving in,” said Dale Gieringer, an Oakland resident and prominent marijuana activist. As the state edges toward legalization, he said, more businessmen will seek to capitalize on a fast-growing market in a recession-hindered economy, forcing cities to make difficult choices on how to exert control.