It was never my intention to become a business writer, but that is what happened on more than one occasion. I spent a couple of years writing business stories for the Tampa Bay Business Journal, and I wrote about business frequently for United Press International. Also, I’ve done quite a bit of business writing for my public relations clients. This particular story was written for the St. Petersburg TIMES.
By ARTHUR FREDERICK
LARGO, Fla. — The parking lot surrounding the sprawling Hercules Defense Electronic Systems building tells the story. Built to accommodate 1,400 employee vehicles, it had fewer than 200 on a recent workday morning.
In the mid-1980s, Hercules enjoyed solid profits by selling smart weapons, missile warning and electronic warfare systems and other sophisticated electronics to the military. It employed more than 1,200 people. But the end of the Cold War has brought smaller defense appropriations from Congress. Contractors like Hercules are chasing fewer orders from the Pentagon.
A few weeks ago, parent company Hercules Inc., a Delaware-based chemical maker, announced plans to sell the subsidiary to Alliant Techsystems of Hopkins, Minn., a sale that is expected to be completed early this year.
The future of the subsidiary is unclear. But the company’s success will depend on its ability to adapt to smaller defense budgets and tough international competition.
Hercules Defense Electronic Systems came to Pinellas County in 1957, about the same time as three other large defense contractors – Honeywell, Electronic Communications Inc. and General Electric. It was known as Sperry Microwave and Support Systems Division until 1986, when it was acquired from Unisys Corp. by Hercules Inc., which wanted to expand into military electronics.
At the time of the sale, managers seemed cautiously optimistic about the defense industry’s future.
“Electronics is one of the few defense sector areas that has been identified for growth for the rest of this decade,” Hercules vice president and general manager James J. Thompson said just a few months after the 1986 acquisition, at a time when Hercules still employed nearly 1,000 workers.
Hercules’ work force has dwindled steadily since then. Just before Christmas, the number was 215. Hercules workers who remain are wondering if the purchase will mean another round of layoffs.
Management is saying little, but a company spokesperson, Berna Anspaugh, acknowledged that a review of current staffing levels is connected to the upcoming sale.
“It is not coincidental that (the staffing review) coincides with takeover time,” Anspaugh said.
The transaction demonstrates how defense contractors here and around the country are scrambling to merge, downsize, reposition and find new markets.
“This is the strategic acquisition we have been seeking as the industry consolidates,” Toby G. Carson, Alliant’s president and chief executive officer, said when the sale was announced in late October.
Not everyone is so optimistic. Defense has become something of a dirty word among economic planners and the growing legions of laid-off workers who can’t find work.
It wasn’t too many years ago that William Castoro, executive director of the Pinellas County Industry Council, would have done nearly anything to attract a company like Hercules. For years, defense contractors and their fat payrolls, well-paid engineers and subcontract suppliers were a key component of the Pinellas economy.
But Castoro is now more interested in medical or pharmaceutical firms.
“We are not making any strong effort to go after industries which are entirely dependent on defense,” said Castoro, who has been courting potential Pinellas County industries since the 1960s. “If they want to come here, we welcome them, but we are not going out and seeking them when we can go after a much more stable and high-paying industry such as a medical product manufacturer or a pharmaceutical company.”
Finding new employment for displaced defense workers is especially difficult. Florida Department of Labor officials say many of the advanced skills required by defense employers don’t translate to other fields.
“We’ve got a great economic recovery under way, how wonderful,” snorted Ron Ovarlet, coordinator of the Department of Labor’s Professional Placement Network in Pinellas County. “But we’ve got rooms of talented people who can’t find jobs.”
One of those people is Mary Annunziato of Clearwater. After working in contract administration for Hercules and its predecessors for 17 years, she was laid off in April. She only recently found part-time work.
“It used to be that when a company lost a defense contract, another company in the area, GE or Honeywell or E-Systems, was hiring,” Annunziato said. “Working in the defense field, you have skills that you don’t find in the commercial market. It’s hard to find someone in the commercial market interested in those skills, or even interested in retraining you, especially if you are over 40.”
Like many other defense contractors, Hercules Defense Electronic Systems has been looking overseas for new markets. It claims to be close to a major deal with a Middle Eastern country it declined to identify.
The successful pursuit of overseas customers may be the key to the industry’s future, according to Sen. William S. Cohen, R-Maine, a ranking member of the Senate Armed Services Committee.
Cohen has made four trips to Asia in the past two years in pursuit of new business for Maine companies, several of which are large defense contractors.
“If a defense contractor had come to me for help 10 years ago, I would have gone to the Pentagon on their behalf,” Cohen said. “Today, I would tell them we have to look for other markets, and I would help them do that.”
It remains unclear just how Alliant plans to fold Hercules into its corporate mix. One thing is known: The current president of Hercules Defense, Richard Schwartz, will become president and CEO of Alliant Techsystems when the deal is completed.
Meanwhile, executives of both companies are holding regular transition meetings. Hercules officials say they don’t know what Alliant will do with the Pinellas County facility on U.S. 19 near Ulmerton Road.
“At this point,” said Hercules’ Anspaugh, “we just don’t know what their plans are.”