The outlook at Douglas Aircraft in Long Beach, which has suffered through a long darkness of financial loss and management turmoil, appears to have brightened somewhat in recent weeks.
The McDonnell Douglas subsidiary is expected to achieve its critical goal of obtaining government certification of the new MD-11 jetliner by Oct. 31, deliver a record number of MD-80s in the current quarter and keep the Air Force C-17 cargo jet on its revised schedule for a first flight in March.
"Douglas is doing fine," Douglas President Robert Hood said Friday. "All in all, we are on track to do the things we said we were going to do. We are trying to get our systems fixed. We are trying to get some experienced people in manufacturing positions so we can fill our $55-billion backlog."
The aerospace company still faces massive long-term challenges. Many of its manufacturing systems are antiquated, although its aircraft are modern. Its costs are high, despite painful cuts. Morale is improving, but more layoffs are possible. Nonetheless, engineers, production workers and managers said in interviews that they sense that the company may be turning a corner, at least in the short term.
"The company was a horror story before, and now we are rolling," a production supervisor said. "We are solving our problems, and it boosts our morale."
Investors, responding to a series of developments at Douglas and at other units within McDonnell, have sharply bid up the price of the company's stock. McDonnell shares closed trading Friday at $51.875, up from $41.375 on Aug. 30 and from a summer low of $34.50 on June 22.
Lawrence M. Harris, securities analyst at Bateman Eichler, Hill Richards, observed that McDonnell shares have outperformed Boeing in the past month, even though Boeing is generally considered by many analysts to have a stronger business outlook. In the past week, Douglas shares have zipped past Boeing, which closed Friday at $46.125.
At least part of the reason for McDonnell strength comes from accounting magic, in which the firm purchased annuities to cover future pension liabilities, a move that boosted the book value of the stock from $86 a share to $92 a share, Harris noted. Also, short-sellers, who have bet against the stock, are apparently fleeing their positions.
But the investor interest also reflects an improved view of the company's business outlook. The Iraqi invasion of Kuwait gave an immediate shot in the arm to the firm's C-17 transport, because it demonstrated the critical shortfall in U.S. military transport, a senior Pentagon official said this week.
In addition, a decision to supply Saudi Arabia with McDonnell F-15 jet fighters out of the U.S. inventory could extend production of the aircraft, which was scheduled to end in 1993.
Most important, Douglas appears headed for success in its MD-11 certification effort. The company is counting on obtaining Federal Aviation Administration certification by the end of next month, enabling it to deliver and book revenue for up to five of the $100-million jetliners this year.
A key MD-11 official said in an interview Friday: "The flight testing is going really well, even though things are hectic. It is getting down to the time when you pray things go well, because time is limited now to fix things."
Rumors within the aircraft industry have suggested all summer that the MD-11 avionics system is deeply flawed, but Douglas officials insist that the avionics--the cockpit electronics--are performing well. The firm recently completed all testing on the first of four MD-11s, an important milestone.
Even if the MD-11 is certified by Oct. 31, it will not be certified for Category III instrument landings, the most rigorous type. That part of the avionics system will be certified later, but officials say that will not affect deliveries or operation of the aircraft.
In addition, the MD-11 has had serious problems in its inability to achieve promised fuel efficiency. The company has acknowledged that the test aircraft burn 4% to 6% more fuel than expected.
"I think we will meet our contractual commitments," Hood said about the problem. The company is trying to improve the fuel efficiency by changes to the engine, reducing drag and reducing weight.
A representative for a major airline buying MD-11 said he remains "greatly concerned" about the fuel efficiency problem, but he senses an overall improvement at Douglas. "For a while, we did not feel anybody was in control," he said.
The final month of MD-11 flight testing will include the function and reliability tests, which are particularly important to the FAA. Activity is so fast paced that a last-minute problem could derail the schedule.
Hood said the MD-80 program will be profitable for the foreseeable future. Douglas expects to deliver 80 aircraft in the second half of the year, up from 59 in the first half.