McDonnell Sells China 40 Jets in $1-Billion Deal
McDonnell Douglas scored an important victory Sunday when it concluded longstanding negotiations to sell 40 commercial jetliners to China for more than $1 billion, a deal that fortifies one of its key links in Asia.
The order from China is for 20 MD-80s and 20 MD-90s, both medium-sized, two engine aircraft that will be assembled in Shanghai with kits shipped from the firm’s plants in Long Beach and other U.S. locations.
The aerospace firm first disclosed that it had won the order last October, but executives at rival Boeing disputed the firm’s claim and the issue remained muddled.
In recent weeks, the aerospace industry was rife with rumors that Boeing had snatched the order away, industry sources said Sunday. McDonnell said the deal, known in China as the trunk-liner program, will be announced today in China.
The St. Louis-based firm sorely needed a big commercial airplane sale, having lost a net of 35 orders during the past five business quarters. Its market share has fallen precipitously behind Boeing’s and Airbus Industrie.
“The company can use whatever good news is out there,” said John Harbison, who leads the aerospace practice at the consulting firm of Booz Allen & Hamilton. “Getting any kind of order in the current environment is a real accomplishment.”
Although China remains a relatively small market for jetliners, it has enormous potential. Harbison said if China’s passenger traffic amounted to just 10% of the U.S. level, its demand for new jetliners would outstrip the rest of the Western world.
McDonnell made no mention Sunday of another China deal, in which it plans to build a new jetliner called the MD-95 in China and export it to the world market. It would be the first time the firm has produced jets abroad and then exported them to serve all its customers.
Last November, McDonnell said that if it won the trunk-liner program, it would sign a deal to locate the MD-95 program in China. Company spokesmen declined to comment.
McDonnell has carefully nurtured a relationship with China, agreeing 10 years ago to allow the Shanghai Aviation Industrial Corp. to assemble 28 of its MD-80 jetliners in Shanghai. The MD-80 carries 147 passengers and the newer MD-90 carries 158 passengers.
“We have built a solid relationship with China over more than 10 years, and the strength of that bond led to ratification of this agreement,” company Chairman John F. McDonnell said in a statement.
The company is hoping to sell many more than the 40 aircraft in the current deal. Gareth C.C. Chang, president of McDonnell Douglas Pacific & Asia, said the agreement “calls for discussion by 1995 that could lead to orders for up to 130 additional MD-90s.” The first of the 40 aircraft on the current order would be delivered in 1996.
Although the deal clearly helps McDonnell, it offers less benefit to U.S. employees than if U.S.-made aircraft were sold to China. The firm did not disclose the profit share China will gain by assembling U.S.-made parts.
In addition, McDonnell disclosed that Chengdu Aircraft Corp. of China is “currently making nose sections for both Chinese and U.S.-built” company jets and will produce the nose sections for the new aircraft.
McDonnell has transferred large portions of its MD-80 and MD-90 jetliner programs out of California, leaving only final assembly here. By performing final assembly in China, it appears that engineering and administration would be the major tasks done in Long Beach.
McDonnell, however, said the China deal “will help to maintain work on our twin-jet product line, which has had layoffs over the past six months due to a large reduction in the size of our order book. Even with final assembly and a large part of the production occurring in (China) the 40 planes ordered by (China) will provide hundreds of jobs for McDonnell Douglas and our suppliers for many years.”
A key selling point for China was McDonnell’s agreement to equip the MD-80s and MD-90s with dual tandem landing gears--oversized landing gear that will be able to operate on China’s poorly constructed runways. Each main landing gear has four, rather than two wheels.
The landing gear, featured on many U.S. military aircraft, spread the aircraft’s weight more evenly and allow landings on relatively thin concrete runways.
McDonnell said a team of engineers from Shanghai Aircraft Research Institute and its Douglas Aircraft unit has been designing the new landing gear under a separate agreement signed last year.
It remains unclear whether the China deal will help McDonnell’s efforts to sell a major stake in its commercial aircraft business to Taiwanese investors, a prospect raised in a preliminary agreement last November, Harbison said. That deal has become bogged down in lengthy negotiations, while McDonnell has encountered new problems.
“It could go either way,” Harbison said.
