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McDonnell Is Likely to Build Jet Outside State : Aviation: Long Beach is called too costly for the proposed MD-95. Dallas appears to have the inside edge.

October 20, 1994|JAMES F. PELTZ | TIMES STAFF WRITER

A McDonnell Douglas executive strongly hinted Wednesday that the company will not build its newest commercial airliner in Long Beach, saying California's labor and overall business conditions are too costly compared to other potential sites.

"The fact of the matter is Long Beach, Calif., is not a cost-competitive environment," said Herbert J. Lanese, McDonnell's chief financial officer. He added in a telephone conference call with reporters:

"We have customers that not only demand high quality but very low cost. Long Beach, both from a labor relations standpoint as well as from a business environment standpoint, needs to demonstrate it's as attractive as other places we can go, like Dallas and Salt Lake City."

Indeed, other sources familiar with McDonnell's search said the company is close to selecting an outside contractor in Dallas to assemble the proposed 100-seat plane, called the MD-95, and that an announcement could come within two weeks.

If so, it would mark the first time in the 74-year history of McDonnell's Long Beach-based Douglas Aircraft division that production of one of its commercial jetliners was based outside of California. (Douglas has built some jets in China under a special program.)

Placing the MD-95's production in Texas would also deliver another blow to California's shellshocked aerospace industry, which has been battered by layoffs and plant closures in both the commercial and military markets.

Union leaders at the Long Beach plant greeted the statement with anger, while California economic development officials said there appeared to be little the state could do to change the firm's mind.

Douglas, which builds its MD-80 and MD-90 twin jets and its larger MD-11 airliner in Long Beach, has been forced to slash its employment there to about 10,000 from 43,000 in mid-1990. But orders for those planes are expected to keep the Long Beach plant open for years to come.

The company has struggled for new orders both because of a slump in the commercial aircraft industry and from having a narrower range of planes compared to its larger rivals Boeing Co. and Europe's Airbus Industrie. The MD-95 would help solve that problem.

But Douglas has not yet decided whether to produce the twin-engine MD-95. The company began soliciting orders in July and is waiting to see whether airlines place enough of them to justify launching production.

Lanese told reporters that Douglas would need more than 50 firm orders before it would launch the MD-95, which is expected to sell for $20 million to $25 million.

He also said Douglas won't build the plane unless it can enlist suppliers and other partners to share the plane's $500-million development costs. And he said no decision has yet been reached on where to assemble the plane.

However, sources familiar with the negotiations said McDonnell is close to announcing that Dalfort Aviation, an aircraft maintenance firm at Dallas' Love Field, will build the MD-95, creating jobs for about 2,500 to 3,000 people.

Dalfort owner Bruce Leadbetter declined to comment, but Dallas newspapers in recent weeks have reported efforts by Dalfort to secure financial assistance from the City Council so the firm can expand its operations and accommodate the MD-95 contract.

Doug Griffith, president of United Aerospace Workers Local 148 in Lakewood, the union that represents about 9,000 of the Douglas Long Beach workers, said that "we haven't had a lot of hope" that the MD-95 would be built in Long Beach.

Griffith, whose union members earn $19 to $20 an hour on average, acknowledged that Douglas can get lower-cost labor elsewhere. But he blasted company officials for "abandoning Long Beach and California," saying that "they expect loyalty" from employees "but they give none in return."

California officials attempted to put the best face on what also amounts to a huge setback in longstanding efforts to stem the industrial exodus from the state.

Julie Meier Wright, secretary of the California Trade and Commerce Agency, said McDonnell "is not running out of California. They don't have the space in Long Beach that is equipped."

The state offered to form a so-called red team, which would have formulated a package of incentives to attract the McDonnell project, but the company never accepted the offer, Wright said. Without a detailed statement of need, the state was in no position to make any offers, she said.

Meanwhile, McDonnell said its third-quarter profit rose to $161 million, or $4.07 a share, from $142 million, or $3.62 a share, a year earlier. Revenue rose to $3.46 billion from $3.43 billion. But operating profit at its commercial aircraft group alone fell to $8 million from $14 million.

*

Times staff writer Ralph Vartabedian in Washington contributed to this report.

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