NEWS ANALYSIS : MD-11 May Be Doomed, Analysts Say, but McDonnell Says No Way

The huge fourth-quarter accounting charge that McDonnell Douglas Corp. took on its MD-11 airliner is a stark reminder that the jumbo jet’s sales are so poor it might force McDonnell to end the program soon, analysts said Friday.

McDonnell executives insist that MD-11 production will continue. But Paul Nisbet, an analyst at the aerospace consulting firm JSA Research Inc. in Newport, R.I., said, “They’ve got some big decisions to make if they don’t get some orders soon.”

Jack Modzelewski, an analyst at PaineWebber Inc. in New York, said he would not argue with suggestions that unless McDonnell gets a sizable MD-11 order within three or four months, McDonnell will have no choice but to give up on the jet.

The MD-11--which went into service five years ago--is the three-engine, 300-seat successor to the DC-10, and it’s one of three jetliner models that 9,500 people build at McDonnell’s Douglas Aircraft division in Long Beach.

The plane, priced at roughly $110 million, is flown by such carriers as American Airlines and Delta Air Lines.

Ending the MD-11 line would probably result in major layoffs at Douglas, although some of the affected workers might be transferred to Douglas’ MD-80 and MD-90 twin-jet programs, or to its newly launched MD-95 small jetliner once that plane goes into production. Douglas does not break out how many people currently work on each of its aircraft.

McDonnell initially expected to sell at least 301 MD-11s, but only 147 have been delivered so far, and a meager 21 remain on order. (There are another 60 planes that airlines have taken options to buy, but those aren’t firm orders.)

On its accounting ledgers, the company had been spreading the MD-11’s development costs and other expenses over the 301 aircraft--meaning, in effect, that it was deferring much of those costs. But with the 301 figure looking increasingly implausible, McDonnell changed the accounting to spread the costs over the planes it actually delivers.

The result: A pretax charge of $1.8 billion for the quarter ended Dec. 31, which gave McDonnell a net loss of $936 million for the period on revenue of $3.73 billion. Excluding the charge, McDonnell, which is also a big defense contractor, said the profit for its latest quarter would have been $187 million, up from $165 million a year earlier.

JSA’s Nisbet said the change was a prudent action and “something they would have had to clean up whether they had any intention or not” of shedding the MD-11 program. But he also said the charge boldly highlights the plane’s bleak prospects.

Lawrence McCracken, a spokesman at McDonnell’s St. Louis headquarters, said the company “most definitely does not” plan to stop building the MD-11. “We have no intention to close it, that’s for sure,” he said.

And this is not the first time that McDonnell has tried to stamp out forecasts of the airplane’s demise.

Last February, such speculation prompted McDonnell’s chief executive, Harry C. Stonecipher, to run full-page newspaper ads declaring no shutdown of the MD-11 was planned and that it was “business as usual” for the program.

But despite other McDonnell successes since then--such as getting a 50-plane launch order for its new MD-95 small jetliner--the MD-11 has been conspicuously shut out of recent multibillion-dollar orders for wide-body aircraft that have been placed by several airlines.

Those orders have been divided between industry leader Boeing Co. and Europe’s Airbus Industrie, with Boeing’s new 777 wide-body garnering much of the business.