Boeing to Discontinue 2 Douglas Jet Models

Three months after taking over operation of Douglas Aircraft Co. in Long Beach, Boeing officially announced Monday that it would shut down the MD-80 and MD-90 product lines in mid-1999, when production of planes already on order is complete.

At the same time, the Seattle aviation giant offered a rosy forecast for the larger MD-11 aircraft and said the company will spend up to three more months evaluating the future of the MD-95, a new 100-seat plane that is the smallest member of the Boeing family.

Boeing is Southern California’s largest private sector employer--with 10,500 employees in Long Beach alone--and its decision could have a dramatic effect on the local economy. Scores of other Southland companies that supply aircraft parts are directly dependent on Boeing’s decision. But the specific effect remains unclear because Boeing has not fully decided the fate of the plant’s workers and whether new programs will be moved to Douglas facilities.

Ron Woodard, president of Boeing Commercial Airplane Group, said there are no immediate plans for layoffs at the Long Beach plant, where 30% to 40% of the employees are involved in the MD-80 and MD-90 programs. But he failed to offer any reassurances about their fate after the last of the twin-engine jets rolls off the production line less than two years from now.

“They resolved the future of the airplanes but not the future of the thousands of workers in Long Beach,” said Joseph Campbell, an aerospace analyst with Lehman Bros. in New York.

The decision to ax the MD-80 and MD-90 lines leaves the MD-95 as the only descendant of Douglas Aircraft’s venerable DC-9, once the mainstay of many commercial airlines. But the MD-95 itself is vulnerable; Boeing officials are debating whether it has a place among the company’s expanded line of 737 jets.

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Although the announcement on the MD-80 and MD-90 lines was expected, the larger question of Douglas’ long-term future remained unanswered Monday. The ultimate outcome of the Douglas unit, which dates back to 1920, will depend in large part on Boeing’s ability to bring down the cost of the MD-95 and sell it to a variety of customers.

Jack Kyser, chief economist of the Los Angeles County Economic Development Corp., said Boeing can’t afford to shut down or scale back operations at the Long Beach facility, especially in light of its labor and capacity shortages at its Seattle-area plants in Renton and Everett. Production delays at those facilities forced the world’s premier plane maker to announce a stunning $1.6-billion charge against earnings a week and a half ago.

“Over the long run, it’s not going to be that big an impact because you’ve got a skilled work force in commercial jets, and right now Boeing has a shortage of skilled workers,” Kyser said. “They’ve got a supplier network for this plant, and it meets a lot of their needs.”

In Long Beach, Richard Pearson, the newly installed vice president and general manager of what is now called the Douglas Products Division, spent the day speaking with employees about the decision to stop selling the 17-year-old MD-80 and the 4-year-old MD-90. Pearson called a predawn meeting with 150 senior management executives, and fliers announcing the news were handed out to employees as they passed through Douglas’ gates at 6 a.m.

“There have been rumors flying on this subject for a long time, and generally people were not surprised by this decision,” Pearson said. “They clearly want to know what the next step is, and we’re not prepared to give them that. It’s not the best answer, but unfortunately we’re going to leave them with a little bit of anxiety until probably the end of January.”

Officials of the United Aerospace Workers Local 148 in Lakewood, which represents workers at the Douglas facility, were out of town at a meeting and could not be reached for comment.

The best news for Long Beach workers was Woodard’s projection that the company could sell more than 300 of its workhorse MD-11 planes over the next 20 years, mostly as freighters.

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Prospects for the MD-95--the first of which is in final assembly and is scheduled for a maiden test flight next year--could be equally bright if Boeing can find a way to make the plane more cheaply. So far, AirTran Airlines (formerly ValuJet) is the MD-95’s only customer, with an order for 50 planes. Woodard said other airlines are interested in the plane, and analysts agreed that customers would be more willing to place orders if Boeing commits to supporting it.

If the MD-11 and MD-95 programs thrive, the Douglas unit could operate much like it does today, with increased MD-95 production taking the place of the outgoing MD-80 and MD-90. But Boeing provided few clues about likely scenarios if that doesn’t work out.

To succeed, the Long Beach facility would require a substantial capital investment from Seattle to bring its equipment up to Boeing standards--but first Douglas would have to prove it is worth the money.

Mike Bair, vice president of product strategy and development for Boeing’s Commercial Airplane Group, laid out the range of long-term options for the Long Beach plant, from completing final assembly of major aircraft to producing component parts or performing repair work. Analysts said that whether the Douglas division becomes a fully integrated part of Boeing or operates as a captive subcontractor will have little effect on overall employment, but it will have a significant impact on individual employees.

“There will still be people in Long Beach making things that fly, but if you’re an engineer designing an airplane, one scenario is good news and the other is not good news,” said Robert Paulson, chief executive of Aerostar Capital, an investment firm in Wilson, Wyo.

Analysts agreed with Woodard’s assessment that the two planes would have been discontinued even if Douglas Aircraft’s onetime parent company, McDonnell Douglas, had not agreed to merge with rival Boeing.

“Long Beach is far better off with Boeing,” Campbell said. “The MD-95 has a much better chance as part of the Boeing family, and the same thing is true of the MD-11. If you turn the Boeing sales force loose, you would think the results would be better than they would have been under McDonnell Douglas.”

* LOCKHEED DEAL: Lockheed Martin turned over three units to General Electric in a $2.8-billion deal. D3