Since Boeing’s Co.’s move to acquire McDonnell Douglas Corp. last year, the fate of McDonnell’s Douglas Aircraft Co. in Long Beach has been the biggest question mark in the local aerospace industry.
But the future became somewhat clearer last week, when Boeing Capital Airgroup President Ron Woodard told reporters at the Paris Air Show that Boeing plans to discontinue Douglas planes, including its flagship MD-11. He cited the Douglas’ weak sales in relation to Boeing’s hundreds of annual orders.
Though hardly a surprise, the announcement made it clear that if Douglas and its 10,000 employees is going to have a future in the aircraft industry, it will be making Boeing jets.
That could be good news for local Douglas workers, said Jerry Miller, director of the Long Beach Economic Development Bureau.
Miller notes that Seattle-based Boeing has given the city few clues as to what the pending merger will mean for local jobs. But he and aerospace analysts predict that Boeing will use the Douglas facilities and workers to build Boeing jets.
“For Boeing, which is expanding in the Northwest and is having trouble finding the talent it needs, acquiring McDonnell-Douglas is in effect a massive effort to hire people and acquire new facilities it needs all at once,” said Robert Paulson, chief executive of Aerostar Capital, which invests in small aerospace companies.
“They didn’t buy that business to do nothing,” he said. “There will be work done for Boeing jets there. Whether or not this means building sections in Long Beach or whole jets you can’t tell yet.”
Douglas Aircraft, a distant third in commercial aircraft behind Boeing and Europe’s Airbus Industrie, has largely missed out on what analysts point to as the current upward curve in the cyclical demand for commercial aircraft in the past few of years.
In 1996, the company signed contracts to build 38 commercial jets while Seattle-based Boeing sold more than 700.
Under the merger, Boeing has committed to completing all standing orders for Douglas planes and to continue maintenance and service for those still flying. A Douglas Aircraft spokesman said the division has orders for about 195 planes and will not make the last delivery until 2001 or 2002.
Beyond that, a Boeing spokeswoman said she could not speculate on the future of the Douglas plant.
“There’s a lot of information we won’t have access to at Douglas Aircraft until a merger is finalized,” said Boeing’s Cindy Glickert. “We will assess the capacities of the facilities in Long Beach and the skills there and see where that fits in with our needs.”
Douglas spokesman Bob Saling also said it is too early to tell how Boeing will choose to reorganize the facility.
John Harbison, an analyst at Booz, Allen & Hamilton Inc., also said the merger may bode well for airplane designers and builders at McDonnell Douglas, at least in the near-term.
“They will have the existing McDonnell Douglas projects to wind up and likely some work to perform for Boeing,” Harbison said. “Long-term, it’s more unclear what will happen because in four or five years the demand cycle could start to slow down.”
Boeing announced its intention to acquire McDonnell Douglas in December in a deal worth $13.3 billion, which would constitute the largest merger in aerospace history.
Boeing is currently awaiting approval from the Federal Trade Commission, which recently said it would issue a decision on or before July 1. Boeing spokesman George Torres said the “process with the FTC has been normal” thus far, indicating no glitches in the federal agency’s review process.
“Based on a July 1 decision, we think August 1 is a reasonable time for the deal to close,” Torres said.
The Economic Development Corp. of L.A. County projects that the Boeing-McDonnell merger will lead to a slight drop in the county’s number of aerospace/high-tech employees from last year’s 138,900 to 138,000 at the end of 1997.
“As Boeing and McDonnell-Douglas merge this year you’ll probably get some job losses as they mush everything together,” said Jack Kyser, the EDC’s chief economist.
Kyser said the job losses will likely come from streamlining of space operations and the elimination of marketing and finance and other McDonnell Douglas administrative functions which would be taken over by staff at Boeing in Seattle.
