Both of McDonnell Douglas's main product lines are suffering, hit by a reduction in US defence spending and heavy competition in the market for commercial aircraft.
Earlier this month, it reported a 50 per cent decline in second- quarter profits to dollars 38m and analysts have expressed concerns about the firm's long-term prospects.
Orders for its passenger jets have been hard won because of weakness among US airlines and aggressive promotion and financing deals by its direct competitors, Boeing and Europe's Airbus consortium.
Last month saw the collapse of a multi-billion-dollar deal with Taiwan Aerospace that would have funded production of its MD-12 jumbo jet - creating what analysts termed 'the Asian Airbus'. The collapse threatens McDonnell Douglas's future as a passenger jet maker.
The new structure will consolidate its six military subsidiaries into two operating groups, one focused around its southern California base and the other overseeing plants in the eastern United States, located at its headquarters in St Louis, Missouri.
Its aeroplane manufacturing division, Douglas Aircraft, will be split, with its profitable military transport division - which makes the C-17, among others - likely to be folded into the new western military division, which will also produce the F-15 and F/A-18 fighters.
A joint venture partner will be found for McDonnell Douglas Helicopter, producer of the Apache AH-64, or the division will be sold outright, John McDonnell, chairman, said.
As part of the group's continuing cost-cutting, a plant making aircraft parts in Ohio will be closed next year, with the loss of 1,000 jobs.
Mr McDonnell, who yesterday met officials of the US Air Force and Navy to explain the reorganisation, said the company intended to stay in the commercial aircraft business, but said its survival would depend upon 'a more focused yet flexible management approach.'
Douglas Aircraft, long the arch- rival of Boeing, now makes only the wide-bodied MD-11, and the MD-80 and MD-90, updated versions of two older models.