Kevin O'Toole/LONDON
McDONNELL DOUGLAS (MDC) has put aside a $1.8 billion charge to cover its losses on MD-11 sales, leaving a question mark over the future of the faltering programme.
The move follows dwindling orders for the tri-jet, for which there was a backlog of only 21 aircraft at the end of 1995. At current delivery rates, that is little more than a year's worth of production.
The charge now being made against the programme is in effect an admission that the MD-11 will not produce the cost benefits which come from a long production run.
The unit cost of early MD-11s had been calculated on the assumption that costs would fall steadily over the programme's lifetime. MDC had therefore deferred the losses made on early aircraft, calculating that they would average out with profits on later models.
MDC says that future MD-11s, which each have a current catalogue price of $105 million, will be charged with their actual unit cost.
Superficially, the charge represents no more than a change in accounting procedures, but it clears the MDC balance sheet of a future liability, leaving the group with the option of winding down production, or even disposing of the line.
The move would also be a necessary precursor to the type of merger being discussed with Boeing, although reports from the USA suggest that those talks have broken off, foundering over issues of valuation and the position of MDC chief executive Harry Stonecipher within the group.
The charge against the MD-11 left MDC showing a net loss of $416 million for 1995. Underlying results continued to improve, however. Without the charge, profits stood at $707 million on sales which rose above $14 billion.
The military-aircraft sector continued its record profitability, turning in operating profits of $905 million on sales of just over $8 billion.
Source: Flight International
