McDonnell and Airbus Discuss Joint Venture

Times Staff Writer

McDonnell Douglas and one of its two chief rivals in the commercial jetliner business, Europe's Airbus Industrie, are discussing possible joint ventures on three aircraft, a move that could create a serious challenge to the domination of Boeing Co.

Sources in Europe and the United States confirmed Thursday that talks have been under way for at least three months about possible joint plans to produce a twin-engine, middle-range jet and two four-engine, long-range jets.

However, discussions have been very preliminary, and news agencies quoted Martin Gruener, state secretary in the West German economic ministry, as saying it is "questionable" whether the two firms will be able to agree on areas of cooperation. Gruener spoke at the Hanover Air Show.

Unprecedented Move

Sources close to McDonnell Douglas confirmed that talks have taken place but said nothing solid has come out of them yet. McDonnell Douglas spokesman Don Hanson in Long Beach could not confirm the talks. Boeing spokesman Jim Boynton in Seattle said the firm had no immediate comment.

While cooperation and joint ventures with foreign partners are not new in the jetliner business, any joint venture between McDonnell Douglas and Airbus would be unprecedented because of the firms' sizes and direct competition, as well as the massive amount of money involved in developing the new aircraft under discussion.

Such a deal, by allowing for the sharing of the billions of dollars required to develop and produce new-generation aircraft, could prolong McDonnell Douglas' life in the commercial jetliner business, said Christopher Demisch, an aerospace analyst with First Boston Corp. McDonnell Douglas produces commercial aircraft in Long Beach.

By reducing competition, it could also help the financial fortunes of Airbus, a consortium of firms subsidized by the governments of West Germany, France, Britain and Spain. Although it has established a strong presence in the jetliner market, Airbus so far has been unable to earn a profit on its two current aircraft, the A300 and A310, and its proposed A320.

Lacking a joint venture, both firms are likely to compete directly in at least one market segment involving the types of aircraft involved in the talks. Developing these aircraft alone could cost each firm billions of dollars, with a much lower chance of earning a profit.

Might Produce Wings

However, the two companies are likely to have difficulty agreeing on such issues as where to produce the aircraft, how to divide research and development work and how to share technology.

"A joint venture makes sense on the surface, but when you think about what it will take to allow the deal to go forward, it's difficult to envision that a joint venture will actually take place," Demisch said. He speculated that McDonnell Douglas might be interested in producing the wings for the aircraft under consideration at its wing plant in Toronto.

Gruener said that one of the aircraft under discussion for joint production is the A330, a twin-engine, mid-range jet being developed by Airbus that would compete directly with Boeing's 757 and 767 models.

Also under discussion is the A340, a four-engine, longer-range version of the A330 that would compete with McDonnell Douglas' proposed MD-11, a modernized, larger three-engine version of the DC-10.

Airbus has estimated that developing the A330 and A340 would cost $2.5 billion, but financing of the projects by the European governments is not guaranteed.

McDonnell Douglas and Airbus also are discussing the development of an jumbo jet aircraft that would compete with Boeing's 747, Gruener said. Developing such an aircraft would cost billions, Demisch said.

Multinational joint ventures and cooperation between commercial aerospace firms have become more common in recent years as the costs and risks of producing aircraft have risen.

China, Japan Firms

McDonnell Douglas has a coproduction agreement with China under which the Asian nation is producing some of McDonnell Douglas' twin-engine MD-80s. Boeing, meanwhile, has a joint venture agreement with three Japanese companies on production of the 7J7, a new-technology 150-seat aircraft.

Foreign manufacturers also produce major parts of American-built jetliners. Aeritalia, an Italian firm, produces the fuselage for the MD-80 and DC-10.

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