Aviation slump could spell DCl0’s doom

Press, 28 October 1981, Page 13

Aviation slump could spell DCl0’s doom

By,

ROBERT RICCI

NZPA-Reuter Los Angeles A drop in demand for big airliners may lead McDonnell Douglas to halt produc- . tion' of its DCIO wide-body jets, but prospects for continued production of the competing Lockheed TriStar have improved, analysts say. Both planes were launched with fanfare a decade ago to ; fill the gap between smaller jets and Boeing’s 747 jumbo, ■ but they have not been as

successful as the makers had hoped. Earlier this year stock market analysts who follow the industry had been guessing when losses on the TriStar would force Lockheed of nearby Burbank to cease producing the long-range three-engined TriStars. RollsRoyce supplies the engines and would be hard hit by any cancellation. But now analysts say it appears that Lockheed can

keep its L-1011 TriStar programme going at least until 1990 and that the plane could fill a need for airlines once poor traffic conditions begin to improve. The DCIO suffered a blow late last month when the United States Defence Department listed where it was going to trim spending and it included stopping an order for eight KCIO Extender tanker-cargo planes, military versions of the three-engine DCIO built by McDonnell Douglas in Long Beach, also near Los Angeles. ' The company chairman (Mr Sandford McDonnell) said the cutback could halt. DCIQ production in 1983. Airlines in recent years have been hurt by soaring fuel prices and by new competition on prices and routes, due largely to removal of controls on* the industry in the United States.

Meanwhile, a world-wide recession followed by minimal recoveries in most Western economies has trimmed passenger traffic, adding to over-capacity on formerly lucrative regulated routes that were invaded by new competitors after deregulation.

Mr McDonnell noted that orders for jetliners had dropped sharply as airline profits shrank and turned to huge losses in many cases.

He said the Air Force’s KCIO is built on the same assembly line in Long Beach as the DCIO passenger craft and the eight KClO’s scheduled for delivery in 1983 would have kept the line running through the slump. Mr McDonnell said his company expected strong market demand for the civil DClOs between 1985 and 1995, and the Pentagon contract would have bridged the sales gap until. that upturn. A cdntract to build eight KClOs through to the end of next year was not affected by the cutback, McDonnell Douglas said.

The drop in demand for big airlines also hit Lockheed, where some orders for TriStars were cancelled and options to buy more craft were not exercised.

Stock analysts have complained that losses on the .TriStar, totalling $B5O million

in six years, were eating up profits that Lockheed was earning on other activities. In May the price of Lockheed shares on Wall Street rose sharply when the company hinted it might withdraw from the commercial airliner market.

Lockheed received only three TriStar orders in the first half of this year and is reducing production, which is down to 18 planes annually, from 25 last year. Another cut may be announced this summer.

But John Simon, an analyst with Amdec Securities in Los Angeles, now suggests that Lockheed’s growing profitability in shipbuilding, a money-losing business in the early 19705, will allow the company to sustain the TriStar business into 1985.

Edmund Greenslet, an analyst with Merrill Lynch, Pierce, Fenner and Smith, said Lockheed may slowly abandon commercial aviation but not soon. He said he expected the company to continue making TriStars at least until 1990.-

Mr Greenslet predicted “nominal sales through most of the 1980 s since the TriStar is increasingly being squeezed into a smaller and smaller market niche.” But Mr Simon said Lockheed was encouraged by its success and persistence with shipbuilding and hopes it has found a special niche for the TriStar.

Mr Simon said , the “Dash 500” version of the TriStar' was the smallest three-en-gine plane now available for long-range oceanic flights and is rated by several analysts as one of the best, and most advanced aircraft.

A pick-up in sales for this model, which Mr Simon sees as a possibility when the airline industry recovers from its slump, could keep the TriStar project alive. On the other hand, McDonnell Douglas has joined with the Dutch Fokker company to develop the MDFIOO. It would compete in what is believed will be a big market for 150-passenger, mid-range, twin-engine jets that will replace ageing Boeing 727 s and DC9s over the next two decades. ‘