McDonnell OKs Pentagon C-17 Proposal : Aerospace: Company plans a $450-million pretax charge against earnings.

McDonnell Douglas Corp. said Monday that it accepted the Pentagon’s proposal to buy only 40 of McDonnell’s C-17 military transport planes unless the company fixes the aircraft’s technical woes and cost overruns in the next two years.

McDonnell, which builds the C-17 in Long Beach with a work force of 9,500, risked having the project canceled quickly had it rejected the Pentagon’s offer, which was outlined last week by outgoing Defense Secretary Les Aspin.

The deal also calls for McDonnell to drop about $1.2 billion in claims against the government related to the C-17.

Although the Defense Department will in turn pay $237 million to McDonnell to settle those claims, McDonnell--confirming a preliminary estimate it made in October--said the settlement would require the company to take a pretax charge of about $450 million against its fourth-quarter earnings.

However, McDonnell said the settlement is not expected to have a “significant adverse” effect on the company’s cash position.

Aspin said that after two years, the Defense Department will evaluate McDonnell’s progress on the C-17 and decide whether it wants more than 40 aircraft.

About 20 of the cargo jets have either been delivered to the Air Force or are already in some stage of assembly.

Under the settlement, McDonnell also agreed to spend $456 million for new flight testing and management improvements on the C-17 project, while the government would spend $111 million to help improve the program.

McDonnell announced the expected fourth-quarter charge after stock markets closed Monday. Earlier, McDonnell’s stock slipped 25 cents a share, to $109.50, in New York Stock Exchange trading.