Two Major Aerospace Firms Post Huge Losses : Northrop Takes $150-Million Charge on Secret Program; McDonnell’s 4 Major Projects Are in Red

McDonnell Douglas and Northrop reported stunning quarterly losses Wednesday, reflecting significant technical and budgetary problems on some of their military and commercial programs.

McDonnell announced that all four of the major programs at its Douglas Aircraft unit operated in the red and that the Long Beach operation accounted for a $158-million pretax loss.

Meanwhile, Northrop reported a $78.1-million loss resulting from a $150-million charge against earnings on an undisclosed secret program, which the company said was not the B-2 stealth bomber. The program responsible for the loss is thought to be either the highly classified cruise missile called JTACMS or the Tacit Rainbow anti-radar missile.

The losses at the Southern California companies, coupled with recent poor earnings results by other aerospace firms, indicates that the industry is feeling the brunt of budget cutbacks and unfavorable contracts that were signed in recent years.

“It is death by a thousand cuts,” said Jack Modzelewski, an analyst at the investment firm of Paine Webber Inc. “All of the defense companies are taking hits right now. This is just the beginning of the beginning of a very long downturn.”

El Segundo-based Rockwell International also reported earnings for its third fiscal quarter on Wednesday, posting a profit of $178.1 million on sales of $3.2 billion, compared to a $214.7-million profit on sales of $3.1 billion last year. The year-earlier results included a favorable tax adjustment of $50.2 million.

McDonnell Douglas

McDonnell, headquartered in St. Louis, lost $48 million on sales of $3.48 billion in the second quarter, contrasted with a profit of $71 million on sales of $3.6 billion in the second quarter of last year. The losses at Douglas overshadowed improvements in the parent firm’s combat aircraft and information systems businesses.

The losses at McDonnell Douglas surprised securities analysts, even though many had been prepared for moderately bad results.

Paul Nisbet of Prudential-Bache Securities said he would cut his earnings estimate for McDonnell almost in half. McDonnell shares plummeted $5.375 to $72 in New York Stock Exchange trading Wednesday after a delayed opening.

“I can only conclude that (former Douglas President) Jim Worsham, the super salesman, oversold and overcommitted the company without a firm idea of what the company could produce or at what cost it could produce it,” Nisbet said. Worsham, who left Douglas earlier this year, could not be reached for comment.

Douglas lost $64 million during the quarter on the Air Force C-17 cargo jet, $34 million on the MD-80 commercial jetliner, $60 million on the MD-11 and DC-10 jetliner programs and $8 million on the Navy T-45 trainer jet program.

The company took a $72-million charge against profits on the C-17, reflecting an increase in its expected cost to complete development. The program is four months behind schedule and $400 million over the target cost of its contract, although Douglas still expects it to show a moderate profit.

The MD-80 losses resulted from “high costs” and an inability to meet “planned production rates.” Analysts were particularly troubled by these losses, since Douglas has been producing the aircraft for about 10 years and should be firmly in control of production by now.

A $21-million charge was taken on the DC-10 program for excess inventory. In addition, the last DC-10 remains undelivered to Nigeria Airways. Analyst John Simon of Seidler Amdec Securities said the company has not found another buyer for the aircraft.

“The company is in total disarray,” Simon said.

Northrop

Meanwhile, Los Angeles-based Northrop’s net loss of $78.1 million came on $1.4 billion in sales, contrasted with a profit of $21.9 million on sales of $1.34 billion a year earlier.

In February, Northrop took another $150-million charge for its fourth quarter of 1988, saying it was seeking an “equitable settlement of various contractual issues on certain fixed-price research and development contracts.”

The new $150-million charge involved the largest of the secret contracts cited in the earlier earnings report. Northrop said it has declined to sign new fixed-price development contracts.

Northrop won the contract on the JTACMS, which stands for joint tactical cruise missile, in a competition with Lockheed. It is worth more than $1 billion and is far behind schedule, sources said.

Rockwell International

Rockwell International, meanwhile, continued to post profit on its government aerospace business, though at a reduced rate. The firm’s aerospace segment had operating earnings of $103.8 million, down from $120.4 million last year.

The decline in government aerospace business was more than offset by a sharp improvement in the firm’s electronics business, which posted a profit of $150.4 million, up from $102.9 million last year. Most of the gain was from commercial electronics operations.