Pentagon to Buy 80 More C-17 Jets From McDonnell : Defense: The $18-billion order will protect nearly 18,000 aerospace jobs in Southland and add hundreds more. Workers cheer decision.

By RALPH VARTABEDIAN and JAMES F. PELTZ

Nov. 4, 1995 12 AM PT

TIMES STAFF WRITERS

In one of the biggest defense awards of the 1990s, the Pentagon said Friday that it will purchase 80 additional McDonnell Douglas C-17 cargo jets for about $18 billion, keeping production lines in Long Beach going for another decade.

The decision marks a watershed, not only for McDonnell’s long troubled C-17 program but also for maintaining the long-term viability of the aircraft industry in Southern California.

After nine years of sharp cutbacks, McDonnell and other major aerospace contractors have stabilized their employment in California and are beginning to see the first signs of small growth in commercial and military programs.

The order announced Friday will protect 8,700 jobs at the McDonnell plant, as well as about 9,000 other aerospace jobs in Southern California. In total, the program has 27,000 workers nationwide.

Depending on how fast the Defense Department wants the 80 additional aircraft produced, an issue still to be determined, McDonnell will add anywhere from several hundred to several thousand jobs on the program, company officials said.

Leading up to the announcement, the Pentagon was considering buying a mix of Boeing 747s and fewer C-17s. But Undersecretary of Defense Paul Kaminski said the decision to go with just C-17s was based on its unique military capabilities, including delivering cargo to foreign air bases with limited ramp space.

Thousands of C-17 workers, assembled in a large paint hangar in Long Beach to watch the announcement from the Pentagon via a satellite hookup, erupted in a deafening cheer as defense officials announced the decision.

“We have been under a lot of stress,” said Robert Grech, a C-17 mechanic at McDonnell. “It was every day not knowing whether you have a job. This lifts that black cloud.”

The C-17 purchase is only the most recent economic care package sent to the ailing California economy by the Clinton Administration, which has also helped bail out the Los Angeles County health system and offered a plan to help offset job losses at McClellan Air Force Base near Sacramento.

The order marks a remarkable turnaround in a program that had lost McDonnell more than $1 billion in the early 1990s, as the company’s costs exploded out of control and it fell behind schedule.

McDonnell was put on probation two years ago and told that unless it cut costs and met production schedules, the Pentagon would scrap the program after the first 40 aircraft. The new order will take the total Pentagon purchase to 120 aircraft.

But gleeful McDonnell officials said the decision will markedly improve their chances of selling the C-17 to a number of foreign nations, which were waiting to see what the Pentagon would do, according to C-17 program manager Don Kozlowski. McDonnell is in talks with Britain, France, Germany, Japan and Saudi Arabia.

Rep. Jane Harman (D-Rolling Hills), a member of the House National Security Committee, praised the award as “the right decision, the right airplane and a major win for California.” Harman, one of the C-17’s biggest supporters in Congress, attributed the award to McDonnell’s “incredible workers.”

Despite the celebration, McDonnell has a tough job ahead in meeting the aggressive pricing that it submitted to the Pentagon.

Kozlowski said McDonnell must produce the 80 aircraft for an average of $190 million each, a sharp reduction from the current price of about $290 million. “It isn’t a cakewalk, but we can do it,” he said.

One big opportunity in cutting the cost so drastically is that McDonnell will vastly expand the size of the potential market, Kozlowski said. In addition to foreign military orders, the firm hopes to win orders from commercial cargo operators.

The announcement also is good news for Long Beach, which has suffered through massive cutbacks at McDonnell, as well as the loss of the Navy base and the Navy shipyard in the city.

“It’s a great day for the city and the region,” said Long Beach City Manager Jim Hankla, noting that about 75% of the C-17 work force lives outside Long Beach.

The award “comes at a very good time, and continues the impression that McDonnell Douglas is here to stay,” Hankla said. “That makes us very happy.”

Anticipating the award, which was announced after the markets closed, investors drove McDonnell shares up $2.25 to close at $84.75 in New York Stock Exchange trading.

“It’s a spectacular recovery,” said aerospace analyst Wolfgang Demisch of BT Securities. “Four years ago, the stock market had given them up for dead.”

The announcement is also good news for Southern California suppliers to the C-17, notably Northrop Grumman, the largest subcontractor on the project. The Los Angeles-based company makes tail sections, engine coverings and other components for the plane at a subsidiary in Dallas.

The C-17--in which the government and McDonnell Douglas have invested $21 billion to date--is a four-engine jet that is meant to replace the Air Force’s aging fleet of about 220 C-141 transports.

The high-tailed, bulbous C-17 is designed not only to carry significant loads of military vehicles, cargo and troops, but also to land and take off from small, primitive landing areas that are not accessible to large-scale cargo planes.

After awarding the initial C-17 contract to McDonnell Douglas in 1982, the Pentagon at one time planned to buy 240 planes. But as with many other weapons programs, its budget was trimmed in the post-Cold War era, and plans were made for 120 aircraft.

Then problems with the plane’s development threatened the program further. By 1993, the plane was stung by technical setbacks, including the failure of its wing to pass a key strength test. The aircraft leaked fuel and development of the software for the plane’s complex computer systems fell behind schedule.

It was also dogged by a political scandal, amid allegations that Air Force officials planned a secret bailout of the firm. Ultimately, one general was fired and several others forced into retirement.

But with a new management team and a work force that set aside its history of poor morale, the company has essentially fixed all the technical and schedule problems. The last 10 aircraft have been delivered ahead of schedule.

Cutting costs was also crucial because Boeing made a pitch to sell the Pentagon at least 30 modified freight versions of its 747 jumbo jet, which could have saved the Pentagon as much as $8 billion. That led to prospects that the Defense Department would choose a combination of C-17s and 747s.

The C-17 award is another feather in the cap of McDonnell Chief Executive Harry C. Stonecipher, who vowed a year ago when he was hired to preserve the C-17 program.

But for employee Kathleen McDonough, the award had a more basic meaning: “Now I can pay my mortgage.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

The C-17: A Chronology

* 1982: Initial contract is awarded to McDonnell Douglas.

* 1988: Assembly of first C-17 begins in Long Beach.

* 1991: Aircraft makes first test flight.

* 1992: Wing breaks in structural test of plane.

* 1993: Pentagon limits initial order to 40 planes, puts program on probation.

* 1994: McDonnell improves program, delivers aircraft ahead of schedule.

* 1995: Pentagon orders 80 more planes, valued at $18 billion.

Source: McDonnell Douglas and the Defense Department

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