Boeing looks hard at McDonnell unit Parent company CEO hints at cuts in commercial aircraft

Aerospace industry

September 26, 1997|By Greg Schneider | Greg Schneider,SUN STAFF

WASHINGTON -- The once-proud commercial aircraft operations of McDonnell Douglas Corp. are getting a critical look from new parent Boeing Co., which might decide the fate of the business around Nov. 1, Boeing Chairman and Chief Executive Officer Phil Condit said yesterday at the National Press Club.

The Seattle company completed its acquisition of McDonnell Douglas last month, making Boeing the world's largest aerospace firm, with 225,000 employees and about $48 billion in annual revenue.

McDonnell Douglas had steadily lost ground in the commercial aircraft marketplace and, before the merger, accounted for only about 5 percent of the world's business -- with Boeing dominating at almost 60 percent and Europe's Airbus Industrie accounting for the rest.

Condit said the new company is taking a hard look at the products of the Douglas aircraft factory in Long Beach, Calif., to determine how they fit in.

"We plan to have an analysis done somewhere around Nov. 1 and then make the decisions that need to be made," Condit said during a question-and-answer session after addressing hundreds of reporters about global trade.

Condit said McDonnell Douglas would have had to take a similar critical look at the commercial part of its business even if it hadn't surrendered to Boeing. And he hinted that the conclusions might be at least partly painful.

"We're trying to take the ambiguity out of the system. Let's get on with it, let's know what we're doing," Condit said. He added that because the commercial aircraft market is booming right now, there are plenty of other job opportunities "if we make a negative decision on a product."

He pointed out that Boeing had to take stock of its own 727 program when it began losing sales several years ago, deciding to halt what had once been a successful product line.

McDonnell Douglas did the same with the DC-8, he added.

Now the MD-80 and the MD-90, two versions of a 150-passenger-class plane that compete with the Boeing 737, might be in for the same fate, one analyst said after hearing Condit's remarks.

"They're dead," said Richard Aboulafia of the Teal Group consulting firm. Neither plane is commercially successful, he said, and it would make no sense for Boeing to maintain them.

But Condit did say the McDonnell Douglas line has "some real opportunities," and later a company spokesman mentioned a craft in development -- the MD-95 -- as one with a possible future.

That plane is aimed at the 50- to 100-seat regional commuter market, which Boeing spokesman Douglas J. Kennett said is a growing market that could sustain a new family of planes.

Aboulafia, too, held out hope for the MD-95 and for another McDonnell Douglas craft -- the MD-11. While that wide-body plane has had little success recently competing against the Boeing 747 for commercial customers, he said, it has become attractive as a cargo plane to companies such as Federal Express.

He predicted that Boeing might keep the MD-11 alive for another year to explore its potential. He also suggested that the company will look for commercial outlets for the C-17 military transport plane built by McDonnell Douglas.

Condit said the process of taking stock of those operations is one of seeking balance, which he said was at the root of the decision to merge the two companies.

Before last December's acquisition announcement, he said, Boeing was on track to do 80 percent of its business in the commercial aircraft market and only 20 percent in defense and space. "We were not at critical mass to really compete" outside the commercial arena, he said.

McDonnell Douglas, on the other hand, was going in just the opposite direction -- commercial business draining away but military production relatively healthy. "Together, we have better balance," Condit said.

Condit said that his company and Bethesda's Lockheed Martin Corp. had to go on merger sprees to survive a 40 percent drop in defense spending since the 1980s. But he cautioned that American companies will not be able to carry the merger mania overseas until foreign companies privatize.

Asked if he supported Lockheed Martin's recent announcement of plans to purchase Northrop Grumman Corp., Condit paused, smiled and said only, "Yes." Then he added that such consolidation, leaving only two American manufacturers of military aircraft, will not endanger competitiveness and innovation.

Pub Date: 9/26/97

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