McDonnell’s Earnings Rise, Debts Fall in 3rd Quarter

McDonnell Douglas earned $77 million in the third quarter, reflecting improved performance in its commercial aircraft business but flat or lower profit in its military aircraft, missiles and financial services operations.

The earnings, backed up by a reduction in the firm’s heavy debt load, was held by the company as an indication that it is quickly regaining its financial strength after near-crippling cash flow problems earlier this year. The firm cut its debt by $255 million to $2.68 billion in the quarter. In the prior quarter, it reduced debt by $365 million.

Despite McDonnell’s optimism and a strong showing on Wall Street, Pentagon officials remain concerned and held a high-level meeting with company officials this week to review the firm’s operations.

George Shapiro, an aerospace analyst at Salomon Bros., said the earnings were in line with his expectation, and he expects the company to continue to post high earnings throughout next year. Beyond that, however, Shapiro expressed some long-term concerns.

The St. Louis aerospace firm earned $248 million on sales of $4.1 billion in the third quarter last year, an amount that included a $373-million gain involving a pension fund transaction. Excluding that item, the company would have earned $14 million last year. In the latest quarter, revenue increased to $4.46 billion, owing to MD-11 deliveries.

The Douglas Aircraft unit posted operating earnings of $65 million, compared to a loss of $98 million in the quarter last year. But the earnings this year included an “advance payment forfeited by an airline,” the company said. Shapiro, estimating that the advance payment was $15 million to $20 million, said that the Douglas earnings “were not quite as strong as they looked.”

The company said it took a $28-million loss in the third quarter on the Air Force C-17 jetliner program, but a spokesman said the company anticipates recovering that and other expected future losses by submitting claims against the Pentagon. The Defense Department has estimated that the firm could lose at least $900 million on its existing C-17 contracts.

McDonnell delivered 21 MD-11 jetliners through the end of the third quarter. It intends to deliver 36 this year, meaning 15 will have to be delivered in the final quarter. “We are going to have to hustle in the fourth quarter, but we think we can do it,” McDonnell spokesman Michael Burch said.

In its combat aircraft business, the firm posted operating earnings of $126 million, up from $119 million last year. Profit dipped sharply to $53 million in its missiles, space and electronics systems segment, primarily because of writeoffs in several programs. And the firm’s financial services operation recorded a $1-million loss, reflecting hard times in the industry and lower gains from the sale of assets.

Although profits are improving, the company’s backlog deteriorated. The backlog--not including options and reserves--was $46.4 billion as of Sept. 30, down from $52.8 billion at the start of the year.