McDonnell Sees Profit Soon on C-17 : Aerospace: Apparent turnaround in troubled program comes amid rising political heat.
McDonnell Douglas, asserting that its controversial C-17 military cargo jet program has turned the corner on its financial problems, said Monday that the program nearly broke even in the quarter ended last month and would post a profit in the current quarter.
The aerospace company will report a $1-million loss for the first quarter, down from the $80-million loss that the program suffered in the same quarter last year, company executives told securities analysts late last week.
If the turnaround in the long-troubled cargo jet program is real, it would arrive just in time to possibly rescue McDonnell from political opposition that has swelled recently.
McDonnell Chairman John McDonnell will be sworn in before the House Government Operations Committee April 22 in what is certain to be a hostile hearing into an alleged government bailout of the company in 1990.
Some longtime supporters of the C-17 seem to be wavering in their commitment. Rep. John Murtha (D-Pa.), who controls funding for defense programs, said last month that McDonnell “has done it all wrong” in the C-17 program. Defense Secretary Les Aspin said the C-17 will not get any special protection in budget cuts.
McDonnell’s earnings information will be officially released later this month.
Company officials declined to elaborate Monday on the session with analysts.
“It is a positive surprise to everyone,” PaineWebber aerospace analyst Jack Modzelewski said of the $1-million loss. “It tells you that . . . they are recognizing good profit margins on the later production contracts.”
McDonnell officials have said in recent weeks that many key measures of productivity and efficiency on the program are improving. About 95% of the work on the most recent C-17 was done in its correct sequence on the production line, compared to 31% on the first C-17, a spokesman said Monday. When work is done out of sequence, it results in delays and added cost.
McDonnell’s stock jumped $3.25 to close at $61.50 a share in New York Stock Exchange trading Monday, after aerospace analyst Cai von Rumohr at Cowen & Co. raised his rating on McDonnell Douglas to speculative outperform from neutral.
A sudden 10% surge in McDonnell shares over the last week is also the result of investors rushing to close their short positions, Modzelewski said. About 4.5 million McDonnell shares are held in short position by investors betting that the value will decline, out of a total stock issue of 48 million. But excluding shares held by an employee stock plan and the McDonnell family, the short position is about 20% of the stock’s float, Modzelewski said.
Separately, Air Force and McDonnell spokesmen said that a pilot error two weeks ago caused a C-17 test plane to stall at low speed and to plunge several thousand feet before the pilot recovered.
The error occurred when the pilot allowed the plane’s airspeed to drop to 145 knots from 160 knots, while conducting high-angle-of-attack maneuvers.
He had turned off a stall warning system that would have alerted the pilot of an impending stall--a condition in which the air moving over the wings fails to provide adequate lift and the aircraft drops.
“That’s a heartbeat away from sending this program into the toilet,” Modzelewski said. A mishap “is all this program would need right now.” But a McDonnell spokesman played down the event.
