Mcdonnell Douglas Banking On MD-11 Investment
St. Louis Post Dispatch
McDonnell Douglas Corp.'s hope for a financial turnaround is largely riding on one aircraft: its new MD-11 jumbo jet.
The wide-body MD-11, now in flight testing, could provide a welcome lift for McDonnell's troubled Douglas Aircraft Co. unit in Long Beach, Calif. But the $700 million-plus gamble also has stretched McDonnell's finances and contributed to a rapid increase in its debt, which jumped 36 percent last year.
The heavy load means that the company can ill afford delays in getting certification from the Federal Aviation Administration and in making deliveries to customers, analysts say. McDonnell wants to achieve both by year's end.
As Chairman John McDonnell cautioned in the company's annual report: ``Until the first tri-jets are delivered, MDC will be investing heavily in inventor buildup and will be constraining other investments to reduce the need for adding to an already heavy debt burden.''
That debt burden stood at
$2.5 billion on March 31, excluding $2.4 billion in separate borrowings at McDonnell's financial-services subsidiary. The $2.5 billion total represented a 14 percent jump from a year earlier and 86 percent of the company's stockholder equity.
Spending for development of the MD-11, the development of advanced combat-aircraft programs and the financing of Douglas' losses all contributed to the increased need for borrowed money, the company said.
McDonnell developed the MD-11 as a replacement for its veteran DC-10. The three-engine MD-11, which sells for about $100 million, is about 19 feet longer than the DC-10, with improved aerodynamics and technology.
Company officials say the first three MD-11 aircraft are progressing well through flight tests. The initial MD-11 flew for the first time Jan. 10 - 10 months later than originally scheduled. The second flew March 1 and the third entered flight testing on April 26. ``The aircraft has been remarkably trouble-free, and we are making our planned flying rate,'' said Douglas spokesman Tom Kaminski.
Company officials say they now hope to gain FAA certification later this year and deliver five MD-11s by Dec. 31.
McDonnell undertook the vast risk of building the MD-11 to position itself better against The Boeing Co., which dominates the commercial-aircraft market, and Airbus Industries, the European airplane-building consortium. The MD-11 will compete most directly with the Airbus A340 and Boeing's proposed 777 and, to a lesser extent, with the Boeing 767 and 747 and Airbus A300 and A330.
Without the jumbo jet, McDonnell's only commercial jets would be its smaller MD-80/90 narrow-body lines.
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