THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: MONDAY, June 20, 1994 TAG: 9406200222
SECTION: BUSINESS WEEKLY PAGE: 18 EDITION: FINAL
SOURCE: Phil Murray
DATELINE: 940620 LENGTH: Long
It should have been time to kick back and enjoy.
{REST} Instead, Linda Watkins found herself in the uncomfortable role of corporate assassin. Before it was over, JL's president and owner had laid off three-quarters of her headquarters staff.
Watkins was paring as she put the management company through a wrenching change - one she hoped would wean it from dependence on shrinking Defense Department largesse. It was a simple matter really. It was basic survival.
``They were horrible, horrible times,'' Watkins recalled. ``I numbed myself, every single day.
``There wasn't a day that went by that I didn't regret getting into this business, truly regret it.''
That was 1991, when Watkins, after a string of successful years, suddenly landed in trouble. It also was a bad year for the local economy - the worst in more than a decade.
Part of the problem was national recession. But it was magnified - both at Watkins' defense contracting company and in the Hampton Roads economy in general - by cutbacks in military spending.
Indeed, to a large extent Watkins' tribulations mirror those of the local economy. Historically, the Hampton Roads economy has ebbed and flowed with the cycle of defense spending.
New research has found that the economy here, as measured by the number of jobs, grows more than three times faster in years of increasing military spending than it does when the torrent of defense dollars slows.
That difference between the up and down years is greater here than it is in most other areas with a large military influence, the research reported. It suggests that our economy - like Hampton-based JL Associates - is yoked more tightly to the defense cycle than in other communities.
In a comparison of 38 of the country's most defense-dependent regions, Hampton Roads ranked in the bottom third in terms of its resiliency to defense cuts.
``It may be more important (in Hampton Roads) than it is in a community like Jacksonville,'' said John Godfrey, senior vice president and chief economist of Barnett Banks Inc. in Jacksonville, Fla., which also has a large Navy presence.
``There are historically strong growth industries here like insurance and banking. . . . I would think the effect (of military cutbacks) is fairly minimal here and much of the slack taken up by other areas of the economy.''
Even so, Hampton Roads does continue to grow on average in the down years. That's the case today. Despite thousands of jobs lost at area shipyards, the number of civilian jobs here is increasing.
Economic health is evident in other areas as well: at a Hampton gourmet shop where people are buying more imported beer; at a Newport News housing development where an average of 10 homes are selling each week; and at local shoe store chain Hofheimer's where sales at the same locations are up 13 percent in June.
``I think the area's showing a basic vitality I've thought has always been there,'' said Carl Colonna, associate professor of economics at Christopher Newport University in Newport News. ``We are in a transition from a lunch-pail economy to service and high-tech.''
JL also has been in transition - from doing purely defense jobs to working in city halls as well. It didn't come without pain. Indeed, it almost didn't happen at all.
Today JL has crawled away from the precipice. And the story of the once-hot defense contractor says a lot about our economy and why defense communities don't collapse when military spending slacks up.
But it also illustrates why Hampton Roads suffers more than many of its peers around the country in these times.
``There were plenty of times when I said, `Why am I doing this?' '' Watkins recalled. ``But I couldn't walk away. I knew I could survive. If I walked away, then I would have suffered for nothing.''
When Watkins and two retired Army officers founded JL Associates in 1979, they named the company after Richard Bach's 1970 classic book ``Jonathan Livingston Seagull,'' an allegory about a bird that explores the boundaries of its own existence through flight.
In the way that Bach's spiritual novel was the signature book of the '70s, JL was the quintessential Hampton Roads business of the '80s - a high-growth start-up providing services to the Department of Defense. The business pages were full of such success stories.
JL and others benefited not only from the military buildup in the 1980s, but also from a decision to let private business take over the management of certain defense programs and facilities that had been run by civil servants.
Watkins, who had worked for Air Force contractors in the 1970s, and her partners set up shop early in 1979 in a tiny office in Hampton with $1,000 in a bank account. Just before Labor Day, the Air Force gave them their first contract: coordinating weapon systems under one data base.
They had $13 left in the account, which they promptly blew on bottles of cheap champagne.
After that, work began to flow in. By the mid-'80s, JL was managing a cold-storage warehouse at Cheatham Annex, operating military dining halls and running the NASA Visitor Center. By the late 1980s, sales topped $20 million a year and more than 800 people worked for the company.
At the same time, the Hampton Roads economy boomed. Spurred by the influx of military spending, jobs grew briskly at better than 4 percent and 5 percent a year.
Those were flush times. Watkins often would return to the office after putting her two daughters to bed and work into the early morning hours just to keep up. As a result, JL recorded an unbroken streak of higher sales and profits each year since its inception.
Until 1991. That year, Watkins said, the company suffered its first loss. The next year sales plummeted.
With military contracts getting more scarce, Watkins found herself competing with the likes of General Dynamics and other defense giants that had formed new service divisions. That remains the case today.
``Now they are going after work they would have considered beneath them, and going after it with desperation in their hearts,'' said Watkins, now in her 40s. ``So my competitors are very large and very frightened.''
Other federal contractors agree. The work just isn't there anymore.
``Thank God there's some private work out there,'' said Brian Geary, president of Blueridge General, a Norfolk construction company. ``I don't think anybody's ever seen this before.''
Today, though she is reluctant to release figures, Watkins said her sales are returning to normal levels. The key was taking JL's expertise in running federal installations and selling that to municipal governments.
JL now has contracts to run city-owned parking garages, transportation fleets and facilities in places like Washington, Chicago and Los Angeles. Watkins said municipal work now makes up half of her sales.
``Redirecting a company out of 100 percent DOD was harder than the initial start-up,'' Watkins said. ``But we were committed, absolutely committed that we would survive.''
The Hampton Roads economy has shown similar stamina in the face of military procurement cuts.
There was a time when the fortunes of the Peninsula rose and fell with Newport News Shipbuilding. But the yard's shocking announcement in April that it would slash at least 7,000 jobs by the end of 1996 failed to shake local confidence - at least not completely.
``A lot of those people are being re-employed, but they aren't necessarily being re-employed at the same wage,'' said George LeCuyer, owner of 22 Wine Street Gourmet in Hampton. ``There's been some reduction in income, but at least they aren't on the dole.''
Economist John Whaley, who recently studied job growth in 38 defense-dependent regions, cites several trends that account for this region's ability to weather the blows: normal population growth, companies moving to union-hostile Sun Belt locations, tourism and the port.
Other regional economies are affected by interlocking factors as well. Cities in New England and California, for example, have been slower to bounce back this time as recession lingered. San Diego has been hurt by aerospace cutbacks.
And the area around Groton, Conn., home of the nation's only other submarine builder, has been saved by an Indian casino employing 9,000 people.
``New England was really slow coming out of the national recession,'' said Donald Peppard, professor of economics at Connecticut College in New London. ``But we've been pretty insulated from that.''
In terms of military personnel, Hampton Roads has fared pretty well.
The latest figures show that the number of military people stationed in Hampton Roads has changed very little since the drawdown began six years ago. In fact, what the DOD pumps into this area in wages and other compensation has continued to rise steadily - a fact that's not lost on retailers.
``I can't say that we've been hurt by downsizing,'' said Aubrey L. Layne, president of Hofheimer's. ``It's sort of surprising.''
But procurement, the military's buying of goods and services, is where the biggest hit has come in Hampton Roads and elsewhere.
JL and other defense contractors can offer testimony to that. The difference for Watkins was reducing her dependence on the military. The same holds true for Hampton Roads.
``The key thing is that the region has to look more at diversification,'' Colonna said. ``There has been a significant diversification of the economy already, but I don't think the planners can let off the accelerator.''
{KEYWORDS} MILITARY CONTRACTS GOVERNMENT CONTRACTS LAYOFFS ALMANAC
by CNB