BOEING-McDONNELL DOUGLAS TALKS : Surprising Support for Merger of Boeing and McDonnell Douglas : Aircraft: Analysts cite stronger competitive power as reason.

Rising concerns over job losses, falling profit margins, shrinking defense spending and intensifying competition are generating surprising support for a marriage between Boeing and McDonnell Douglas, the nation’s only two commercial aircraft manufacturers.

The industry is buzzing over reports that the companies are in the early stages of talks concerning the exchange of assets and perhaps a full merger because even the idea of such a union was unthinkable a few years ago.

“A merger is in the interests of the country,” said Larry Chimerine, chief economist at the Economic Strategy Institute, a Washington think tank. “I wouldn’t be surprised if the administration were to waive antitrust laws in this case.”

With cutthroat competition shrinking profits, both McDonnell Douglas and Boeing have negotiated deals in Japan, China and other Asian nations that trade American technology and jobs for new plane orders.

A united U.S. aircraft industry would be in a better bargaining position with its Asian customers, analysts say, and create a formidable opponent for Airbus Industrie, a European consortium with strong government backing, that has become more aggressive in underbidding its U.S. competitors.

Even analysts who strongly doubt a merger would go through say they see a strong rationale for it.

“Conceptually, it makes sense to create a national leader in combat and commercial aircraft as a counterweight to Airbus in Europe and efforts in Asia,” said Wolfgang Demisch, aerospace analyst at BT Securities, a division of Bankers Trust.

It’s also unlikely the Pentagon would challenge a merger because it has repeatedly encouraged consolidation of defense firms in the face of reduced weapons spending.

Other support for a merger could come from unusual quarters.

A third of Boeing’s 105,000 workers are on strike, in large measure because of a concern that too many of their jobs are going overseas. Union leaders say they could support a merger if it means a stronger aircraft industry and fewer lost jobs.

“As a general rule, we would much prefer to see aerospace companies in this country teaming up, rather than going offshore,” said Matt Bates, a spokesman for the International Assn. of Machinists and Aerospace Workers in Seattle.

The impetus for the talks, however, may be the increasingly brutal competition for aircraft sales, which has forced all three plane makers to slash prices and offer other incentives to secure sales.

Boeing reportedly made an unprecedented agreement to buy back planes at a set price in 10 years in exchange for securing an order from Singapore Airlines valued at up to $12.7 billion earlier this week.

Recently, McDonnell Douglas beat out Airbus on an order for 50 of its new MD-95, a small jetliner, from Atlanta-based ValuJet Airlines by quoting a shockingly low price of just $20 million per plane.

The low price astonished even McDonnell Douglas’ South Korean subcontractor, Korean Air, which makes the nose cone for the MD-95. Yi Taek Shim, Korean Air executive vice president, called the price “crazy” and said his company would have to cut its costs “20% to 25%” to be able to supply nose cones at a profit.

The talks come as Boeing emerges from a deep slump that has reminded the giant of how insecure its huge market share really is. Last year Boeing’s sales fell to $22 billion, down 27% from just two years before, while its profit dropped by half during the period.

Although Boeing’s share of the world market is about 55% against Airbus’ 35%, the 25-year-old European consortium beat out Boeing in total orders last year.

This year Boeing is doing better. It has three times Airbus’ order volume so far this year, and its own orders are already more than double last year’s level. McDonnell is also on the rebound. A weaker dollar has helped both companies.

But the two U.S. aircraft makers are being forced to sacrifice profits, technology and jobs to make ends meet.

A single national aircraft company would not only help stabilize prices, it would be in a better bargaining position with Asian nations, who represent a growing share of the world market.

In China, for example, demand for air travel has expanded by 22% a year for the past 17 years. Over the next 15 years, China’s nearly two dozen airlines are expected to purchase more than $100 billion worth of airplanes.

But China wants to use its clout as a major buyer to make aerospace a pillar of its campaign to shift into advanced industries. The centerpiece of this effort is a joint Chinese-Korean project to build a 100- to 120-seat airplane. Both Boeing and McDonnell Douglas are in talks with the Chinese, and Daimler-Benz, one of the Airbus consortium members, has already agreed to participate in a feasibility study on that project.

McDonnell Douglas, desperate for orders, has been the most willing to give up technology and jobs in exchange for orders. It has allowed Korean Air to make nose cones for its MD-95.

Boeing has also allowed its Japanese partners a growing share of its subcontracting business in exchange for virtually locking up aircraft orders from Japan’s large airline companies.

Boeing has contracted with China to build components and some tail pieces, even though critics contend they are frequently of low quality and must be redone, because China buys 70% of its planes from Boeing. Boeing denies any serious quality problems. A merged U.S. industry would be less likely to make such concessions.

There are obvious problems with a merger. Some analysts argue that buyers might be more likely to share orders between Airbus and Boeing to avoid Boeing dominance. The result could be a net loss in the number of aircraft manufactured in the United States.

“If there was a merger between Boeing and McDonnell Douglas, there would be an even stronger case for Airbus to exist,” said Sandy Smith, communications director for Airbus Industrie.

And the billions of dollars McDonnell Douglas has spent developing the MD-11 wide-body jet, for example, would likely have to be written off because its orders are low and it competes with the newer, more sophisticated Boeing 777.

Pacific Crest Securities analyst Bill Whitlow, however, argues that this would not be a big loss. “The MD-11 looks dead,” says Whitlow. As for the mid-size MD-90, says Whitlow, the newly merged company could continue to build the plane alongside Boeing’s workhorse, the 737, with a gradual phase-out of the plane as new generations of the 737 were developed.

Boeing and McDonnell would likely cut costs by cutting out redundant operations. The companies are working together on the space station as well as a research project on supersonic jets. Both companies also have small helicopter manufacturing operations that could be consolidated.

Boeing could look for the relatively steady earnings of McDonnell’s defense business to help support a volatile commercial aircraft business. Boeing’s own defense business has been doing poorly, most recently losing out to McDonnell Douglas on an $18-billion order for military transports.