McDonnell Settles Suit by Northrop for $50 Million

McDonnell Douglas Corp. will pay $50 million to settle a 6-year-old legal war with Northrop Corp. over which of the aerospace giants can act as prime contractor for foreign sales of the F-18 Hornet fighter jet made jointly by the two companies.

In announcing the settlement Monday, St. Louis-based McDonnell and Los Angeles-based Northrop said they have dismissed all lawsuits against each other involving the Hornet, a twin-engine fighter jet intended for use from Navy aircraft carriers. The companies said they have agreed that McDonnell Douglas will be the prime contractor in all sales of the F-18, domestic and foreign, and that Northrop will be the principal sub-contractor.

Neither company would comment beyond a jointly issued four-paragraph statement, which emphasized that the $50-million payment will have no effect on McDonnell Douglas’ earnings this year because the company had previously written off that amount as a precaution in case of a settlement.

The settlement ends a bitter tug-of-war over profits from foreign sales of the Hornet jet. Foreign sales are a key source of revenue for defense contractors, adding extra earnings that help offset the cost of developing and building a weapons program for the Pentagon and lowering the per-unit cost of each weapon or weapon part.

The Hornet program theoretically calls for the Navy to buy 1,377 jets at a total cost of $40 billion by the mid-1990s. So far, however, the Navy has firmly committed itself to buying only 420 Hornets, and McDonnell Douglas has delivered 240 of the jets. Australia has ordered 75 Hornets, Canada 138 and Spain 72.

Domestically, Northrop builds the center and tail end of the Hornet, about 40% of the aircraft’s body. Monday’s settlement gives that chunk of the business to Northrop in foreign sales, too.

McDonnell Douglas makes the jet’s landing gear, front end and wings; connects all the parts of the body, and then purchases and installs the plane’s electronic equipment.

The legal battle over the Hornet began in October, 1979, when Northrop filed suit in federal court in Los Angeles accusing McDonnell Douglas of promising foreign countries the chance to build parts of the jet that had been promised to Northrop. In addition to disputing manufacture of those parts, Northrop said that it wanted to act as prime contractor in foreign sales of the jet.

Specifically, Northrop alleged that McDonnell Douglas, while seeking a contract to provide Canada with a new fighter jet, violated a 1975 agreement by promising that Canadian companies could manufacture parts of the plane’s center and rear fuselage.

Both companies agreed that Northrop was principal sub-contractor at home, with the right to manufacture the center and rear fuselage for sales to the Navy. They disagreed, however, over McDonnell’s right to act as prime contractor abroad and to decide who would make parts of the planes sold to foreign nations.

In December, 1979, McDonnell Douglas filed a countersuit that included allegations that Northrop illegally used F-18 technology in its F-20 Tigershark jet, a lower-cost fighter that Northrop developed without government money for sale to less-developed nations. Despite extensive marketing, Northrop has yet to sell a Tigershark.