Douglas May Give New Life to DC-10 : Accelerates Plan to Make Stretch Version of Jetliner by 1986

McDonnell Douglas has significantly accelerated plans to develop a derivative of its DC-10 commercial jetliner and hopes to launch the program as early as the first quarter of 1986, company officials said Thursday.

If McDonnell wins sales commitments from airlines and successfully continues production of the aircraft, it would represent a remarkable comeback for the DC-10, which has been a multimillion-dollar loser for the St. Louis firm’s Douglas Aircraft subsidiary in Long Beach.

The company said it has held extensive discussion with airlines to determine the design that appeals to the largest group of potential customers. It plans to seek approval from the McDonnell Douglas board in August to make formal sales offers to customers.

Would Add 53 Seats

“We are optimistic,” said Lou Harrington, McDonnell Douglas vice president for advanced products. “We still have some very serious hurdles to overcome, but we feel it is a very competitive airplane that fits into a niche that is unoccupied.”

The ambitious new plan calls for adding about 53 seats to the aircraft’s 277-seat capacity by stretching the fuselage 22 feet. It would also introduce new engines and update the cockpit with the latest digital electronics technology.

The new aircraft, which would be named the MD-11, would cost about $70 million, based on a 1984 delivery price. A typical new DC-10 costs about $65 million, Harrington said.

The program would require an investment of several hundred million dollars, Harrington said. It would add several hundred engineering jobs in its early years and several thousand manufacturing jobs by late in the decade.

Douglas Aircraft President James Worsham has said the firm plans to double its size by 1988 and add 12,000 jobs. The DC-10 program would be included in those employment gains.

In 1984, the Douglas subsidiary posted its first annual operating profit since it was acquired by McDonnell in 1967. The firm earned $57 million, compared to a loss of $52 million the year earlier, $70 million in 1982 and $117 million in 1981.

The impetus for McDonnell Douglas’ move in large part comes from indications that the commercial airline industry has begun a strong financial comeback that is likely to continue for several years.

The market for used aircraft, for example, has gone from a condition of surplus to shortage in less than one year, says Kenneth Taylor, marketing vice president at International Lease Finance, the aircraft industry’s largest leasing and brokerage firm.

“We are getting calls every week from people looking for used DC-10s,” Taylor said. “One year ago, there were airplanes available all over the place. But now operators are finding themselves short of airplanes.”

Taylor said the price for a used DC-10 has increased to as much as $35 million from less than $20 million about a year ago.

At the same time, airlines are growing increasingly concerned that, if McDonnell Douglas drops the DC-10 line, they would face having only the Boeing 747 for long-range transoceanic routes. A new Boeing 747 costs as much as $100 million.

Financial analysts say that airline traffic has grown substantially over the past year and that, by next year, the airline industry will be operating at capacity.

The worldwide airline industry posted operating profits of $3 billion to $4 billion in 1984, initiating a period of record profitability, according to a research report by David J. Smith, an analyst at Sanford C. Bernstein & Co.

Smith is projecting that airline traffic will grow by more than 9% in 1985 and 8% in 1986, pushing load factors to industry capacity and essentially resulting in the industry being “sold out.”

Taylor believes that Douglas and Boeing, along with the smaller European aircraft consortium Airbus Industrie, will not be able to satisfy the coming surge in aircraft demand in the late 1980s.

“Boeing and Douglas have both said they will cap aircraft production and will not wildly expand like they have in the past to meet demand,” he said. “So, you are talking about U.S. production of less than 300 aircraft per year, but the industry needs to replace more than a thousand old jets.”

Harrington said that Douglas does not believe that future demand will go unmet. An internal Douglas market study forecasts worldwide commercial sales of 4,700 aircraft worth $210 billion through 1998.

The Long Beach factory has turned out as many as 150 aircraft per year and remains capable of such production levels, Harrington said.

The Douglas unit also is under Air Force contract to develop the C-17 cargo jet, a program with a potential for $3.8 billion in sales. The Navy also plans to buy $4.5 billion worth of T-45 trainer aircraft from the firm.