McDonnell Reaches Outside Family for CEO : Sundstrand’s Stonecipher Is Choice to Head Defense Giant

McDonnell Douglas Corp., choosing a leader outside the McDonnell and Douglas families for the first time in its long history, on Monday named Harry C. Stonecipher as president and chief executive.

Stonecipher, 58, has been chairman and chief executive of Sundstrand Corp., an Illinois-based maker of aerospace and industrial components. Earlier, he spent 26 years at General Electric Co., where he headed its aircraft-engines group from from 1984 to 1987.

After the surprising announcement, Stonecipher said in a telephone interview that his priorities include enhancing McDonnell Douglas’ commercial jetliner group and its C-17 military transport program. Both are based in Long Beach, and employ a combined 20,000 people.

He succeeds John F. McDonnell as chief executive, but McDonnell remains chairman. McDonnell, 56, is the son of James S. McDonnell, who founded McDonnell Aircraft Co. in 1939 and then merged it with Douglas Aircraft Co. in 1967 to form St. Louis-based McDonnell Douglas. The McDonnell family still owns or controls about 13% of the company’s stock.

Stonecipher has been at Sundstrand since 1987, becoming chairman and chief executive in 1991. He is credited with engineering a rebound of the once-troubled company, which in late 1988 pleaded guilty to fraud for overbilling the Defense Department on aircraft parts.

With $14.5 billion in sales last year, McDonnell Douglas is the nation’s largest defense contractor, although it will fall to second place after Lockheed Corp. and Martin Marietta Corp. complete their proposed merger.

John McDonnell--who said he will focus on broad strategic issues while Stonecipher runs McDonnell Douglas--has led the company through several turbulent years as it wrestled with dwindling Pentagon contracts and a slumping jetliner market. But he has also helped engineer its remarkable financial comeback since 1992, thanks in part to massive layoffs and other cost-cutting measures.

Still, there are several nagging problems that Stonecipher must now address, including what to do with the company’s Douglas Aircraft jetliner division.

Though marginally profitable, the division is a distant third in its industry behind Boeing and Europe’s Airbus Industrie. It is struggling to sign new orders from the world’s airlines and the subject of recurring speculation that it will eventually be shut down.

Stonecipher, however, said flatly that Douglas Aircraft will not be shuttered.

“Quite the contrary to some of the things you read, we’re not in the mode of finding out how to close Douglas,” he said in the telephone interview, in which he was joined by John McDonnell. “We want to grow Douglas.”

Douglas “lost its grip somewhere along the way in terms of marketing” its planes, Stonecipher said. “I intend to add energy to the Douglas company, revitalizing that business and enhancing its position with the airlines of the world.”

For several years, Douglas has searched for a foreign partner to help pay for its expansion. Stonecipher, who for many years sold engines to Douglas while he was at General Electric, said Douglas no longer needs that cash but would still like to find a partner to gain a larger share of the foreign market.

Stonecipher has several other hurdles to cross.

One is the C-17, a plane dogged by technical flaws and delays. The Pentagon says it won’t buy more than 40 of the four-engine jets unless McDonnell Douglas proves the problems are over.

The company’s missile business has also emerged as a question mark after it lost a $1-billion contest to Hughes Aircraft Co. earlier this month to be sole builder of the Navy’s Tomahawk missiles. The loss will leave McDonnell Douglas with only one major missile program, the Navy’s Harpoon.

And Stonecipher must decide whether McDonnell Douglas itself starts being a player, and stops being an observer, in the industry’s rush to merge in this era of shrinking Pentagon budgets. With its stronger financial condition, McDonnell Douglas is considered a prime candidate to buy other defense firms.

Stonecipher said McDonnell Douglas is evaluating potential purchases, but added, “We’re not going to be driven (to do deals), like a lemming over the shore, just because (other) people are out making acquisitions.”

McDonnell Douglas had searched for a new president since Gerald A. Johnston announced his retirement in August, 1993. But John McDonnell’s willingness, at his relatively young age, to also immediately relinquish the chief executive’s post to Stonecipher surprised some observers.

“That’s the mystery to me,” said George D. Shapiro, an analyst at Salomon Bros.

PaineWebber analyst Jack Modzelewski said McDonnell, who has “been more of a conceptual guy from day one,” apparently decided that with his company financially stable again but still facing strategic problems, “an outsider is probably appropriate now” to run the firm.

In the interview, McDonnell said that after “getting the corporation back on sound footing,” he now wants to “spend more of my time thinking about the future,” including how to improve McDonnell Douglas’ foreign sales.

McDonnell joined his father’s McDonnell Aircraft as an engineer in 1962, rising through the ranks until being elected president in 1980 and chief operating officer in 1987. He was named chairman and chief executive in 1988.

A Changing of the Guard

McDonnell Douglas

* Founding: 1967 merger between Douglas Aircraft (founded 1920) and McDonnell Aircraft (founded 1939)

* Stock price: $113.75, up $2.875 on Monday.

* Total workers: 67,000

* Southern California workers: 20,000

Quarterly earnings (in millions of dollars)

Second quarter, 1994: $138

Quarterly revenue (in billions of dollars)

Second quarter, 1994: $3.25

John F. McDonnell

* Age: 56

* Residence: St. Louis

* Education: Master’s in aeronautical engineering from Princeton, 1962

* Career Highlights: Stepped down Monday as CEO of McDonnell Douglas Corp., but continues as chairman. Became chief executive in 1988. Guided the company through significant downsizing and layoffs, in which employment plunged from a peak of 132,000 workers in 1990 to 67,000 in 1994. Dealt with dramatic decline in commercial sales. Began his career at McDonnell Aircraft Co. in 1962 as a strength engineer.

Harry C. Stonecipher

* Age: 58

* Residence: Rockford, Ill.

* Education: BS degree in physics from Tennessee Technology Univ., 1960

* Career Highlights: Named CEO of McDonnell Douglas Corp. on Monday. Was chairman of Sundstrand Corp., a producer of aerospace and industrial components. Was generally credited with restoring Sundstrand’s credibility after the firm was barred from government contracts because of alleged accounting and pricing improprieties. Worked at General Electric for 26 years, eventually as head of aircraft engines.

Sources: Company reports, wire reports, “Who’s Who in America”

Researched by ADAM S. BAUMAN / Los Angeles Times