FOOL GLOBAL WIRE
By Debora Tidwell (MF Debit)

McDonnell Douglas/Boeing Collaborate

McDonnell Douglas (NYSE: MD)
P.O. Box 516
St. Louis, MO 63166-0516
(314) 232-0232
http://www.mdc.com

UNION CITY, Ca., December 5, 1996/FOOLWIRE/ --- McDonnell Douglas and Boeing announced an agreement Tuesday to collaborate on future Boeing wide-body commercial airplane programs. The first project in which McDonnell Douglas will participate is the development of new versions of the Boeing 747 jumbo jet. The collaboration comes as Boeing faces record orders for commercial aircraft and McDonnell Douglas looks for ways to keep its employees working following its latest lost bid to build a next-generation fighter plane for the Pentagon and its decision not to go forward with plans to build a long-range commercial aircraft that would compete with Boeing's 747.

From McDonnell Douglas' perspective, they think it is a very important agreement for them, strategic in nature, and where they use the terms "strategic collaboration" they in fact mean that. It is strategic for them from the standpoint that it enables Douglas Aircraft to maintain its design team, to work on new development programs at a point in time when Douglas folks are not specifically working on new developmental activities, and adds base to their overall business plan, enables them to continue to market strongly their existing product line, and provides some balance across the entire picture of Douglas Aircraft.

At the same time, it really is beneficial to the Boeing side of the equation in that it allows them to address some of their customers' needs in terms of new products and probably enhances the timeline in which Boeing can address those requirements.

So, they truly believe that it is a win-win arrangement for both parties and, while there will be many tactical short-term events that occur, the overall vision is one that is long-term, strategic for both parties, and open-ended. And they intend to take it specifically wherever good business deals take them within the context of the overall arrangement.

The company was asked about the future of the MD-11. They responded that the MD-11 will not be a competitor for collaborative programs so as they go forward working with Boeing on some of their new products, one of them will not be a product that directly competes with the MD-11.

They see this over the long haul as a significant value from a business standpoint for them. They will continue to look at a variety of business opportunities, but again, if they are in collaboration with Boeing on a product, they will not double-dip. They will not work with anyone else on a product which will compete with the one in which they are in collaboration with Boeing.

In terms of the long-term future of Douglas Aircraft, they believe they have a set of products which performs well in the marketplace. They have a lot of units out there, DC-9s and other aircraft. They think there is a place for them to have a strong niche and work in that arena. This agreement will give customers some confidence that they have an ongoing business base, that they have an ongoing relationship. It will help McDonnell Douglas people as they get involved with the dynamics of a high technology, top-three company named Boeing. They get integrated in Boeing's system. They are going to work on a Continua system instead of Unigraphics. So Douglas engineers will transition into Boeing's culture and system and provide products inherent to the overall product that they are going to deliver to the customer. The two companies have found that they are very closely aligned culturally. They look at their customers in much the same way, have a strong sense of customer satisfaction, a strong sense of product performance and product quality, and they have their eye on the business looking for ways to leverage the current environment and the current state of both companies. They think they have come up with a way to move forward.

Early on, in the first couple months, as many as a couple hundred people will go to Boeing to immediately start to help on the 747 derivatives. In the months that follow that, they are obviously going to be driven by the specifics of the collaboration as they get worked out.

They have chosen the words "strategic collaboration" for a reason. The reason is to create that picture and image that they are going to do this together and where it takes them, they are not sure, but they want this to be seen as a collaboration that has a long life associated with it. It will be, at least in the beginning, consummated with a contract, so it is not a joint venture or partnership, it will be a contractual arrangement. But again, the choice of the words was intended to help everyone understand how they are going to operate within that relationship and that operations between themselves and Boeing is really one that is collaborative and long-term.

McDonnell Douglas was asked what exactly they are getting out of this deal other than keeping some engineers working. They responded that their expectation is that over the long haul Boeing's view of Douglas and their primary benefit for them to think about working with Douglas is that they are the only other company in the United States that has the ability to design, fab, assemble, test, certify, and deliver their kinds of products. So, from that standpoint, as Boeing looks at Douglas, they provide this broad range of capabilities that, in their current environment, allows Boeing to take on the work their customers want them to take on, satisfy the customers and improve their business. If that is the kind of work that is in their strategic collaboration, from the Douglas perspective it does bring not only design and development work which is very important, as well as the possibility and opportunity for production work. When Douglas looks at this, it is a very positive move for the company.

The company was asked if the deal would impact workers in the St. Louis area, or just Douglas workers in Long Beach California. The company responded that the deal is going to certainly focus on Douglas in Long Beach, but St. Louis does some work for Douglas. So that kind of arrangement would always be a possibility and when they get further downstream and define some of this it could be that they have a similar arrangement as they have today with the St. Louis facility to handle some of the work.

They would hope that shareholders would immediately see the long term benefit of this kind of arrangement and share with them the optimism and confidence that this is a good business decision for both parties. Actually seeing financial results that are different than would have been expected without this deal is going to be a function of the details they piece together.

McDonnell Douglas indicated that there is a great demand for technical staff throughout the country. So, while they might not have had anything immediately specific to apply the technical staff to, they are not in any hurry to eliminate some of the people they currently have. So they were biding their time looking at the various options they had both internally and externally to do work and utilize the resources they have. It turns out that this happens to have been good timing for them. The MD-XX decision was made on its own merit and there was zero decision of doing the Boeing deal in lieu of it.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.

© Copyright 1995-2000, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool. The Motley Fool is a registered trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us