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Boeing drops MD-11
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June 3, 1998: 3:21 p.m. ET
Aircraft maker to stop building 3-jet airliner, citing waning demand
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NEW YORK (CNNfn) - Boeing Co. Wednesday said it is will phase out production of the MD-11, a move that all but eliminates the original civil aircraft line acquired in the merger with McDonnell Douglas.
Citing reduced demand for the long-range jetliner, the Seattle-based aerospace giant said many of the 3,700 employees with the MD-11 program could lose their jobs.
"Despite our best marketing efforts, it became clear to us that there simply was not enough customer interest in either the passenger or freighter versions of this airplane to justify keeping the production line open," Boeing Commercial Airplane Group (BCAG) President Ron Woodard said.
Boeing inherited four commercial aircraft models from McDonnell Douglas when it merged with the defense contractor in 1997 - the MD-80, MD-90, MD-11, and MD-95.
Only the MD-95, which has been renamed the Boeing 717, remains in production.
The Boeing 717, a short-haul, high-frequency, 100-seat aircraft, is scheduled to begin certification later this year.
"At this point, it leaves the McDonnell Douglas commercial line that existed when the two companies merged approaching the end of its production life," said aerospace analyst Wolfgang Demisch of Bankers Trust New York Corp. "I think it also underlines that the people who approved this merger on grounds that McDonnell Douglas was not a major factor in civil aircraft were in fact correct."
Demisch said Boeing was hoping to keep McDonnell Douglas's civil aircraft line as a "cash cow" for the next 10 to 15 years.
"I think it's a disappointment to Boeing that the market is so soft that they are pushed to shut it down," he said.
The McDonnell Douglas military fleet and space businesses acquired by Boeing, however, are going strong, he said.
Move affects 3,700 workers
Boeing said Wednesday the discontinued MD-11s will not result in a special charge. But certain MD-11 program asset and liability valuation adjustments are expected to be included in second-quarter operating earnings.
About 3,750 Boeing employees work on the MD-11 program at the company's plants in Long Beach, Calif.; Toronto, Ontario; Salt Lake City and Melbourne, Ark.
Boeing said the decision to stop building the MD-11 after February, 2000 reflects waning demand for the jetliner. "I realize this is a painful decision for the many employees who have worked long and hard on the MD-11," Woodard said. "We will be producing the airplane for another 18 months and we'll use that time to explore opportunities for alternative work for these employees.
"But ultimately we will have to lay off employees for whom we do not have work."
MD-11 launched in 1986
The MD-11, a derivative of the former DC-10, was launched in 1986 and entered service in December 1990.
As of April 30, 1998, there were 22 commitments for MD-11s, including firm orders, options and reserves. The company said 178 MD-11s had already been delivered in passenger, freighter, convertible freighter and "combi" versions.
Last November, Boeing also announced the phase-out of the MD-80/MD-90 twinjet program, with final delivery scheduled for January 2000.
Asian crisis hurting Boeing 747 orders
Last week, Boeing warned shareholders the Asian economic crisis could further aggravate its already sluggish production process by reducing output of the 747 jumbo jet. The company also warned that delivery delays in its most popular aircraft model -- the 737 jetliner -- will likely carry over into the new year.
According to the company, Asian customers still are accepting their 1998 Boeing aircraft orders, but the region's instability may translate into yet another pressure factor on production rates, particularly for the 747.
Increased regulatory scrutiny from the Federal Aviation Administration, along with a shortage of key components, has slowed production of the company's 737 aircraft in recent months.
Some analysts said today's decision to end production of the MD-11 does not affect their rating.
"This is not unexpected," said Gruntal & Co. analyst Steve Lewins. "The plane had very few orders and it would've hurt their bottom line to continue selling it. It was wise in my opinion."
Boeing shares (BA) were unchanged at 45-7/8 in afternoon trading Wednesday.
In March, Boeing announced it would cut an additional 8,200 jobs as part of a previously announced plan to streamline operations in the wake of its acquisitions of McDonnell Douglas and Rockwell International Corp.'s defense operations.
The layoffs came on top of the previously announced 12,000 positions to be cut in the commercial airplane business by the second half of 1998.
-- from staff and wire reports
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