Even in prosperous times, Fairchild Industries doesn't make fast bucks; it makes fast planes. But congressional budget-tightening and slumping commercial aircraft demand translate into diminished profits for the Germantown plane manufacturer.

Fairchild was flush with victory earlier this summer, having snatched the Air Force's $2 billion contract for the New Generation Trainer from competitors Rockwell International and Cessna. Then congressional budget cutters looking at defense appropriations snipped out what would have been 20 A10 close support aircraft, built by Fairchild Republic in Hagerstown and Farmingdale, N.Y.

The constant swing from good fortune to bad and back again characterizes defense contractors such as Fairchild, which its chairman calls a "peewee among giants." The firm grew with its A10 deal in 1973 from "a small, struggling company into a serious entity," according to one analyst. It became a prime contractor that posted $1.3 billion in sales and a $1.2 billion backlog in the record year of 1981.

Although Fairchild has to its credit the dramatic pluses of the A10, the NGT, participation in the triumphal space shuttles and market dominance in a number of its smaller businesses, it also has potentially serious problems.

Fairchild can't sell its best aircraft, the A10, to either the U.S. government or any other government. Its commercial aircraft sales have been snail-paced, and the recession has cut into almost every other area of Fairchild's operations.

"Fairchild is a cross-section of what's going on in the industrial economy, and that's not very good right now," says Christopher Demisch, an analyst at Lehman Brothers Kuhn Loeb..

.Although the A10 is funded through February 1984, failing to get a contract for those 20 planes will cost Fairchild $200 million in revenues: $30 million in production design and $170 million in production.

Edward G. Uhl, chairman, chief executive and president of Fairchild, said that if no new orders come in and Congress doesn't restore any of the A10 funds, "we'll have to shut down the line.

"We haven't given up on fiscal year '83," Uhl said, referring to efforts by Rep. Norman F. Lent (R-N.Y.) "to push additional action on the A10.

"We've hit the low point of the whole A10 program, and we expect it to improve rather than get any worse," Uhl said. His company is working on turning the craft into a two-seater to be used for training and equipping it with night and adverse weather instruments that would represent the state-of-the-art in flying "blind." The idea is to broaden the A10's application.

As one analyst, Eliot Fried of Shearson/American Express said, "The A10 is a very expensive craft for the mission it flies," referring to its narrow, anti-tank purpose.

And Fried is very frank in his opinion of the A10: "It's dead. They've not gotten any extensive support in the Defense Department for any additional aircraft."

Now that Fairchild is not getting any new U.S. contracts for the A10,, "The price to any foreign buyer has to go up," according to Fried.

When Fairchild officials talk about the future of the A10, they always mention foreign sales. But no foreign country has ordered an A10, although many have considered buying it.

Fried called the A10 very sophisticated, "an exotic plane. Too exotic for, say, Peru."

Loss of A10 funding in the 1983 federal budget caused the credit rating agency Standard & Poor's to put Fairchild on its credit watch list. Companies on that list are reviewed for 90 days, then S&P may change a firm's rating.

A lower credit rating could make money costlier to borrow for a company and would hurt doubly if profits are falling, as they usually are when S&P lowers a rating.

Being on the credit watch list "will have no effect on Fairchild," Uhl said. "We think we have a good balance sheet and expect S&P will have a good rating for us. We're on credit watch because of the commercial airline business. And even S&P said that they thought we had a good balance sheet. I don't view it as a significant negative factor."

Neither does Lehman Brothers' Demisch, who avers that S&P doesn't understand or account for the difference between a company that manufactures commercially and one that manufactures for the military.

"Usually the financial ratios that S&P insists on in a commercial company don't exist at a defense contractor," Demisch said. "For example, Lockheed is flourishing with a balance sheet that would make you blanch. Credit watch doesn't bother me too much."

Fairchild is making adjustments, however. "We'll be shifting from very short to more medium-term borrowing. We'll be cutting back substantially, reducing expenses and inventory. All that's prudent in a time of recession. We already have very strict inventory controls," Uhl said.

Fairchild is depending on its joint ownership of American Satellite Corp. and Space Communications Corp. to help the bottom line..

First, telecommunications is a coming field; Fairchild's telecommunications earnings have already started to improve. According to Fried, Fairchild's communications sector "should squeak through with a modest profit, which is certainly a moral victory for them.

"This is going to be a big industry in this country. Amsat and Spacecom have been a drag on profitability, but they're turning around now and are to be watched on the positive side," Fried added.

Second, according to Uhl, Fairchild plans to shift the impact of research and development from its balance sheet to Amsat's.

"We're really going all-out to have Amsat finance its own R&D," Uhl said. That will "relieve our cash requirements, and we won't be supporting their balance sheet," Uhl explained.

During 1981, Fairchild's affiliated companies contributed a total of $3.4 million in profits, after reckoning in Amsat's loss of $1.8 million. In previous years, the Amsat drain had been greater. Sharing the losses with Amsat co-owner Continental Telecom, and getting improved operating results made Amsat look better for Fairchild last year.

Also, Fairchild isn't sitting still for what it views as unfair market practices by Embraer, the Brazilian manufacturer of the Bandeirente, a direct competitor to Fairchild Swearingen's commuter and business aircraft.

Two weeks ago, Fairchild filed complaints with the International Trade Commission, charging Embraer was "dumping" its aircraft in the U.S. market. Fairchild claims Embraer, which is partially owned by the Brazilian government, is selling Bandeirentes below cost in the United States. Fairchild also claims that Embraer offers "predatory financing" for its planes.

"Ours is an open-and-shut case. I didn't agree to file until I was convinced we had a very strong case," Uhl said. "These are serious transgressions. We're going to go after them very, very strongly. We dominated that particular market. We have a far superior plane."

Shearson's analyst Fried agrees that Embraer is killing Fairchild's market. "The dumping complaint is justified," Fried said.

"But do you know what it [Fairchild's efforts] will get them? Zero. Other airplane manufacturers have complained for years about Brazil, with no results," Fried said.

Fairchild management has sought to soften the blows of competition and recession and to stabilize the company by expanding into other, closely related lines of business. In 1980 Fairchild bought VSI Corp., which designs, manufactures and sells fastening systems, makes molds for plastics and produces nuts and bolts. That acquisition meant Fairchild cut its commercial aerospace sales from 28 percent to 19 percent of sales and government aerospace from 63 percent to 47 percent of sales.

Fairchild posted corresponding increases in percentage sales in its aerospace fasteners (3 to 13 percent), tooling for plastics (2 to 8 percent) and general industry (4 to 13 percent) segments.

"We don't want to open [another] line of business," Uhl said, referring to Fairchild's specialties: government aerospace; commercial aerospace; aerospace fasteners; tooling for plastics; general industry and telecommunications.

"But we might be interested in anyone in the areas that we do business that would strengthen our company. Most interesting to me would be in communications. The communications area looks good," Uhl said.

"Sometimes the best time to make a deal is when things look black," he added.

Uhl seems always to be thinking of the future, concerned but unruffled by his company's declining profits. His conversation returns often to the New Generation Trainer, space shuttle and space-related programs that out-sci-fi Buck Rogers, market share, and programs to build incentive among employes. And none of these things will have an immediate impact on the bottom line at Fairchild.

The Air Force's Next Generation Trainer contract could be worth between $1.5 billion and $2 billion ultimately, but "ultimately" is 1992. To tide Fairchild over while it develops, builds and tests two prototypes of the NGT -- the plane will get a number for a name later -- the Air Force let an initial contract for $104 million.

The payoff for Fairchild doesn't start until 1986, when the first NGT rolls out. Production will likely peak in 1989, then taper off until 1992. Foreign military sales of the craft, Fairchild planners hope, will account for some of that $2 billion projection.

Besides its own merits, the NGT contract is important to Fairchild because it "fills in behind" the A10.

"The award of the NGT was an extraordinarily important contract to them," Fried said. "It allows them to keep their entire engineering staff together and to keep them in the forefront in a prime contractor role.

"While the impact is years away, the contract was an important one to win," Fried added. "They did an excellent job. Hats off to them for a very strong effort." (Fairchild was the only competitor to build and fly test models of the NGT.)

But as with the A10, the NGT and most of Fairchild's other big-ticket products, the engineers, researchers, designers, testers and evaluators have to be paid and must have expensive-to-build prototypes to work on. That work takes years.

Then the products have to be sold and paid for, a long process that can be hampered by a recession, which is dampening aircraft sales now. Only then can a product be moved from the expense category to the revenue category.

"Our shareholders. . .understand these things," Uhl said.

What those stockholders know is that last year, Fairchild's sales amounted to $1.34 billion and profits were $64.3 million. That's $3.46 a share. They're still making money this year, but not as much, something Uhl had told his owners to expect. Second-quarter profits declined to $11.9 million (64 cents a share) from $28.9 million ($1.56), and for the half the figures were $21.2 million ($1.14), down from the $46.3 million ($2.50) that the company posted in 1981. Revenue for the half dipped to $565.8 million from $672.1 million.

"We're a long-cycle type business, where profits don't show up for five to 15 years. The first Amsat profits are just now coming in, and the venture was begun in 1968," Uhl commented. "It took 12 years for the A10 to be profitable," he added.

The 340 commuter-corporate aircraft Fairchild is building with Saab-Skania won't be delivered until the first quarter of 1984 and no more than four a month will ever be delivered. Saab-Skania and Fairchild will split everything 50-50.

"It's at least a six-year cycle of pouring in dough before you reap the profits," Uhl said.

No one at Fairchild will put a firm dollar figure on the company's involvement in the space shuttle -- maybe $1 billion altogether, Uhl said. In fact, compared to the other things Fairchild is doing, the return to the company now is minimal. But the gleam in Uhl's eye and the grin on his face tell you he looks at the shuttle and its offshoots as a beginning.

Fairchild is a subcontractor on the shuttle. Its Republic division built the vertical tail fin, the rudder and the speed brakes. And other divisions contributed 301 components -- truly the nuts and bolts -- to the reusable craft. Fairchild also was involved in the tracking and data relay systems used by scientists to keep tabs on the shuttle as it orbited.

In 1984, one of the shuttle's missions will be to rendezvous with an orbiting satellite on which something has gone awry. Rather than scrap that satellite, as has been done in the past, the shuttle's crew will attempt to repair it.

In the words of Morton H. Cohen, senior director of marketing at Fairchild, "The shuttle's arm is going to retrieve the broken satellite, bring it into the cargo bay. The astronaut will go outside, about 200 to 300 yards. . .the arm comes out and berths it into the cargo bay. The astronaut proceeds with a special tool designed for the program, to repair a $100 million craft, to put it back in space to produce useful data for the public."

Once the procedures and methods of servicing satellites in orbit are practiced, they "have great implications in the commercial world," Cohen said.

Cohen stresses the importance of manufacturing and processing in space, where "various kinds of things can be done more effectively in zero gravity, such as making ball bearings, castings, pharmaceuticals." In the case of ball bearings, lack of gravitational pull enhances the bearings' roundness when they are produced.

Uhl waxes enthusiastic when talking about the first manufacturing activities in space. "Electropharesis is one of the experiments being conducted on the shuttles. It involves manufacturing drugs in space, whereas on earth they can be made only with great difficulty.

"Manufacturing in space can be done cheaper in greater quantity in a gravity-free environment. Electropharesis involves an electric field that helps separate out the necessary particles" for the pharmaceutical to be manufactured. Johnson & Johnson and McDonnell Douglas, Uhl said, are building the "factory" where this will be done.

Fairchild is building the platform for that factory. The platform is a power pack, handling all those functions necessary to keep the factory performing. It's the next logical step in Fairchild's MMS, the multi-mission modular spacecraft.

About six years ago, Fairchild won a contract from the Goddard Space Flight Center to develop a communications and data handling module. "It was part of a program NASA had pursued for a number of years to standardize spacecraft. Reinventing the wheel," Cohen said.

The module was to perform the housekeeping functions of a satellite: propulsion, command data, attitude control and power.

Fairchild's module was unique, cutting costs and weight by using a pair of twisted wires for the data handling system, controlled by microprocessors. "You can have a lot of things going on at a high rate that interconnects all the subsystems and payload," according to Cohen.

"Having once developed that module, we captured the contract for the integration and testing for the MMS," NASA's dream machine. The MMS is versatile, has equipment options, and can be adapted for various space projects, thus avoiding "costly spacecraft design and development effort," according to Fairchild. The same "bus" can carry many different kinds of payloads.

According to Uhl and Cohen, Fairchild is in "sensitive negotiations" with NASA on further commercial applications of the MMS.

For the Johnson & Johnson and McDonnell Douglas space factory, Fairchild will provide the platform at its own cost. Then it will lease the platform to other companies that want to use it for their own experiments.

"We're right now on the edge of making things in space that can't be made on earth," Uhl said. "We're over the criticism of the space program, on the edge of a whole new era. . .We'll be putting folks up there on a regular basis, have a production operation," rather than a space operation that dollars flow into, but never out of.

Uhl likes the idea of mixing private capital and tax dollars "to achieve the breakthroughs."

"Once it's decided that you can do it, people then start thinking of other things you can do. . .," Uhl said. But research and development takes a commitment to creating, paying for and marketing a product. That's a long-term proposition.

Uhl said Fairchild soon will be ridding its horizon of another dark cloud: a two-year-old investigation by the Securities and Exchange Commission to determine the company's compliance with proxy, periodic reporting and records provisions of the SEC Act of 1934.

"The SEC investigation was really an outgrowth of an IRS investigation that produced nothing," Uhl said. "In our opinion, the SEC investigation is, in fact, over, and we are about to make an announcement to that effect to our shareholders in the next few weeks. . . .

"It was really just a fishing expedition. . .I don't see a thing in it that's embarrassing. . .it's a closed issue," he said.

The jury's still out on Fairchild's future profit performance, though. "Unfortunately, the real nuts and bolts of the NGT contract don't come until beyond 1985. What we have is sort of a valley after the A10 and before the NGT," Fried said.

Demisch commented, "The significant dip in aircraft revenue from the A10 will affect earnings. With the NGT. . .they'll be living on borrowed time for a couple for years" until the trainers can be delivered to the Air Force.

"There's no way in which you can avoid this dip. On this basis, I would envision further layoffs, reduced revenues from military operations, reduced income from commercial aircraft," Demisch said, mentioning softness in Fairchild's other lines.

Demisch, who cautioned that he is in no way sour on Fairchild, said, "The company will be hard pressed to show any earnings increase next year."

Calling the company well-managed, Demisch sees Fairchild's strength in the long term. .

Meanwhile, Fried says, "The private plane business is very, very poor and subcontracting for Boeing is at best slow." He also noted that telecommunications is making "a modest turnaround" for Fairchild.

Modest isn't enough for the short run, however, according to Fried, whose last comment on Fairchild is: "I see them facing a couple of really tough years."