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. Last Updated: 07/27/2016

Douglas Retreats on Commercial Jets

LOS ANGELES -- Abruptly reversing a course he set only two years ago, McDonnell Douglas Corp. chief executive Harry Stonecipher has said his company is abandoning its effort to be a leading builder of commercial jetliners.


Stonecipher said Monday that McDonnell's Douglas Aircraft Co. division, which makes planes in Long Beach, California, will no longer develop the aircraft it would need to compete with industry leaders Boeing Co. and Europe's Airbus Industrie.


Experts interpreted Stonecipher's message as a death knell for 75-year-old Douglas Aircraft, which today has a paltry 10 percent of the global jetliner market. Douglas builds the MD-90 and MD-80 single-aisle jetliners, the MD-11 wide-body and the new 100-seat MD-95.


"They're exiting the commercial business, there's no mistaking it,'' said Richard Aboulafia, an analyst with Teal Group, an aerospace research company in Fairfax, Virginia. McDonnell Douglas also is one of the United States' largest defense contractors.


Douglas has defied predictions of its demise for decades, but the fact that Stonecipher is pulling back the throttle just as the commercial aircraft industry is enjoying a resurgence only underscores how Douglas has been unable to keep pace with its huge rivals, experts said.


To be sure, the decision does not mean that Douglas is going to shut down soon or that it will lay off its 10,000 employees. Douglas has a backlog of orders to build more than 200 aircraft.


But without developing new families of jetliners, the plant's future beyond the next decade is very dim. Stonecipher's remarks also could also prompt airlines to order fewer of the planes already in production.


Stonecipher made his remarks in a teleconference call to bankers and Wall Street analysts, and even he admitted that the decision was good news for his competitors. "I expect with this announcement today that the Boeings and Airbuses ... will be running rampant all over the world,'' he said.


Stonecipher became the first person outside the McDonnell and Douglas families to run the company when he took over as president and chief executive officer in 1994. He proclaimed in full-page newspaper ads last year that "if we weren't already in the commercial-aircraft business, we'd get into it'' -- because it looked so promising.


In the conference call, Stonecipher said the staggering costs of developing new lines of airplanes, the savage price-cutting now in today's market and Douglas' poor market share had changed his mind. St. Louis-based McDonnell will evaluate potential mergers, joint ventures and other moves for Douglas, he said, adding that the company "might be interested in having a partnership'' with another planemaker. He offered no details, however.








"It was a surprise for [Stonecipher] to make an about-face this abruptly, after such a strong foray back into the market,'' said Byron Callan, an analyst with Merrill Lynch & Co. in New York. "They had started talking about commercial aircraft much more positively.''