At last year's Paris air show, McDonnell Douglas (MDC) chief executive Harry Stonecipher was telling the world: "I don't care if we never launch a new aircraft", and that if his company was not already in the civil airliner business, it would be trying to get into it. Last week Stonecipher was explaining that, indeed, MDC would not be launching its long-awaited new MD-XX.
By next month, Airbus Industrie, which has grown while Douglas has shrunk, should be trying to convince the world's financiers that they should indeed be getting into the civil airliner business. There is even the prospect that the European consortium might be looking for a North American partner to join the venture. Could this perhaps be the answer to MDC's future in civil aircraft?
Stonecipher's reason for dropping MDC's plans to launch a new derivative of the MD-11, was not so much, that it would cost $2 billion to do so, but that he could see that it would cost $15 billion or so over the next ten years, for the company to restore its position as a "fully fledged" major player in the airliner business. By that, he presumably means a player with a full, modern product line-up from 100-seater to 400+-seater. He does not, at the moment, consider that MDC has a reasonable chance of recovering that sort of investment on its own.
Perhaps by co-incidence (but then again, perhaps not), a week before Stonecipher made his latest pronouncement, US merchant bank Lehman Brothers placed a value on the continuing business of Airbus Industrie, and suggested that a tie-up with MDC could well be a way forward for both. Airbus is, at the moment, a Groupement d'Interet Economique, effectively a partnership of four manufacturers who jointly make aircraft, which Airbus sells. Those partners are due to announce in December their plans for turning it into a so-called "single corporate entity" (SCE), effectively a normal commercial company with shareholders rather than partners. That company would, like its competitors, have assets and liabilities, and would raise money for its future projects, through normal markets rather than through its partners and their governments as at present.
Lehman's valuation of that business in today's terms ($15-18 billion) is (again, perhaps by co-incidence) startlingly close to Stonecipher's estimate of the cost of becoming the sort of whole-range manufacturer which Airbus has been heading towards for the past 25 years.
For its part, despite Stonecipher's early showmanship, MDC appears to have been searching for some years for an elegant strategy to reduce or perhaps end its involvement in civil aircraft. First there was promise of Taiwan taking a major chunk with the MD-12, then a brief flirtation with Italy's Alenia and most recently talks on a mega-merger with Boeing. The underlying fact is that MDC's present and future profits lie not with jet airliners but military aircraft. Lockheed and even British Aerospace have shown just how quickly the profits can flow once you drop the idea of going it alone as a manufacturer in the big league civil aircraft business.
The problem for MDC is in working out exactly what it has to offer a potential partner. It has a massive installed base (after all, it has sold over 2,300 single-aisle twinjets), low-cost, dollar-denominated production and, crucially, a long history as a trusted supplier to some major airlines which Airbus has yet to crack. Although MDC may today have little more than 10% of the trunk airliner market, that is exactly the 10% that Airbus needs to achieve its aim of drawing level with Boeing. While none of those advantages, may be enough to justify putting new cash into MDC as a stand alone producer, it may be worth every cent for Airbus.
Source: Flight International
