Mcdonnell Douglas Rethinks Future

McDonnell Douglas Corp., the surprise loser in the three-way competition for the Pentagon fighter-jet program, now must regroup and reconsider its long-term future, analysts said Monday as the company’s stock tumbled.

McDonnell Douglas stock was off 7.5 percent in late trading, as Wall Street had its first opportunity to react to Saturday’s announcement that Boeing Co. and Lockheed Martin Corp. were the finalists for the Joint Strike Force program.

The final award for development and production of the next generation of fighter jets will be made in 1999.

“This is the one everyone was counting on for the next century,” Kent Newcomb of A.G. Edwards said. “It looks like the only big contract around in the fighter business.”

While McDonnell Douglas was down $4.25 at $52.50 a share on the New York Stock Exchange, Boeing was up $1.50 at $93.25 and Lockheed Martin was up $1.87-1/2 at $95.62-1/2.

McDonnell Douglas president Harry Stonecipher had earlier termed the fighter contract a “must-win” for the St. Louis-based company, once the nation’s largest defense contractor.

But in a letter to employees Monday, under the heading, “We Still Have a Bright Future,” Stonecipher backed off that statement.

“This decision does not mean we are out of the military aircraft business,” Stonecipher wrote. “Not by a long shot.

Still, Bill Fiala of Edward Jones said McDonnell Douglas now must rethink its plans.

“It’s a major blow, but more than that, it’s a wake-up call,” Fiala said. “This is what McDonnell Douglas McDonnell was counting on for their growth, 15, 20 years out. Now they have to look at alternatives.” Fiala and Newcomb agreed McDonnell Douglas may now become more active in seeking a merger.

“I think it certainly will put management’s feet to the fire in looking for acquisitions,” Newcomb said.

“Raytheon has publicly announced their interest in shuffling their deck,” Fiala said. “We know the two companies have been in talks in the past.”

Merger talks were also reportedly held earlier this year between McDonnell Douglas and Boeing, though neither company would confirm that.

Short of a merger, McDonnell Douglas could still end up with a stake in the fighter-jet program. Boeing in particular would benefit by McDonnell Douglas as a partner since Boeing has not produced a fighter since the 1930s, Fiala said.

“McDonnell Douglas has an extremely strong technical base and worker base,” Newcomb said.

McDonnell Douglas has plenty of work in the short term. Stonecipher said the company will add 1,000 jobs next year as it steps up production of its F-15 and F/A-18 fighter jets.