McDonnell May Sell Stake to Italian Firm : Aerospace: If a deal is made, it could give struggling Douglas Aircraft the capital it needs to develop new airliners.

McDonnell Douglas Corp., which failed to sell part of its Douglas Aircraft commercial division to Taiwan Aerospace two years ago, is now in talks to sell a minority stake in the operation to an aerospace company owned by the Italian government.

If the deal goes through, it could provide struggling Douglas Aircraft with several hundred million dollars that it needs to develop a new generation of airliners.

Douglas is holding the talks with Finmeccanica, which is 90%-owned by the Italian state holding company, Istituto per la Ricostruzione Industriale, or IRI. The holding company confirmed Tuesday that it gave Finmeccanica permission to discuss the possible purchase of the stake in Douglas, which employs 11,000 people.

Italian news reports indicated that between 10% and 20% of Douglas could be sold, but a Finmeccanica official said the size of the stake and its price were yet to be negotiated.

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Spokesmen for McDonnell and Douglas Aircraft declined to comment on the talks. However, Douglas spokesman John Thom noted that a Finmeccanica division, Alenia, has been a Douglas subcontractor for three decades and currently builds fuselage panels for Douglas’ MD-11 wide body and MD-80 narrow-body airliners.

Italy’s national airline, Alitalia, which is controlled by IRI, is also a Douglas customer.

McDonnell has been scouring the globe for a financial partner since its attempt to sell 40% of Douglas to Taiwan Aerospace for $2 billion fell apart in 1992 because the parties couldn’t come to terms.

Douglas and industry analysts view such a cash infusion as crucial if Douglas is to reverse its steady loss of customers to industry leader Boeing Co. and Europe’s Airbus Industrie consortium.

Douglas’ struggle to generate new sales, and a worldwide recession in the commercial aircraft industry, have forced the firm to lay off nearly 75% of its work force, from a peak of about 42,000 people in 1990.

Those factors also forced Douglas to virtually stop development of its next-generation airliner, the MD-12, a 500-seat jumbo jet that the company had once hoped would be ready for service in 1997.

McDonnell Chairman John F. McDonnell said in a speech a year ago that the company was “pushing ahead with serious discussions with potential partners interested in sharing in the risks and rewards of the commercial aircraft business.”

“Given the escalating costs of developing new generations of aircraft, international partnerships in one form or another have become an industry prerequisite,” McDonnell said at the time.

Indeed, analyst Paul Nisbet of the aerospace consulting firm JSA Research Inc. in Newport, R.I., said Douglas is looking not only for cash but also for technology that would help limit the total cost of a new airplane. Those savings would make Douglas more competitive, he said.

“They want technical improvement as well as a financial improvement,” Nisbet said.

When the Taiwanese deal was being negotiated, McDonnell was in much worse financial shape than it is today. But due to the layoffs and other major cost-cutting steps, it is now solidly profitable and has been significantly cutting its debt. Douglas Aircraft had an operating profit of $40 million last year.

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Nonetheless, 40% ownership in Douglas today is probably worth between $1 billion and $1.5 billion--compared to the $2 billion the Taiwanese were considering paying--because of Douglas’ continued sales problems and the weakness in the airliner market, Nisbet said.

After the Italian talks were disclosed, McDonnell’s stock jumped $2 to a record $122.125 a share in New York Stock Exchange composite trading.

Times wire services contributed to this report.