Aerospace giant poses fresh threat to Airbus

Boeing and McDonnell in $45bn merger

Laying down a milestone in the history of aviation, the Boeing Company and McDonnell Douglas yesterday announced plans to merge into a $45bn single aerospace behemoth that would transform the entire industry worldwide and threaten to overwhelm all of its rivals, including Airbus in Europe.

The deal, which will undergo stringent scrutiny by monopoly regulators in the United States, would create a giant spanning the spheres of civilian jetliners, military aircraft and space exploration. It would operate under the Boeing name with its principal headquarters in Seattle.

The proposed share swap put a value of about $13.3bn on McDonnell Douglas. Projected sales for the combined companies in 1997 would add up meanwhile to about $47.7bn, of which roughly $28bn would come from Boeing and $20bn from McDonnell Douglas.

The two companies, which until now have been horns-locked competitors, currently have backlog orders worth about $100bn between them. Together they have a workforce of 200,000, most of them in the US.

Announcing the agreement, Philip Condit, president and chief executive of Boeing, termed it "an historic moment in aviation and aerospace". The new company, he went on, would be the "largest, strongest, broadest, most admired aerospace corporation in the world and by far the largest US exporter".

Officials said that because of the heavy workload of both companies, the merger would not imply any large loss of jobs. "The greatest strength of this combination is our people," Mr Condit told reporters.

The future of McDonnell Douglas, based in St Louis, Missouri, has been the subject of wide speculation for several weeks. Its commercial jetliner division, in particular, has recently suffered numerous setbacks and last month the company announced that it was shelving plans to develop the MD-XX, a new version of the wide-body MD-11.

While the company's military business has been much stronger, that also suffered a blow recently when the Pentagon limited the bidding for a new jet fighter - the Joint Strike Fighter - to Boeing and Lockheed Martin.

Only 10 days ago, McDonnell Douglas announced that it was entering into a limited agreement with Boeing to lend the company some of its workforce to help with new commercial jetliner projects. Few analysts predicted that that deal would be followed so swiftly by an agreement for an outright merger of the two companies, however.

Mr Condit said that he would serve as the chairman and chief executive of the new company, while Harry Stonecipher, chief executive at McDonnell Douglas, had agreed to become the new company's president and chief operating officer. McDonnell Douglas will remain largely at its bases in St Louis and Long Beach, California, operating as a new division of the expanded Boeing.

It is unclear how regulators in Washington will view so enormous a merger. In recent years, the US government has encouraged consolidation in the aerospace industry, giving the green light for instance to the mergers between Lockheed and Martin Marietta and Northrop and Grumman. The Pentagon has also actively encouraged consolidation in the belief that the mergers would lead to savings.

This deal, however, may give regulators pause. The procurement division of the Pentagon still wants to see at least a minimum of choice and competition in the aerospace field. It is equally certain that foreign governments, especially those in Europe with interests in Airbus, will make their concerns about such a merger known to the Clinton administration.

Airbus declined to discuss the merger yesterday. "It is something happening between two American companies, and at this stage we are not making any comment," said Airbus spokeswoman Barbara Kracht in Paris.

Anxiety has been building in Europe over the growing power of Boeing and the speed at which it is gathering in new commercial orders and expanding its activities. It is already the world's leading commercial aircraft supplier. Only this autumn, it paid $3bn for the aerospace and defence businesses of the Rockwell Corporation.

BOEING

Bill Boeing built his first plane in 1916 with Navy officer Conrad Westervelt. His Seattle factory was first called Pacific Aero Products but changed its name to Boeing Airplane Company the following year. It was to become the world's leading commercial aircraft company, which has dominated the market for the last 30 years with a share of more than 60 per cent.

During the First World War Boeing built training planes for the US navy. When military sales declined it began the first international airmail service between Seattle and Victoria, British Columbia, using a newly designed flying boat.

A series of innovative planes followed including the 307 Stratoliner, the first aircraft to feature a pressurised cabin. In the 1960s Boeing built the first stage of rockets used in the Apollo space programme. The end of that decade also saw Boeing's best-known jet go into production - the 747.

MCDONNELL DOUGLAS

Donald Douglas started the Davis-Douglas company in the back of a Los Angeles barber's shop in 1920. The idea was to build a bi-plane for David Davis, who planned to fly it in the first non-stop transcontinental flight the following year. But when the attempt failed, Mr Davis left and the firm was re-named the Douglas Company.

The launch of the twin-engined DC-3 provided the platform for early success. It dominated the airliner market until Boeing developed the 707 in the late 1950s. Douglas struggled to compete and heavy development costs caused losses in 1966. The result was a $68m merger with McDonnell Aircraft, a supplier of fighter jets, missiles and spacecraft. Following the merger, McDonnell Douglas built the DC-10 in 1970.

Recently its commercial division has struggled against competition. The company recorded a loss last year caused by the costs of developing the MD-11.

Factfile: how the two giants compare

Boeing McDonnell Douglas

Headquarters Seattle St Louis

Employees 115,000. 63,612

Sales ('95) $19.5bn $14.3bn

Net income ('95) $393m $416m loss

Market value $33.8bn $11.0bn.

Sales breakdown: Commercial Military aircraft 57%,

aircraft 71%, commercial 27%,

defence & missiles & space 13%

space 29% other 3%

Key products 737, 747,777 MD-11, MD-80

commercial jets, commercial jets,

CH-47 Chinook AH-64 Apache,

helicopter, E-3 MD 500 helicopters,

airborne warning and AV-8B Harrier 2,

control system, F-22 Delta rockets,

fighter, space station Harpoon/Standoff

programme Land Attack missiles