After investing four years and $700 million to design and develop its MD-11 jetliner, McDonnell Douglas was granted government certification of the aircraft Thursday, enabling the firm to begin deliveries later this month.
The firm’s Douglas Aircraft unit in Long Beach plans to deliver at least five of the 250-400 passenger aircraft by year-end, providing a significant boost to revenue and much needed relief for the firm’s tight cash condition.
Douglas President Robert Hood personally received the Federal Aviation Administration certificate, bound in a blue leather folder, in a brief ceremony at Dulles Airport in suburban Washington on Thursday morning. He and about 60 other Douglas officials then flew an MD-11 back to the Douglas plant in Long Beach.
On arrival, he waved the certificate high over his head, evoking loud, boisterous cheers from several hundred hourly workers who had gathered on the flight ramp.
The very survival of the firm was bet on obtaining the certification document in a timely fashion. Hood said Douglas has invested about $2.5 billion in inventory for initial production, besides the $700 million for engineering, tools and flight testing.
Throughout the program, McDonnell’s debt rose steadily, reaching about $3 billion in September and resulting in three successive downgradings of its credit rating.
There were a number of painful setbacks in the program, including a six-month delay in the original schedule for getting the aircraft certified. The aircraft grew several thousand pounds heavier than planned. And the three General Electric jet engines that power it were found to consume about 4% more fuel than planned.
Even the certificate granted Thursday does not include use of the aircraft’s Category IIIb landing system, which allows an aircraft to land automatically in zero visibility. That capability will not receive certification before next March.
But Douglas has initiated programs to solve the MD-11’s problems, and officials have asserted that they are relatively minor in any case.
Indeed, despite the problems, Douglas has succeeded in booking 174 firm orders, worth an estimated $17.4 billion, and 201 options worth $20.1 billion.
“This is the largest program McDonnell Douglas has,” Hood said in a hurried press conference beside the aircraft.
Lawrence Harris, an aerospace analyst with Bateman Eichler, Hill Richards, said McDonnell should be able to realize a gross profit margin of about 11% on the MD-11 program over its life. That is somewhat less than the 15% to 20% that McDonnell’s competitor Boeing obtains, but still respectable, Harris said.
The initial MD-11 jets are costing McDonnell about $120 million to $150 million to produce, a relatively high cost that should lessen as the firm gains manufacturing experience. Over the life of the program, the MD-11 should cost $90 million to produce, compared to the current selling price of about $100 million, Harris said.
If those estimates are borne out, the program will be notably more successful than its predecessor DC-10, which lost money for almost two decades. Douglas was locked in a heated competition with Lockheed’s L-1011 and both firms suffered.
Louis Harrington, Douglas vice president and general manager for the MD-11, said the MD-11 program should break even within the next three years. “The sales and orders we have now will guarantee this will be successful,” he said.
Douglas plans to produce 38 of the craft next year and 50 the next year. By 1993, it plans to have the capacity to produce 60 aircraft per year, a rate of 1.2 per week.
The wide-body aircraft has a range of 8,000 miles and is expected to be heavily used in transpacific and transcontinental domestic routes. It has a wingspan of 169 feet, 6 inches and a length of 200 feet, 10 inches. Its maximum takeoff weight is 618,000 pounds.
The FAA certificate granted Thursday will cover MD-11s powered by GE engines. McDonnell said Pratt & Whitney engines will be certified next month and Rolls-Royce engines in 1993.
Over the past year and a half, Douglas has undergone significant turmoil, suffering losses and a disruptive reorganization. Employment grew rapidly; then, this year, 8,600 workers were laid off.
Harrington said the work force should be more stable in the future and the 10,000 jobs on the MD-11 program should remain level.
Morale among Douglas workers has had its ups and downs, but the MD-11 certification Thursday gave it a big boost.
“I am just glad to see these planes fly over the fence, because that means we did our job,” said Albert McGee, an MD-11 mechanic whose job involves installing titanium structural parts in cargo holds. “Boeing can watch us do it.”
FIVE BIGGEST MD-11 ORDERS
Current Value Carrier First order orders (billions) Delta Sept., ’88 11 firm, $4.2 31 options American Feb., ’89 15 firm, 5.0 35 options GPA (Irish Dec., ’86 17 firm, 2.9 leasing firm) 12 options Federal Dec., ’86 8 firm, 1.9 Express 11 options Swissair Dec., ’86 12 firm, 1.8 6 options