Douglas, Lockheed Discussing Setup to Make Commercial Jets

Douglas Aircraft and Lockheed are holding talks on a subcontracting relationship or a partnership to produce commercial aircraft, Douglas President James E. Worsham disclosed in an interview Wednesday.

Worsham declined to elaborate on the alternatives under consideration in the negotiations, but he has indicated in the past that he is seeking partners who would share the risk of an aircraft program by investing their own capital.

Lockheed officials confirmed only that they are negotiating for subcontracting work. “We are interested in subcontract work. But we have not been in a discussion of taking an equity position, and we don’t anticipate getting into a discussion of taking an equity position,” John C. Brizendine, president of Lockheed Aeronautic Systems, said in a prepared statement.

If Lockheed takes a major role in a Douglas program, even without investing its own capital, it would bring together two firms that have historic importance in the industry. Douglas is also holding talks with European competitors for possible joint ventures that would apparently involve risk sharing.

Worsham said he is discussing “a role for Lockheed” in the new MD-91 and MD-92 aircraft, new generation aircraft that Douglas is trying to sell to major airlines. The MD-91 and MD-92 feature an unducted fan engine, which has exposed fan blades that resemble propellers. The aircraft are derivatives of the MD-80 series of narrow-body aircraft.

A source close to Lockheed said the company’s board of directors is aware of the Douglas talks, but directors have taken no action. The board is likely to examine closely any agreement that involves putting up a Lockheed investment into the Douglas program.

Worsham said he personally is holding the talks with Brizendine, who was president of Douglas before taking over Lockheed’s aircraft business. He has since forged close business ties with his former company.

“I see nothing unhealthy about a growing relationship between Douglas and Lockheed,” one Douglas official added. “Worsham has said he is looking for risk-sharing partners on commercial aircraft.”

Wings for Cargo Jet

Only last year, Douglas selected Lockheed to build the wings for the Air Force C-17 cargo jet, a subcontract worth more than $1 billion over the life of the program. At the time, Brizendine made an effort to distance himself from the award to avoid the appearance that personal ties played a part in the contract.

Nonetheless, Lockheed is actively soliciting subcontracts to build aircraft structural parts in an effort to make up for an overall decline in its aircraft business. The company has huge industrial facilities in Burbank and Palmdale that are under-used, while Douglas is bursting at the seams in Long Beach.

Becoming More Common

Douglas now has 34,000 employees at its Long Beach plant and at a parts production plant in Torrance, more than double its employment only several years ago. The rapid growth has contributed to production problems that have resulted in delivery delays on narrow body jetliners of up to two months, Worsham said during the press conference.

Risk-sharing agreements are becoming more commonplace in the commercial aircraft industry. Boeing has such agreements with Japanese producers and Douglas has them with some of its suppliers on the MD-11 jetliner program, a Douglas official said.

Worsham said that McDonnell Douglas Chairman John McDonnell would enter talks with the European consortium Airbus Industrie on a possible joint venture next month. Douglas has been holding talks with Airbus for six years, and the talks now are focusing on three specific proposals for new aircraft, he added. The options include development of a possible competitor to the Boeing 747 jumbo jet, a stretched version of the Airbus A-320 and on an aircraft featuring the new unducted fan engine.

Lockheed Significant

But an agreement with Lockheed has the greater potential significance, because Lockheed was a major player in the passenger aircraft industry until it ended production of the L-1011 in 1983.

The company almost went broke on the L-1011 and Lockheed officials have insisted ever since that they would be reluctant to ever again venture into the commercial aircraft market.

What is possibly changing their minds is the bleak outlook for military programs. The company’s production of the C-5B cargo jet, Navy P-3 patrol aircraft and Air Force TR-1 aircraft will be ending in the next few years. The company is competing for the Air Force’s Advanced Tactical Fighter program, but even if successful it will have to split the work with three partners.

Separately, at a news conference earlier in the day, Worsham announced that Douglas received orders for six additional MD-11 jetliners, bringing the current backlog of orders and options to 99 aircraft worth about $10 billion. The MD-11, a derivative of the DC-10, formally entered production assembly in a ceremony at the Douglas plant on Wednesday.