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Douglas Lands $550-Million Cargo Jet Deal

Aerospace: The order from Lufthansa is a much-needed, if only modest, boost for the struggling Long Beach firm.

September 06, 1996|JAMES F. PELTZ | TIMES STAFF WRITER

Douglas Aircraft Co. said Thursday that the German airline Lufthansa placed firm orders for five MD-11 cargo jets valued at $550 million, and took options for seven more cargo jets that could lift the sale's total value to $1.3 billion.

The order was a badly needed victory for Long Beach-based Douglas, which has struggled to drum up sales in recent years. Douglas also said Lufthansa's reputation as a premier air carrier could spur other airlines to place orders.

By itself, however, the MD-11 sale only modestly boosted Douglas' long-term outlook. Douglas made the announcement at the Farnborough air show in England, where its larger rivals, Boeing Co. and the European consortium Airbus Industrie, have overshadowed Douglas with much bigger orders.

Boeing, for instance, unveiled orders for 68 airliners valued at $6.3 billion on Monday, and Wednesday it announced the sale of seven additional 747 jumbo jets for $1.2 billion. Airbus, meanwhile, said Tuesday it won firm orders for 32 aircraft valued at $2.4 billion.

Their capture of the lion's share of orders is not unusual; Douglas has been a distant third in the industry for years now--with about 10% of the market--and has struggled to convince many observers that it will remain a viable player.

But the Farnborough orders illustrate that as a builder of passenger airliners, Douglas is falling even further behind its bigger competitors, said Paul H. Nisbet, president of the aerospace consulting firm JSA Research Inc. in Newport, R.I.

"They are not holding their own, that's fairly clear," he said.

Douglas, a unit of McDonnell Douglas Corp. that employs about 10,000 people in Long Beach, vigorously disputes that position.

"Douglas Aircraft worries about catching up," not falling behind, said spokesman Don Hanson.

Indeed, earlier this week Douglas announced orders for 16 other planes, valued in excess of $700 million.

Douglas also used Farnborough to say it's developing a larger, longer-range version of the MD-11, tentatively called the MD-XX. The jet is in response to the airlines' demand for more seating and mileage from a Douglas plane, and so it should better compete against such rivals as Boeing's new 777 and Airbus' A-340, analysts said.

Besides the MD-11 passenger jet, Douglas builds the cargo version of the plane that's being sold to Lufthansa.

Douglas also makes the mid-size MD-90 jetliner and its predecessor, the MD-80, and it's developing a new 100-seat plane, the MD-95.

Douglas' overall sales are up slightly from last year, thanks to the resurgence of the commercial aircraft market that is benefiting all three plane makers.

Even so, Douglas' sales remain sparse. In the first six months of 1996, it recorded firm new orders for only 17 aircraft, compared with eight a year earlier.

The MD-95 is another reason why analysts are wary of Douglas' survival. The company launched the program nearly a year ago with a 50-jet order from ValuJet Airlines. But since then, ValuJet has suspended operations after a fatal crash, and Douglas has yet to find another buyer for the plane.

Regardless, Douglas' Hanson said MD-95 development "is moving ahead as planned," and "there are very good prospects" for more sales.

Hanson said Lufthansa's cargo jet order also bodes well, because the airline "is noted in the industry as one of its opinion leaders."

"This is a huge win for McDonnell Douglas," Douglas President Michael M. Sears said in Farnborough. "There are a few airlines in the world whose decisions all others pay attention to, and Lufthansa is one of them."

And the MD-XX could be one of Sears' strengths, Nisbet said. "If they can get a sizable order" for the new plane, he said, "they may very well have the key to getting out of this hole they're in."

Bloomberg Business News contributed to this report.

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