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USM Shifts Focus After Govt Cancels Contracts

Tue, 01/17/2012 - 7:39am
James Haggerty

WYOMING, Pa. (AP) — WYOMING - After the government canceled five of the 10 contract orders it placed at USM Aerostructures Corp. in 2011, company President Ernesto Jurado decided to shift focus.

"This year, we have no intention of going after government work," said Jurado, whose company makes parts for military jets and helicopters and whose customers include defense giants Boeing, Sikorsky and Lockheed-Martin. "We are pretty busy with tier-one suppliers."

USM, which does metal forming and fabrication, welding and assembly, saw government contract orders drop to about $250,000 in 2011 from $1 million the preceding year, said Jurado, 48, of Clarks Summit.

"I can move on to dedicate myself to other suppliers," he said. "This is the cycle in the business."

Regional defense contract spending cycled ahead in fiscal 2010. Spending on Defense Department orders in the Scranton/Wilkes-Barre/Hazleton metro area totaled $528 million, a 6 percent increase over the previous year, according to recent U.S. Census Bureau data that is the most current on defense contract spending.

"A 6 percent increase, considering the volume, is huge," said Teri Ooms, director of the Institute for Public Policy and Economic Development, a regional research and analysis organization. "Defense is an important sector of our economy. It's a sleeper because people don't realize everything that is going into our defense contracting. It's one of the strengths in manufacturing that we have in the area."

The total includes government spending on military orders in Lackawanna, Luzerne and Wyoming counties and excludes Tobyhanna Army Depot, the Monroe County facility that employs more than 5,000 people and has an operating budget of $905 million.

Defense-oriented companies in the area manufacture ammunition, parts for armored vehicles and aircraft, missile guidance systems, military helmets and field gear, optical materials and other equipment. Regional defense contractors employ scientists, engineers, technicians, accountants and computer analysts, as well as production workers.

Companies in Lackawanna County consistently win more than 90 percent of the region's defense-related contracts.

"They are good manufacturing jobs with good benefits," said Austin Burke, president of the Greater Scranton Chamber of Commerce. "You can make a career in manufacturing in defense-related industries."

The latest contract figures emerge as caution mounts about impending cuts to defense spending.

The Defense Department faces more than $450 billion in spending reductions over the next decade resulting from a Congressional debt-ceiling compromise in August. A Congressional commission's failure to reach a budget compromise in November could result in another $600 billion in cuts over the next 10 years.

"We have heard a lot of hysterical rhetoric about cuts," said Winslow Wheeler, a director at the Center for Defense Information, a policy organization in Washington, D.C. "This is no catastrophe. In historic terms, it's a budget very flush with money. It will require the government to make some tough decisions."

Even if the most-drastic reductions go into effect, Wheeler said, the Pentagon budget would still be close to $500 billion annually. The defense budget for the current year is $671 billion.

"People in the defense industry have been expecting a downturn for the better part of a decade," said Loren Thompson, chief operating officer at the Lexington Institute, a Washington-area think tank. "Your local defense industry has a balance between new production and maintenance of old equipment. As the budget shrinks, most of the cuts will come out of weapons accounts. But you can never predict local trends."

Jurado was unable to predict trends when he acquired U.S. Metalform Inc. in 2000 during the company's bankruptcy liquidation.

The plant on Sixth Street in Wyoming mostly had made parts for regional television-tube manufacturers. Jurado, a mechanical engineer who worked for the Japanese company that owned the former Techneglas Inc. plant in Jenkins Twp., found one active account on the books when he took control - an aerospace company.

He rebranded the business USM Aerostructures and the company generated less than $1 million in revenue the first year.

"It was very, very hard," recalled Jurado, a native of Colombia who moved to the United States in the late 1970s. "There were times when I said, 'What am I doing here?'"

The company turned a corner by 2005 as USM became more agile and orders from aerospace and defense companies accumulated.

"We've got to be nimble," Jurado said. "We can design a tool to make the part."

The company had 10 employees when Jurado took over, and today it employs 48 people in two buildings. It did $6.5 million in business in 2011 and Mr. Jurado projects revenue will double over the next two years.

USM makes structural parts for the F-35 joint strike fighter, the V-22 Osprey and CH-47 Chinook and UH-60 Black Hawk helicopters.

Its products range from parts for aircraft fuselages and engine casings to helicopter window sills and gear-box covers. Many of the company's orders are for single parts, Mr. Jurado said, and the highest-volume orders rarely exceed 50 units.

"At any given time, we can make about 200 parts," he said.

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