McDonnell Douglas' $1.6 billion jet sale to China includes 20 to be built in U.S.

November 05, 1994|By Bloomberg Business News

WASHINGTON -- Chinese authorities signed a $1.6 billion agreement with McDonnell Douglas Corp. yesterday to buy 20 jetliners made in the U.S. and co-produce another 20 planes in China.

The accord modifies a 1992 agreement that called for the production of all 40 planes in Shanghai. Since then, China found that it needed delivery of the jetliners earlier than was possible if they were made at its domestic facilities.

The timing of the new agreement, just days before the midterm congressional elections, is a political prize for the Clinton administration. McDonnell Douglas officials said it would help the company preserve 4,600 high-skill jobs, half of them at McDonnell's Long Beach, Calif., facility.

President Clinton campaigned yesterday in California for Sen. Dianne Feinstein and other Democratic candidates.

At the signing ceremony at the Commerce Department, McDonnell Douglas Chairman John McDonnell lavished praise on Commerce Secretary Ronald H. Brown for his help in sewing up the details of the agreement.

Brown "has expanded and changed the meaning of what the U.S. government can do to support U.S. business," Mr. McDonnell said.

The signing of the agreement also came six months after Mr. Clinton renewed China's favorable trading status and ended the annual linkage between renewal and Beijing's widely criticized human rights policies.

His decision was heavily influenced by economic considerations. The president said that China's $8.8 billion in imports from the U.S. supported 150,000 American jobs in 1993. China, the U.S.'s fastest growing export market, will import $1 trillion in capital goods by the year 2000, according to statements from Beijing.

Chinese officials have given varying estimates in recent years of their needs for new planes, some of which could total more than $6 billion in orders. China selected McDonnell Douglas' MD-90 over the Boeing 737 in 1992 as a 150-seat jet for domestic service, though Boeing said earlier this year it was in discussions with China on other possible sales.

Those talks continue, a Boeing spokesman said yesterday. "We're discussing virtually the whole Boeing production line and will continue to do so," said Boeing's John Wheeler.

A U.S. official said yesterday that China is still expected to make additional major purchases from U.S. aircraft manufacturers, but they are expected to come in "bits and pieces" over the next 10 years because of limits in China's air traffic control system and other operational limits. Byron Callan, an aerospace analyst for Merrill Lynch, said manufacturing of the planes by McDonnell Douglas in the U.S. would increase profits, which grow when production lines operate at a higher rate.

"Any news like this is good news" for McDonnell Douglas, Callan said, though adding that it doesn't change the difficulties the company faces from competitors Boeing and Airbus Industrie. McDonnell has lagged considerably in commercial jet orders in recent years.

The agreement should "reinforce the notion they (McDonnell Douglas) are going to be a survivor, at least in the narrow-body end of the market," Mr. Callan said.

Nevertheless, McDonnell Douglas' shares fell 62.5 cents to $136.125 yesterday on a volume of 101,700 shares. The stock reached a 52-week high of $141 a share on Halloween.

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