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acjbbj
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Why didn't McDonnell-Douglas get bailed out?

Thu May 23, 2019 2:45 pm

I see everyone saying how MDC was in bad shape and they had to get bought or go bankrupt. However, I'm actually surprised (and kinda appalled) that no one has ever thought of MDC getting bailed out. The auto industry has "Big Threes", why can't we have a Big Three in airplanes? Yes I know the Chinese and Russians are building new planes, but still - what if we had 3 large manufacturers even after 1997?

Would the 737 Max and 787 fiascos have happened if there were three big manufacturers instead of two? Would we have a better aviation industry?
Douglas Aircraft Company
Born: 22 July 1921 (Santa Monica, CA)
Died: 23 May 2006 (Long Beach, CA), age 84 years 10 months 1 day
You will be missed.
 
drdisque
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Re: Why didn't McDonnell-Douglas get bailed out?

Thu May 23, 2019 2:50 pm

The issue with a bailout is generally the party doing the bailing out wants to be out of their "investment" in 2-3 years.

MD didn't have any designs in serious pre-production other than the MD-95 in 1997. Sure they had concepts for an MD-12 widebody but they couldn't decide what it would be (and ultimately it would have just likely ended up being a late A330 competitor).

Based on the slim MD-95 order book there was no way that the company would have been turned around in a few years.
 
Armadillo1
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Re: Why didn't McDonnell-Douglas get bailed out?

Thu May 23, 2019 3:00 pm

what decision they should have done in late 80x to survive?
 
anshabhi
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Re: Why didn't McDonnell-Douglas get bailed out?

Thu May 23, 2019 3:02 pm

They should have got out of commercial a/c completely like BBD and focused entirely on military a/c

Boeing's 40%+ revenue comes today from ex-c McDonnel a/v
 
VSMUT
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Re: Why didn't McDonnell-Douglas get bailed out?

Thu May 23, 2019 3:22 pm

They did get bailed out. They were allowed to buy Boeing with Boeings money.
 
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Polot
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Re: Why didn't McDonnell-Douglas get bailed out?

Thu May 23, 2019 3:29 pm

Why would they be bailed out when a company was interested in merging with them?

The automakers were bailed out to avoid imminent collapse- MDD was never that close to death. The auto industry also has a far greater effect on the US economy than MDD ever did.
 
MIflyer12
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Re: Why didn't McDonnell-Douglas get bailed out?

Thu May 23, 2019 3:34 pm

Chrysler in 1979, and GM and Chrysler in 2009, were bailed out to minimize job losses at the manufacturers and across the supply chain. What job losses occurred at McD plants after acquisition by Being?

I expect U.S. politicians have a very different view of how public monies should be used vs. German, French or Quebecois politicians. France has its strategic yogurt industry, after all. :) https://qz.com/80043/yahoo-dailymotion- ... overnment/
 
zakuivcustom
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Re: Why didn't McDonnell-Douglas get bailed out?

Thu May 23, 2019 3:36 pm

Umm...getting bought as part of merger is definitely a "bailout" option. And it's a better option than having some gov't throwing money at a company "just because" anyway.
 
stephanwintner
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Re: Why didn't McDonnell-Douglas get bailed out?

Thu May 23, 2019 3:46 pm

As noted above, MDD had the F15, F18, and C17 in production, as well as various other government programs, and could expect to compete for more in the coming years - even if one expected pentagon budgets to shrink, there were a lot of T38s that would eventually need replacement, the F14 would eventually retire, and the X-32/ X-35 competition was ongoing. (As well as who knows what else, I don't pay attention to military stuff much.)

Yes, the commercial sector was failing, but was the overall company in poor financial shape ?
 
acjbbj
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Re: Why didn't McDonnell-Douglas get bailed out?

Thu May 23, 2019 4:29 pm

Well, at least to repair the commercial sector.
Douglas Aircraft Company
Born: 22 July 1921 (Santa Monica, CA)
Died: 23 May 2006 (Long Beach, CA), age 84 years 10 months 1 day
You will be missed.
 
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nighthawk
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Re: Why didn't McDonnell-Douglas get bailed out?

Thu May 23, 2019 4:35 pm

Government bailouts are an absolute last resort when there are no other parties interested. They are designed to stop companies from collapsing and putting large numbers of workers out of work, which would devastate the local economy.

In McDonnell-Douglas's case, Boeing was willing to buy them out, so why not let them?

The reason the car manufacturers were bailed out, is there just wasnt anyone around to willing to buy them out. There was no other option. There was no successful car manufacturer around willing to buy out the struggling ones - they were all in the same boat.
 
mjoelnir
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Re: Why didn't McDonnell-Douglas get bailed out?

Thu May 23, 2019 5:07 pm

If somebody talks about MDC not getting bailed out, than Boeing did not get bailed out either. Or we can say they both got bailed out. They merged. So the today Boeing is the successor of both MDC and Boeing.
 
CowAnon
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Re: Why didn't McDonnell-Douglas get bailed out?

Thu May 23, 2019 5:47 pm

Does this sound like a company that needed to be bailed out?

    McDonnell Dividend To Jump 71% (New York Times, 10/29/1994)

    Flush with cash, McDonnell Douglas has decided to spend a bit on stockholders. It announced yesterday that it would repurchase 18 million shares, split the stock 3 for 1 and increase its dividend 71 percent, news that drove the stock up more than $15 a share to a record close.

When the merger was announced, the U.S. government could've forced a sale of the commercial aircraft division, since Boeing didn't want it anyway. I don't know if there were any companies that would've been interested in producing the MD-80, MD-90, or MD-11, though. (The Chinese government probably would've wanted it, considering they're still making what is essentially an MD-80 derivative.)
 
desertjets
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Re: Why didn't McDonnell-Douglas get bailed out?

Thu May 23, 2019 6:04 pm

The fact that the US Federal Government allowed all of the major aerospace firms to merge in the 90s reflected the post-cold war reality that we could not support 6+ major aerospace firms (and countless other smaller companies to got merged/acquired into the eventual big 3) with reduced military/defense budgets. While not a direct gov't bailout DOJ always had the ability to block them on anti-trust concerns.

The commercial side of MD was never the prize for Boeing anyways, it was always the military/rocket/missile side of the house.
Stop drop and roll will not save you in hell. --- seen on a church marque in rural Virginia
 
nikeherc
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Re: Why didn't McDonnell-Douglas get bailed out?

Thu May 23, 2019 7:05 pm

In the 90s the U.S. government decided that having seven or eight major defense contractors was causing inefficiency. Although McD was the largest defense contractor for much of that period, with the AV-8, the F-18 and the F-15 among other projects, it really irked the navy with the A-12. The government also decided that it wouldn't allow McD to joint venture with the Chinese (the only country that even considered it) on the double deck passenger plane that Douglas was proposing. By cutting off capital to the commercial side and squeezing McD on the military side, the government practically forced McDonnell-Douglas into Boeing's arms. The same thing happened to Rockwell. The reason this gets attention on this site is because it is focused on commercial airlines/airliners.

The fact that Lockheed and Martin, Northrop and Grumman were combined and Lockheed bought F-16 production from General Dynamics doesn't get the same attention here. That all of these mergers consolidations took place at the same time should be instructive.
DC6 to 777 and most things in between
 
KentB27
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Re: Why didn't McDonnell-Douglas get bailed out?

Thu May 23, 2019 10:59 pm

Getting bought out by Boeing was a better option than the government propping up McDonnell Douglas with taxpayer's money. Bailouts are a last resort to keep a company going when there is no other way. McDonnell Douglas didn't get bailed out because it wasn't necessary.
 
CowAnon
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Re: Why didn't McDonnell-Douglas get bailed out?

Fri May 24, 2019 7:22 am

acjbbj wrote:
I see everyone saying how MDC was in bad shape and they had to get bought or go bankrupt.

I wonder about this too. I'd thought the same, but the late-1994 NY Times article I posted said that they were going to spend $2.5 billion on share buybacks, on top of the 71% dividend hike. Would those amounts cover the costs of a clean-sheet aircraft program at the time?

acjbbj wrote:
Would the 737 Max and 787 fiascos have happened if there were three big manufacturers instead of two?

They probably don't, although who knows if some other fiascos happen instead.

acjbbj wrote:
Would we have a better aviation industry?

For me yes, although just three big airframers isn't what I'd call a healthy marketplace, either. But we wouldn't have two old aluminum designs dominating the skies at the very least, and maybe we'd be on our way to other advancements like truss-braced wings or blended wing bodies.

Armadillo1 wrote:
what decision they should have done in late 80x to survive?

Uninteresting answer, but better execution on the MD-11.

IMO, I think McDD was on the right track in trying to sell propfan derivatives. The aft fuselage mounting of the MD-80/90 seems to be disfavored, but its big advantage over low-wing engine-mounted planes is the ability to add ultra-high bypass engines without having to lengthen the landing gear. They quit in late 1989, but I would've kept at it until an airline bit - even going the try-before-you-buy route that Airbus used with the A300 and Eastern Airlines in the 1970s. If the MD-80/90 family with a propfan option could've held out until the 2000s, McDD would've made big money and marketshare gains selling propfan versions when oil prices started spiking.

After reading up on media reports from that period, I'm still not sure if McDD gave up on its own, or if the engine makers forced its hand. GE/Snecma were doing huge business with the CFM56, so it's understandable why they wouldn't want anything to cannibalize those sales (even though McDD flight tested the GE36 propfan for 240 hours, three times what was originally planned). Pratt & Whitney and Allison also had the 578-DX propfan, though, which was didn't undergo flight testing until April 1989, about 17 months late - and then only for 20 hours before tests ended. Allison didn't have much commercial business at the time, but PW was also a major partner in IAE, which placed the V2500 engine on the MD-90 after the propfan option was dropped. Was it PW or McDD that canceled flight testing when the V2500 family became an option? The V2500 was already on the Airbus A320, so that using engine doesn't help McDD much in comparison. One article said that the 578-DX was PW's fallback option rather than its preferred choice (they also had a couple of high-bypass ducted fan proposals ongoing), so I suspect PW hosed McDD (and Allison, who originated its propfan concept before PW bought in). GE/Snecma were inching away from the GE36 in 1989 -- you'd think that PW/Allison could've had a big opportunity with their 578-DX then, since it had been lagging the GE36 by 12-18 months in development.

Another mystery to me is that Delta made its MD-90 launch order of 50 planes and 110 options only a few weeks after McDD made the V2500 its sole engine option. Delta was one of only a few airlines to have previously bought MD-80 planes with the option to upgrade to propfan versions, though. Was the timing simply a coincidence? If it wasn't, did Delta only buy when it was assured that none of its competitors could buy propfan planes to compete against them?

nikeherc wrote:
The fact that Lockheed and Martin, Northrop and Grumman were combined and Lockheed bought F-16 production from General Dynamics doesn't get the same attention here. That all of these mergers consolidations took place at the same time should be instructive.

Thanks, I didn't know that. The question then is why didn't McDD go with Lockheed Martin, Northrop Grumman, General Dynamics, or Rockwell? Then maybe we'd still have a third airframe OEM. Or why the DoJ antitrust division didn't force the commercial division to be sold? Perhaps another company picks up the company for $1 (like BBD) and runs with it...
 
Armadillo1
Posts: 548
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Re: Why didn't McDonnell-Douglas get bailed out?

Fri May 24, 2019 7:45 am

propfan in that times was a myth, for McDD, airbus and all others.
it is not a solution, but an issue to step over and do something else.
MD11 cant be better becouse too connected to DC10
both DC9 and DC10 family become obsolete at that time and need to build at least new wing NG version.

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