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Sunday, April 27, 1997 - Page updated at 12:00 AM

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What's Ahead For Boeing? -- Company Is Strong, But Questions Abound About Mcdonnell Douglas Deal

Seattle Times Business Reporter

Flush with soaring profits and an $80 billion backlog of commercial jet orders, Boeing's management should be approaching tomorrow's annual shareholders meeting with confidence.

But far-reaching new questions about Boeing's future also can be expected to be aired at the annual gathering at the company's headquarters in Seattle.

Bouncing back from the early 1990s doldrums, Boeing posted a profit of $1.09 billion last year, nearly triple its $393 million a year earlier. Burgeoning orders prompted production increases that boosted deliveries.

The company's highest-profile triumph - its announcement in December of a $14 billion agreement to acquire its only remaining U.S. competitor, McDonnell Douglas - would have seemed to cement the company's strong position.

But that deal, expected to be approved by U.S. antitrust regulators this summer, has become controversial in Europe. And there are troubling signs it could signal the start of an era where trans-Atlantic politics color business decisions in the civilian-aviation industry.

Rival Airbus Industrie, a five-nation consortium supported by European governments, is opposing the Boeing-McDonnell Douglas merger through the European Union. Airbus is upset about, among other things, exclusive long-term supplier deals Boeing has recently signed with American Airlines and Delta Airlines and is considering with Continental Airlines.

Ian Massey, Airbus controller, said last week that Airbus believes the agreements are anticompetitive.

"We will fight like hell," he said. "We won't be bullied out of the business."

Airbus ultimately wants 50 percent of all airline orders. Its current share is about 35 percent.

Massey told Airline Financial News that Airbus might have strengthened its own competitive hand by acquiring McDonnell Douglas, rather than watch Boeing agree to buy it.

Airbus officials said in December they weren't concerned about the Boeing deal because Douglas, with a dwindling market share, is no longer competitive.

Condit confident

Boeing Chairman Phil Condit said he is confident the acquisition will be completed, perhaps by August. Condit said Boeing is forwarding information to European and U.S. regulators as questions arise. Special shareholder meetings will be called to approve the deal after the U.S. government signs off on it.

Questions about future operations and logistics involving McDonnell Douglas abound, but Boeing can't detail how the two companies will be meshed because of restrictions during the government review period.

One question is the fate of the Douglas Aircraft division in Long Beach, Calif. It produces jets that compete with the popular Boeing 737s, and production of a smaller new MD-95 model is just beginning. The outlook for the larger MD-11 trijet is uncertain as well, although it is popular as a cargo aircraft.

Boeing has hired some Douglas engineers on contract to help with commercial-jet design here and could use some of the company's California facilities to build parts, or even for jet assembly, after the companies merge.

Whether the companies' space and helicopter units will be combined also is unknown for now. Most of McDonnell Douglas' military operations at its St. Louis headquarters are expected to remain there because Boeing has few duplicate programs. But transition teams are studying the possibilities.

Condit, who took over as Boeing's chairman Feb. 1 when Frank Shrontz retired, wants to build Boeing into an all-encompassing aerospace company. His plan - called Vision 2016, in conjunction with the company's 100th year - will be discussed at the annual meeting tomorrow.

The plan calls for an increasing focus on commercial space activities, including developing a satellite launch program called Sea Launch and adapting other military businesses into the commercial field. A commercial tilt-rotor helicopter, evolved from the V-22 Osprey, already is being designed.

Condit wants Boeing to become a strong global player on many fronts to offset the cyclical commercial-airplane business, which Boeing wants to continue to dominate with at least a 60 percent market share. It will mean, Condit has said, more overseas partnerships and suppliers, and activities in areas far beyond the shores of Puget Sound.

Rockwell's former aerospace units, which Boeing purchased in December, already are helping build the new Boeing by contributing electronics, space and defense expertise.

Boeing also plans to provide more customer service. Boeing Enterprises, a spinoff from the Boeing Commercial Airplane Group, already is reassigning Boeing's customer-training operation into a joint venture with FlightSafety International and is considering developing an aircraft maintenance unit. That plan was criticized last week by Lufthansa. The German carrier, also a major maintenance operator, warned such action by Boeing would jeopardize future aircraft orders from Lufthansa.

"What other new ventures are in the wind is a question," said Peter Jacobs, an analyst with Ragen MacKenzie in Seattle.

Condit also is focusing on building shareholder value. Boeing stock climbed to an all-time high of $113.875 a share in January, and was trading in the low-$100 range this past week..

Condit also announced a profit-sharing trust last summer for Boeing employees to give them a vested interest in productivity. Shareholders will vote on it tomorrow.

They also will be asked to OK a plan to double the number of shares outstanding to 1.2 billion, from 610 million. Then Boeing would split the stock. A 2-for-1 split would lower the price so a broader range of investors could afford it.

Shareholder proposals

Two shareholder groups have submitted proposals calling for annual elections of directors, contending that annual voting ensures management vigilance and accountability. Boeing management opposes the plan, saying its current staggered three-year terms provide continuity and reduce the ability of a third party to trigger a sudden, unsolicited change in company direction.

Other shareholder proposals, opposed by management, call for adoption of basic human-rights criteria for Boeing's business operations in or with China, and for development of criteria for ethics and other aspects of military contracts.

Shareholders also will vote to re-elect directors Paul Gray, chairman of the corporation at Massachusetts Institute of Technology; George Weyerhaeuser, chairman of the forest-products giant; Harold Haynes, retired chairman of Chevron; and, Shrontz, Boeing chairman emeritus.

Boeing Retirees on the Line will conduct informational picketing outside headquarters calling for increased pension benefits. Boeing pensions have not been increased since 1990. Productivity pay for those who took early retirement in 1995 and a ban on rehiring of those retirees are other issues.

Boeing's first-quarter profit will be announced before the meeting. Analysts said it will be about $1 a share, more than double the year-earlier period's 40 cents a share. That's mainly a result of delivering 70 percent more jets - 68 this quarter vs. 40 in the 1996 period.

Boeing delivered 220 jets last year and expects to increase that to 340 this year. It booked 717 orders, counting the 103 still on hold at American Airlines while the carrier settles labor problems.

Information from Bloomberg News is included in this report.

Copyright (c) 1997 Seattle Times Company, All Rights Reserved.

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