Taiwan Deal With McDonnell Appears All but Dead

The proposed deal between McDonnell Douglas Corp. and Taiwan Aerospace Corp. to cooperate on development of McDonnell’s new commercial jetliner is nearly dead, and officials see little chance of it reviving.

While Taiwan Aerospace officials publicly state that negotiations with McDonnell will proceed, privately they concede that such talks will be little more than a formality.

Denny R. S. Ko, president of Taiwan Aerospace, holds out the possibility that McDonnell may have a surprise in store. “I wouldn’t call it a dead case,” he said. “McDonnell may still make a change in its total strategy.”

But McDonnell will have to act quickly, Ko warned, because Taiwan Aerospace is losing its patience with the U.S. company, which has altered the design and delayed indefinitely the launch date of its MD-12 jetliner.

“It could be that McDonnell Douglas takes another year to work out the details of its plan,” Ko said. “I’m not going to wait another year.”

Government-backed Taiwan Aerospace signed a memorandum of understanding last November to buy up to 40% of McDonnell’s commercial aerospace business--Douglas Aircraft Co. in Long Beach--for up to $2 billion.

But it backed away from the deal in May, offering instead to set up a company to manufacture the wings and fuselage for the MD-12. Taiwanese investors would also set up a leasing company that would order 20 MD-12s from McDonnell and provide it with a letter of credit to partially finance the plane’s development.

McDonnell officials rejected the plan, and a May meeting between them and Taiwan Aerospace Chairman Earle J. S. Ho in Hong Kong failed to break the impasse.

Demands by McDonnell that Taiwan Aerospace take a significant equity stake in the company seem to have created the logjam. Few in Taiwan’s business community showed enthusiasm for the multibillion-dollar MD-12 program.

“At the start, there was lots of interest but quickly the interest subsided,” said an analyst in Taipei not directly related to the deal. “Now, it’s just finished.”

Originally thought to be supporters of the deal, high government officials have been largely silent about it since Minister of Economic Affairs Vincent Siew released a study in late April citing the high risks involved in the proposal. In May, a senior presidential adviser, Chao Yao-tung, publicly criticized the deal.

Taiwan Aerospace officials originally proposed the deal with McDonnell as a way to develop Taiwan’s aerospace industry. Now they say they don’t need the U.S. company to do that. Taiwanese government and corporate officials have boasted that they have been courted by European and other American companies, and they met last week with British and Russian industry representatives to discuss co-producing helicopters and small planes.

“Our goal is to build an aerospace industry infrastructure in Taiwan,” said Ko. “Almost anybody in the game can provide that help for us.”