Air Transport World

Feast and famine: these are the best and worst of times for McDonnell Douglas, struggling with inefficient commercial programs and declining defense market.

These are the best and worst of times for McDonnell Douglas, struggling with inefficient commercial programs and declining defense market.

While most of us go through life getting our quota of ups and downs in alternating batches, McDonnell Douglas has been harvesting equal crops of bitter and sweet recently. Record orders, record backlogs and a major new airplane, the MD-11, nearing certification, have been accompanied by financial losses, high levels of borrowing, plunging stock value, a declining bond rating and painfully large layoffs.

As states of these difficulties spread, rumor vultures descended on McDonnell Douglas with talons bared, producing stories of Douglas closing, or Douglas being sold to Mitsubishi, or McDonnell Douglas Chairman John F. McDonnell resigning. These rumors spawned the spectacle of a company with a backlog in excess of $21 billion in transports alone having to deny that it was going out of business.

For the airline industry, the fall from financial grace of a major airframe manufacturer is chilling. The extensive order backlog at all three manufacturers is loud testimony of the airlines' need for new capacity. Should McDonnell Douglas falter or retreat, slowing down development of new types or lowering production targets, the capacity squeeze would press even tighter and the competitive pressure holding down aircraft prices would ease, a double shot of ill fortune for carriers.

The immediate cause of the cash and credit crunch that finally forced McDonnell to eliminate 17,000 jobs throughout the corporation-7,700 people were idled at Douglas's Long Beach plant-was the company's spending needs to get the MD-certificated 11 and its line built up and inventoried for production, a cost that John McDonnell put at $2 billion this year.

For the Douglas portion of the company, the bottom of the slide may have been the middle of last year. For several years, production and the basic company organization largely had been ignored as full attention was focused on selling existing products and defining future products. End of the DC-10 line

This orientation was born in the early 1980s, when the MD-80 line was nearly out of orders and the DC-10 line essentially had reached the end of its commercial viability. Great efforts and astounding deals were made by the team led by former Douglas President Jim Worsham to keep the MD-80 line not only open but with an extremely healthy backlog, while the DC-10-line 10 was kept busy building the U.S. Air Force's KC-10 tanker variant. During this period, the MD-11 was defined and launched, and work was far advanced on the Unducted Fan-powered version of the MD-80, seen as the airplane of the future.

While all of these positive developments were coming to pass, the foundations of the operation were slowly eroding. …

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