One of the most pressing concerns for airlines should the merger between Boeing and McDonnell Douglas go ahead centres on whether the current Douglas product lines will remain intact and, by implication, what will happen to the residual values of Douglas aircraft they own.
No-one knows for sure - not even the players themselves, it would appear. McDonnell Douglas' Stonecipher says the intention is to continue offering the current product lines, but a more cautious Boeing says it is premature to give out any cast-iron guarantees.
One agreed goal of the new merged company, which will see the McDonnell Douglas name disappear, is that it should achieve $1 billion in savings a year. Most of this will be found in streamlined administrative, marketing and development areas, but at least some might come from a consolidated product line. Boeing's Woodard says that the firms' managers will sit down and put together 'a coherent family strategy' for the products once the merger is approved, but he insists that this cannot be thought about until after the deal is ratified.
Still, Boeing officials must be taking a careful look at what Douglas is currently rolling out of the factory door. Douglas has outstanding firm orders for 199 aircraft: 29 MD-80s, 105 MD-90s, 50 MD-95s, and 15 MD-11s. The MD-80s and MD-90s are being produced at about one a week and the MD-11s at one a month, so the order backlog ranges between six months and two years depending on the aircraft type. Boeing, meanwhile, has a backlog of 1,418 firm orders, of which more than half are for B737s.
While these numbers highlight Douglas' weak position in terms of new sales, Boeing has taken a different look at global market share to illustrate the merged company's product support requirements. According to Boeing's calculations, it holds 62 per cent of the market in terms of world available seat miles, while Douglas holds 30 per cent and Airbus 9 per cent. 'We have to make a support commitment to those ASMs and make sure the product support continues as if nothing had happened. That is the biggest challenge,' says Woodard.
Among new aircraft types, the biggest conundrum is the 100-seater MD-95, which is currently under development. While this aircraft might slot into the bottom end of the new Boeing's family of products, it will be hard to sell such an obvious cuckoo in the nest. Further, the MD-95's only customer to date remains US low-cost airline ValuJet, which has undergone a dramatic change in fortunes and accompanying downsizing, since placing its order for 50 aircraft. ValuJet says it remains committed to the deal, but at the very least the number of aircraft on order must be in question.
At the other end of the Douglas product range is the MD-11, for which firm orders are down to 15, but options stand at a more healthy 59. This aircraft is enjoying something of a revival as a cargo aircraft, and Boeing might want to take advantage of that. Outstanding orders for the B747-400 freighter stand at just seven, making the MD-11 the potentially more lucrative product.
Stonecipher's view is that all the current Douglas product lines potentially have a future. 'We will continue to sell those product lines and it will really be the marketplace that will decide,' he says. The problem with that argument is the bare facts. Just a glance at the order books shows that the marketplace decided years ago.
Source: Airline Business
