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McDonnell faces the future
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November 18, 1996: 9:09 p.m. ET
McDonnell Douglas' contract elimination could loom large in future
From Correspondent Casey Wian
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LOS ANGELES (CNNfn) -- McDonnell Douglas Corp.'s stock tumbled 4-1/4 to close at 52-1/2 on Monday after Saturday's news that the Pentagon dropped the company from contention to build the military's next generation of fighter jets.
The aerospace company's long history did not end up helping it. McDonnell Douglas has more experience than any other manufacturer of military aircraft.
It was a loss that CEO Harry Stonecipher, appearing on CNNfn's "Street Sweep," said will loom large in the company's future. (182K WAV) or (182K AIFF)
The $200 billion, 3,000 plane Joint Strike Fighter contract is an effort to build a versatile fighter that can serve the needs of all four branches of the United States armed forces.
The best that McDonnell Douglas can hope for is to become a subcontractor to the competitors who made the cut on Saturday, Boeing Co. and Lockheed Martin.
"It's a very material disappointment. It leaves them potentially without any stealth aircraft production knowledge 10 years down the road," said Aerospace Analyst Wolfgang Demisch of Bankers Trust, adding, "That's a real disadvantage in the marketplace."
McDonnell Douglas already builds the F-15 and F-18 fighter jets in addition to the C-17 cargo plane. Because it has a $45 billion backlog of production, the Pentagon decision won't mean layoffs.
McDonnell Douglas would have split much of the work with Northrop Grumman and British Aerospace so executives estimated the JSF contract would have generated only about $100 million in annual revenue.
"It's clearly not an issue of survival," said John Kutler, president of Quarterdeck Investment Partners.
"While the contract is being awarded now, there won't be a serious inflow of contract dollars for a dozen years, so we're talking about (what) happens to these companies in the 21st century," Kutler observed.
For the rest of the 20th century, McDonnell Douglas is expected to pursue an acquisition or merger, although CEO Stonecipher remained mum on these plans.
It would seem likely since McDonnell Douglas is the only major defense contractor that has yet to join forces with another company as the industry continues to consolidate in an era of declining military spending.
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