A Bleak Future Forced McDonnell Douglas to React
Despite being the nation’s second-largest defense contractor, one of only two U.S. builders of commercial jetliners and one of Southern California’s biggest industrial employers, McDonnell Douglas Corp. was staring at a stagnant future as it entered the 21st century.
The St. Louis-based company with deep California roots hadn’t won a contract to build jet fighters with its own design in more than 20 years. Just recently it lost the competition to build the Joint Strike Fighter jet after having been considered a favorite to win.
McDonnell’s Long Beach-based commercial jetliner business has withered and now has less than 10% of the market. And as the rest of the defense industry aggressively merged to survive the post-Cold War cuts in Pentagon spending, McDonnell Douglas stood still, not buying or selling any assets.
The end result was a company “that was to deteriorate” unless it merged with someone else, an analyst said.
Its absorption into Boeing Co., announced Sunday in a proposed stock swap valued at $13.3 billion, would mark the official end of a company that dates to 1920, when Donald Douglas opened a plant behind a Los Angeles barbershop to make a spruce and canvas biplane called The Cloudster.
Since a 1967 merger with McDonnell Aircraft, Douglas Aircraft Co. has continued as the Long Beach-based transport aircraft unit of the St Louis-based aerospace giant. In more than seven decades, the company has delivered 45,000 aircraft and been an exemplar of Southern California’s leadership in aerospace manufacturing.
The die for the merger was probably cast in November when the Pentagon announced that the team of McDonnell Douglas and Northrop Grumman had been dropped from the running for a $200-billion contract to build a new generation of jet fighter, the Joint Strike Fighter. Boeing and Lockheed Martin Corp. were left as finalists.
Meanwhile, the manufacturer had not won a new jet fighter design competition since the F-15 in the late 1960s. It previously built the F-4 Phantoms that did combat in Vietnam. It missed the stealth technology of the 1980s as the management style of the McDonnell family came under increasing criticism for stodginess.
Just before losing the fighter contract, McDonnell Douglas had announced in October that it no longer planned to develop new commercial aircraft in competition with Boeing and Europe’s Airbus Industrie. The company made the disclosure after confirming it had shelved plans to build a new plane called the MD-XX, the successor to the MD-11.
Although the company has a backlog of 200 commercial aircraft to fill, the announcement implied that Douglas Aircraft’s life expectancy was a finite matter, that with no new family of aircraft in the pipeline the future was dim.
Then, earlier this month, to protect 10,000 jobs at its struggling Long Beach plant, McDonnell Douglas announced it was becoming an advisor and supplier to Boeing on commercial aircraft.
Douglas made its first mark in 1924 when it produced the Douglas World Cruiser, the first airplane to circle the world in a 15-day circuit. It made its first major fleet sale in 1932, when TWA selected the DC-1, a two-engine all-metal craft capable of carrying 14 passengers at speeds of 180 mph.
With the rise of passenger service and airmail, Douglas’ next-generation DC-3 quickly became the airliner of choice. By the start of World War II, 80% of airplanes in commercial service were built by Douglas.
But the company was slow to develop commercial jetliners in the 1950s, relinquishing a lead to Boeing that it could never regain.
