McDonnell Downgrades China Deal

McDonnell Douglas said Tuesday that it has downgraded a sales agreement with China for 20 of its new MD-90 jetliners from firm orders to uncertain “options” after an internal review of the agreement.

The change significantly reduces the order backlog for the MD-90, scheduled for its maiden flight early next year and for delivery in late 1994. McDonnell now has 57 orders for the aircraft, a derivative of its MD-80 series. It has actually lost a net of four orders for the aircraft this year.

Separately, McDonnell also disclosed in a federal filing Tuesday that it would delay development of another derivative jetliner, the MD-95, which the firm intended to build in China for international export. The company earlier delayed its MD-12 development program amid a major downturn in the commercial aircraft market.

The MD-95, a twin-jet aircraft with 105 seats, was supposed to depend on the approval of its so-called Trunkliner deal with China. But a McDonnell spokesman Tuesday said market conditions have forced a delay.

“It is apparent that the world is not ready for a new airplane yet,” the spokesman said. “Nobody has set a specific length of time for getting something going on the MD-95.”

The St. Louis-based aerospace company announced the MD-90 order only last June, saying China had ordered 20 MD-80 jetliners and 20 additional MD-90 aircraft for more than $1 billion--a deal that fortified one of its key links in Asia.

But a company spokesman said Tuesday that the firm had reviewed the agreement with the China Aero Technology Import Corp. and changed the decision that had classified the MD-90s as firm orders.

The spokesman added that the change reflects only how the deal is being treated by McDonnell rather than any shift by the Chinese.

When it announced the deal in June, McDonnell said it was optimistic about selling many more than 40 aircraft to China, saying that its agreement “calls for discussion by 1995 that could lead to orders for up to 130 additional MD-90s.”

In its quarterly filing with the Securities and Exchange Commission, McDonnell said it would cut production rates on the MD-80 and its wide-body MD-11 next year, but did not indicate by how much. The company is expected to cut its MD-11 rate to two per month and it has dropped its MD-80 rate to an estimated 1.5 per week, according to industry sources.