Big Picture Bright, But Details Are Murky

The proposed Boeing-McDonnell Douglas merger, further consolidating the U.S. aerospace industry, gets high marks from just about everybody, but it will be months or even years before the details shake out.

Completing the transaction - winning government and shareholder approval and ironing out other basics - is expected to take months, and the goal is to wrap it up by the middle of next year, said Boeing spokeswoman Barbara Murphy. The two companies will operate independently until then.

After it’s a done deal, a transition team will begin working out what the new company will be producing - and where, Murphy said.

“We’re a market-driven company,” she said, and customers will make a lot of those calls.

But the transition team will figure out how to best utilize the companies’ resources and eliminate overlap. Decisions on which plane models to produce won’t be as simple as majority rule, Murphy said, since both companies have commitments with airlines to produce various planes.

The $13.3 billion deal, announced Sunday in Washington, D.C., is a lifesaver for St. Louis-based McDonnell Douglas. Its share of the commercial-plane market has dwindled to about 5 percent of this year’s new orders, and it is still reeling from the Pentagon’s November announcement that it had been edged out by Boeing and newly merged Lockheed Martin to compete for the Joint Strike Fighter.

And combining forces will be a big help to Boeing, which has 60 percent of those new commercial-plane orders and had already farmed out some of the work to its prospective partner.

Boeing also hasn’t built a fighter plane since the 1930s, and while its fighter proposal is “very innovative … Douglas has this very practical know-how,” said Darryl Jenkins of the non-profit Aviation Foundation in Washington, D.C.

“Boeing gets a lot of strength from Douglas’ past strength in defense,” he said.

Boeing’s recent $2.3 billion acquisition of Rockwell International’s defense assets also boosted the company’s resources in that area, where it had been a significant player but not a leader. Boeing and Rockwell’s 1996 defense business combine for a total of about $8.9 billion, said spokesman David Suffia with Boeing’s defense and space group.

Adding McDonnell Douglas’ $10.1 billion would bring the figure to $19 billion - still trailing Lockheed Martin’s $22.1 billion, but definitely bringing Boeing into the top ranks. The numbers dwindle to single-digit billions after those two.

The proposed merger is “a good thing,” Jenkins said in a telephone interview.

“Boeing’s got a ton of orders out there to be filled. And overall for the Douglas people - they were looking at no jobs.”

Boeing has been advertising around the country for workers to help fill those orders. The merger would expand its workforce from 137,000 to 200,000 in 27 states, and only nominal workforce reductions are anticipated while the new Boeing tries for $1 billion in annual savings - a feat its booming workload may make possible.

“We are in a growth mode,” Murphy noted, unlike many merging companies whose goal is to slash costs and workforce. So while some workers may have to relocate, this deal likely will just reduce the number of new hires.

Boeing began this year with a production rate of 18.5 planes per month and by next year’s third quarter intends to be churning out 36 planes a month - “essentially doubling production,” Murphy said.

Boeing also is paring its turnaround time for delivery. While delivery slots and customer timing are factors, the company now has a delivery cycle of 10 months - 10-1/2 for a widebody plane.the end of 1998, the company hopes to reduce that to six months for a standard aircraft and eight months for a widebody, she said.

The merger also would streamline the U.S. commercial-plane industry and improve its prospects against the European consortium Airbus Industrie, which has won 35 percent of the new commercial-plane orders so far this year, Jenkins said.

Airbus is “heavily subsidized and … a very tough competitor” that has “been out there a very short time and has made some very heavy inroads. They essentially put Douglas out of the picture,” he said.

Airbus scored a coup just last month, when USAir announced plans to buy as many as 400 airliners from the France-based company.