McDonnell Douglas Corporation

McDonnell Douglas Corporation (MDC) was one of the most dominant aerospace companies in the world. It began operations on April 28, 1967, when Douglas Aircraft Company merged with the McDonnell Company. The merger was essentially a takeover by McDonnell of the financially troubled Douglas, with James McDonnell as chairman. The merged company's products included military and commercial aircraft, spacecraft and boosters, missiles, data processing services, and electronics products. At the time of the merger, it had over 140,000 employees. The company existed until another aerospace giant, Boeing, acquired it in 1996.

MDC became the fourth largest U.S. planebuilder, after Boeing, North American, and Lockheed. It had two main components: Douglas Aircraft Company in California included the Aircraft and the Missiles and Space groups and the McDonnell Company based in St. Louis, Missouri.

After the merger, MDC's first major project was its DC-10 wide-body airliner. American, United Air Lines, and Northwest ordered the aircraft, which was competing with Lockheed's L-1011 TriStar. The first DC-10 rolled out on July 23, 1970, and the first flight took place on August 29. Although the plane outsold the TriStar, with a total of 446 built during the program's lifetime, it split the market with the Lockheed plane and lost money.

In the meantime, production of the DC-9 airliner, which had rolled out in the early 1960s, continued with more than 300 delivered by mid-1968, including the military C-9A Nightingale. The DC-9 was one of the first airliners to share production internationally on a large scale—Canada and Italy both produced major components that were assembled in California. It evolved into a stretch version—the MD-80, which entered airliner service in late 1980. Another early 1960's airliner, the DC-8, ended production in May 1972, with 556 planes completed.

In the military sector, the company built the new F-15 for the U.S. Air Force. The F-15 first flew on July 27, 1972, and entered production soon after.

In spite of the new business, total production dropped in the decade after the merger, and MDC employment fell from its high of 140,000 in 1967 to about 57,000 in 1976 before it began to grow again.

MDC's space group continued building its Delta expendable launch vehicles (ELVs) that had launched satellites since 1960. A Delta orbited the world's first synchronous domestic communications satellite, Canada's Anik-1, in 1972. A Delta 2914 placed the first U.S. domestic communications satellite, Westar-A, into orbit in April 1974. A Delta 3914 was used for the first commercial launch vehicle program whereby MDC paid the development costs but users of the launch vehicle repaid the investment. On November 26, 1990, the first Delta II successfully launched the U.S. Air Force Navstar global positioning system satellite. Since the first Delta launch in 1960, there have been more than 245 Delta launches and it continues to be used.

In 1975, MDC teamed with aerospace company Northrop on the Naval Air Combat Fighter carrier-based aircraft—which first developed into the F-17 and then into the F-18 and A-18. The two variants soon combined into the F/A-18 Hornet, a plane that became hugely expensive as well as heavy and complex. Hornets were widely used by the U.S. Navy and Marine Corps as well as by several foreign militaries.

Possibly MDC's most unique aircraft was the Harrier "jump jet," which could take off and land vertically but which flew like a conventional plane. MDC, British Aerospace, and Rolls-Royce developed the AV-8B Harrier II, which was based on the 1957 British-designed Hawker-Siddeley Kestrel. Production began in 1981 and more than 340 Harriers were produced. They were the first U.S. Marine Corps tactical aircraft to arrive for Operation Desert Storm.

By the mid-1980s, MDC alone enjoyed the product diversity that several companies had shared in the 1950s, with the F/A-18, F-15, AV-8B, and airliners. Other programs included the C-17 transport, T-45 Goshawk naval advanced trainer, awarded in November 1981, the A-12 naval strike aircraft with General Dynamics, the YF-23 with Northrop, the LHX with Bell, and the Harpoon, which was used on B-52H bombers.

The A-12 program, which began in January 1988, experienced serious delays and technical difficulties and was canceled on January 7, 1991, for default. Both MDC and General Dynamics lost thousands of jobs and faced huge potential liabilities from the default decision. Facing financial ruin, they petitioned to have the reason for cancelation changed to "convenience of the government," and eventually won a court reversal.

High costs and losses continued to plague commercial airliner production in the 1980s, and international collaboration became essential. MDC offered buyers of the MD-11 tri-jet a choice of American or British engines, and parts of the plane were built in Italy, Spain, Japan, Brazil, Britain, and Canada.

In 1984, MDC bought Hughes Helicopters from the estate of Howard Hughes for about $480 million. Its Apache attack helicopter had reached a production milestone of 6,000 helicopters in December 1981. Under MDC, AH-64 Apache development was slow. At least five contractors built components, and its complex electronic gear took a long time to install and test, as did its engines and flight instruments. The company lost $107 million in 1989 through cost overruns. In 1990, the company hired Thomas Gunn as president of the helicopter division to put things in order. He cut staff by almost 20 percent and introduced a new assembly method that improved productivity and morale. The program became profitable the same year. MDC also inherited the no-tail rotor (NOTAR) contract from Hughes. NOTAR was a new tail configuration that reduced the danger of tail rotors to ground crews and was useful in operations where a tail rotor might collide with obstructions. It received civil certification in September 1991.

The aerospace industry had managed a broad recovery during the 1980s, principally due to the Reagan defense buildup. But that expansion leveled off, and the industry again began to contract. Further, the commercial-aircraft sector suffered declining orders, and the space program became a victim of budget cutting. The end of the Cold War in 1989 resulted in permanent industry downsizing and companies struggled to survive. For MDC, airliner losses persisted and many military programs experienced delays and cost overruns. Employment, which peaked at more than 132,000 in 1990, began declining sharply.

By 1991, MDC was experiencing a cash flow crisis. Air travel fell off, and U.S. airline losses in 1990-1992 on the order of $10 billion rippled through the industry. Orders were canceled and deliveries delayed, and MDC was forced to slow MD-11 production, with substantial layoffs.

MDC, the largest defense contractor at the beginning of the 1990s, needed major restructuring. It sold its information systems subsidiary, but the company's commercial sector, which represented about one-third of its business, remained troubled.

Restructuring paid off, and by 1993, the company's finances turned around and the outlook seemed brighter. Revenues in 1993 came to $14.5 billion. Its C-17 transport began to reach squadrons and looked like it would show a profit. The T-45 trainer, developed in cooperation with British Aerospace, entered service. The company received new orders for Apache helicopters, and overseas orders for fighters kept assembly lines busy. The U.S. Air Force signed a $1 billion contract for Delta rocket launch vehicles, while various research and development awards totaled nearly $100 million. Douglas also continued its successful practice of recycling used commercial planes with smaller, emerging airlines worldwide. Its MD-90 twinjet also entered service in 1995. And with the launch of a new, economical 100-seat MD-95 in 1995 (which was redesignated the 717 after MDC's merger with Boeing), MDC seemed likely to remain in the industry.

But to many observers' surprise, on December 15, 1996, Boeing announced a bid for outright acquisition of MDC for $13 billion in stock. The main incentive for MDC was its troubled airliner operation, which seemed to be losing out to Boeing and Europe's Airbus. In addition, it had an uncertain military future after completion of its current programs. McDonnell Douglas agreed to the merger, and the aerospace industry was reduced to three major participants: Boeing, Lockheed, and Europe's Airbus.

—Judy Rumerman

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