Douglas Plans Layoffs of Up to 5,000

McDonnell Douglas will lay off 4,000 to 5,000 workers by year-end at its Douglas Aircraft Co. in Long Beach, the latest cutback by the troubled airplane maker as it attempts to “weather this storm,” Douglas President Robert Hood said Friday.

Amid a drought of orders and prospects for even tougher competition next year, the cutbacks are aimed at paring Douglas operations to those that are “absolutely critical,” Hood said in a memo distributed Friday to employees at the plant gate.

The new layoffs represent 14% of Douglas Aircraft’s work force of 36,000. The company did not disclose where the layoffs would occur, but its Long Beach plant, with 30,500 workers, has borne the brunt of previous reductions. The firm, meanwhile, has been building up operations outside California.

Friday’s announced layoffs were larger than anticipated. Douglas projected several weeks ago that a top-to-bottom reassessment of its business could result in 1,000 to 3,000 layoffs this year. The larger job cuts disclosed Friday are in place of the earlier estimates.

In addition, the firm said in June that it would close its Torrance parts manufacturing plant, cutting 2,000 jobs there by the end of 1993. Union officials said most of those job losses are expected to occur next year and are not part of the layoffs announced Friday.

The aerospace bust has hit the California economy like a deadly weapon, resulting in the elimination of 100,000 high-paying jobs in the field, according to the Commission on State Finance, a state agency.

Virtually every major defense contractor has cut employment sharply and will probably continue to do so until the mid-1990s, expert say. Only last week, Hughes Aircraft said it would lay off 9,000 this year, about two-thirds of them in Southern California.

Plagued by dwindling market share in its commercial business and losses in its C-17 military cargo jet program, Douglas has endured the biggest layoffs in the industry, going down about 22,000 jobs from its peak of 52,000.

Hood’s memo made a long and impassioned plea to employees that the company remains committed to the commercial aircraft business despite “negative comments” from analysts and the media.

“Douglas has been making airplanes for more than 70 years,” Hood said. “We have met and overcome many challenges over our long, proud history, and we will overcome these as well.”

In the meantime, Douglas will cut production of its money-making MD-80 jetliner to just 40 aircraft or fewer in 1993, which may portend a new round of financial losses at the unit, said Lawrence Harris, an aerospace industry analyst at Kemper Securities.

“It is still possible that Douglas can survive, but the order rate for the MD-11 and MD-80 jetliners has to be a concern,” Harris said. “If people start to think the company is going to depart the market, then it could become a self-fulfilling prophesy. I don’t think the board is ready to pull the plug.”

The world’s major airlines remain stuck in a deep slump, having lost $6 billion over the last two years, and have delayed plans to buy new aircraft or canceled existing orders. Airplane producers are just in the second year of a downturn that could last another one to two years, Harris said.

Hood cast the latest round of layoffs as an effort to adjust to “the expected lower revenues which are the result of the prolonged slump in the airline industry. This means we must reduce the number of people in addition to cutting other expenses.”

He said about half the layoffs would be workers in “direct” job functions, meaning they are assigned to specific aircraft programs. The other half would be among staff and support services.

Inside Douglas, the tough times are taking a toll. Strapped for cash, Douglas has laid off workers without special assistance packages that have been provided by other firms to their surplus employees.

“People are working their hardest to do their best,” one supervisor said. “But it seems like everything we do is a day late and a dollar short. The mood is really dark.”

Hood said the company has made major improvements in efficiency and in correcting late deliveries of aircraft, though he acknowledged that both remain a “very tough issue.”

“I am sure they have learned a lot from this, but it has been a very expensive lesson,” said Howard Rubel, an analyst at C. J. Lawrence, Morgan Grenfell. “I am certain it is not the end of the cutbacks.”

The company’s strategy of balancing its declining military business with a growing commercial operation “has been an utter failure,” Rubel said. At Douglas, he said the wide employment swings might have been avoided by better balancing the military C-17 program with the commercial programs.

“You wonder how that place could one day have 50,000 workers and then another day 25,000,” he said. “There are going to be a lot of empty offices.”