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Delta Airlines Orders 80 Jets from Douglas in Deal Worth $2 Billion

January 24, 1986|RALPH VARTABEDIAN and NANCY YOSHIHARA | Times Staff Writers

Delta Airlines placed a $2-billion order with McDonnell Douglas on Thursday for 80 commercial jetliners to be built at the firm's Long Beach plant, a sale ranking among the largest in the industry's history.

The deal represents another in a long series of critical commercial sales and military contracts that the Douglas Aircraft unit in Long Beach has received in recent years, fueling rapid growth that is expected to double the firm's size by 1990.

"We are selling all the aircraft we can build," Douglas President James Worsham said in a telephone interview Thursday. "And when you're selling all you can build and making a profit at it, you have to be happy."

Delta ordered the McDonnell Douglas MD-88 jetliner, a new derivative of the MD-80 family that includes advanced cockpit electronics and a redesigned passenger compartment. The MD-80 family, formerly known as the DC-9, includes five variations that offer different ranges, seating capacities and cockpit electronics.

Delta, the nation's fifth-largest air carrier on the basis of passenger miles flown, has a fleet of 248 aircraft in service, mostly Boeing jets.

Remarkable Comeback

On Thursday, however, Delta selected the MD-88 over the competing Boeing 737-300, the aerospace industry's hottest-selling product. Boeing sold 282 of its 737-300s last year, setting a world record for sales of a single airliner type in a single year.

Nonetheless, Douglas has staged a remarkable comeback in recent years and for the past two years has held 24% of the world market for commercial jetliners against 50% for Boeing, Worsham said.

Douglas has sold out all commercial production capacity on the MD-80 family for the next two years. It is producing 1.66 of the planes a week and will increase that to two a week by August and 2.5 a week in 1987.

Wolfgang Demisch, an aerospace analyst for First Boston Corp., an investment banking firm, said the real loser in the recent round of aircraft purchase decisions has been Airbus Industrie, a European consortium that produces competing aircraft.

Airbus is developing the A-320, a new 150-seat aircraft, but it will not hit the market until after most airlines have already committed to buying Douglas or Boeing jets, Demisch said.

"It will be difficult for Airbus to make a deep penetration, except in their captive airlines," Douglas President Worsham agreed. "We are already well down the road to leap-frogging the A-320 in technology."

Backlog of Orders

Worsham said the MD-88 will be capable of taking new-technology propfan engines when they become available in the next decade. The jet engines will have propellers facing backward on the MD-88, pushing the aircraft with substantial gains in fuel efficiency.

Delta will take delivery of the 80 jetliners between the first quarter of 1987 and 1992. The sale will keep the commercial production lines at Douglas operating for at least six years on the existing backlog.

The MD-88 aircraft sells for about $20 million. The Delta order for 80 aircraft is worth $1.6 billion for flight hardware and the balance for spare parts, training and a flight simulator, Worsham said.

He declined to say how much the MD-88 will cost to develop, but he said the cost is being funded as part of Douglas's regular product improvement budget. Wall Street analysts put the figure at $50 million to $100 million.

Douglas is adding 3,000 new workers this year. Although the Delta order will not increase that hiring, Worsham said the plan to hire 3,000 new workers was based on winning large aircraft orders.

Last year, Douglas hired 6,000 new workers. Worsham said the rapid work-force buildup has created "concerns" but that so far productivity has continued to increase.

Delta selected the MD-88 because it is larger than the Boeing 737-300, with 142 seats compared to 128, which will mean lower seat-mile costs for the airline, a Delta spokesman said. The MD-88 also has a longer range--2,300 miles to the Boeing plane's 1,900.

Rose Ann Tortora, an analyst with First Boston Corp., said the purchase is "basically a complementary acquisition to Delta's current fleet." As Delta has a hub-and-spoke route structure, no one plane adequately services its system of short- and long-haul routes, Tortora said.

Need 20 Firm Orders

Aerospace industry officials widely expect Delta to be a customer for a new stretched version of the DC-10 that Douglas is designing and is now strongly promoting. The new aircraft, dubbed the MD-11, will need 20 firm orders to be launched, Worsham said.

For Pratt & Whitney, which will supply the engines for the MD-88, the new order is worth $500 million over the next five years, a spokesman said. It is Pratt & Whitney's second major engine sale in 30 days. At the end of December, the company sold $400 million worth of engines to United Parcel Service.

Separately, Delta disclosed that its net income in the second quarter of its fiscal year ended Dec. 31 was $1.9 million, down 97% from $73.9 million last year. Operating revenue totaled $1.119 billion, down 1% from $1.12 billion. The company attributed the decline to fare discounting and no growth in traffic.

For the fiscal first half, net income declined 77% to $31.4 million. Total operating revenue was $2.2 billion, about equal to that of the same period last year. The airline had an after-tax gain of $7.9 million during the first half from the sale of aircraft, compared to a 1984 after-tax gain of $49.6 million.

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