By Dana Hedgpeth and Thomas Heath
Washington Post Staff Writer
Tuesday, January 5, 2010; A01
Northrop Grumman said Monday that it plans to move its corporate headquarters from Los Angeles to the Washington area by 2011, solidifying the growing importance of Washington as a center for the defense industry and other businesses.
Northrop executives said they are looking for a site in Maryland, Virginia or the District and plan to identify one by spring. The company, whose biggest customer is the Pentagon, makes military planes, missiles, ships and other equipment. It has about 40,000 employees in the Washington region and 120,000 around the world. About 300 employees would move with the headquarters.
"We are a global security company, and all of the federal processes, whether the executive branch or Congress, are in the Washington area," said Wes Bush, Northrop's chief executive and president. "We think we'll be able to do a better job for our customers and our company by having our corporate office there."
Bush said the company is looking for the best tax incentive package in each jurisdiction. Maryland is home to Lockheed Martin, the biggest U.S. defense contractor. And Virginia is home to General Dynamics, another major defense player. Other defense contractors, including Boeing and Raytheon, also have offices in the region.
Defense industry experts say the move suggests that Northrop and other contractors may fear the prospect of shrinking Pentagon budgets and feel a need to be closer to their biggest customer as competition for fewer deals intensifies.
Other big companies have been drawn to the area recently, with defense contractor SAIC saying in September that it would leave San Diego and move its headquarters to McLean. Over the summer, Hilton Hotels began moving the first employees from its longtime corporate headquarters in Beverly Hills, Calif., to a new office in Tysons Corner. And in April 2008, Volkswagen moved its corporate offices from Auburn Hills, Mich., to Herndon.
Robert A. Peck, the former president of the Greater Washington Board of Trade, said those decisions indicate that the Washington region is becoming more of a powerhouse in attracting big companies.
"The Washington area has finally broken through as an area that companies see as corporate headquarters," Peck said. "If you leave L.A. or Chicago for the D.C area as your headquarters, that says something."
He said the recession has helped showcase the Washington region's economy as more resilient and stable. "Buildings and housing hold their value more here," Peck said. "The workforce is stable. The city has turned into an interesting place. And people recognize how much business is here."
"There were always lobbyists and government contractors here, but now there's also [information technology] firms and biotech and Hilton and Marriott," he said. "It is a strong regional economy with the government anchoring it. That's hard to beat these days."
Steven A. Silverman, head of Montgomery County's economic development office, called the Washington region the epicenter of the U.S. economy. "If you look at what's happened in terms of the financial world," he said, "everybody understands business is now getting done in Washington, not in New York City."
Northrop's headquarters has been in the Los Angeles area for decades, and the decision to move is seen as a blow to California, economic development officials say.
"The decision by President Roosevelt to centralize the Air Force production out of Los Angeles was really one of the most important drivers of population here," said Raphael Sonenshein, a professor of political science at California State University at Fullerton.
Aerospace also helped give California its own economic weather: When plane and defense production fell, so did its economy. Economists said the state-specific recession of the 1990s was closely related to the decline in federal dollars spent on defense, after the collapse of the Soviet Union.
But that was a different era. State figures show aerospace jobs in California dropped by nearly 45 percent in the first half of the 1990s, from 337,000 in 1990 to 191,000 in 1994, as defense spending dropped sharply.
Still, Northrop executives said they expect to continue to have a "substantial" presence in California, with about 30,000 employees.
"This is not about a reduction in our focus on California," Bush said. "We believe the corporate office will function more effectively in the Washington region."