McDonnell Douglas Corp.'s commercial aircraft division got a new "lease" on life in 1982.
As a result of a bold--and, some believe, risky--decision to lease its DC9 Super 80 aircraft to two major airlines, McDonnell Douglas is once again considered a serious player in the high-stakes commercial airliner business.
Although the Boeing Co., McDonnell Douglas's only remaining domestic competitor in the commercial field, brought two new-technology aircraft to the public in 1982, it was McDonnell Douglas, the company that many were already counting out of the game, that led with a trump card.
Last fall, McDonnell Douglas announced that it had signed separate agreements with American Airlines and Trans World Airlines for the lease of 35 Super 80s to the two airlines. The five-year leases will bring the quiet, fuel-efficient, twin-engine aircraft to the East Coast for the first time in 1983. There, McDonnell Douglas believes the plane will sell itself to the airlines and the public.
"Our feeling is, 'if you try it, you'll like it,' " said James E. Worsham, president of Douglas Aircraft Co., the California-based subsidiary of McDonnell Douglas that produces commercial and military transports.
"We are, of course, more interested in selling planes than leasing them," Worsham said in an interview in his Long Beach office. But leasing was right for the times, he suggested. Right now, the world airline industry is made up of "haves and have nots," he said. At the same time that some airlines are "temporarily financially embarrassed" and can't buy new aircraft even though they need them, Worsham said, Douglas had some "white tails" coming off its production line--planes whose tails carry no airline logos because they aren't sold yet.
The company came up with leasing as a new marketing opportunity to put the planes and the airlines together, Worsham suggested. It was a new idea: commercial aircraft have been leased to airlines before but generally they were sold by the aircraft maker to a third party--such as General Electric Credit Corp.--and leased by it to the airline.
The leasing deals, and a tentative sale of 30 Super 80s to Alitalia announced in November, have allowed Douglas not only to continue to produce three aircraft a month, but also to boost the production line to one a week, Worsham added. If they couldn't keep the production line going, it would have become inefficient, costs would have gone up and it couldn't remain competitive, he said.
Worsham, who left General Electric Co. after 30 years in early 1982 to join Douglas as executive vice president in early 1982 and became its president in November, personally selected cash-short American as the first target for a leasing arrangement because of its geographical location. "We wanted to get the maximum exposure for the plane," he said.
Utilized almost exclusively on the West Coast currently, the Super 80 is being flown extensively by the California-based Pacific Southwest Airlines, AirCal, and Jet America, and also on Western routes by Frontier Airlines, Muse Air and Republic Airlines. "We wanted to break into New York, Boston, St. Louis, Dallas," Worsham says.
Some have characterized the Douglas move as a gamble, pointing out that Douglas carries all the risk of ownership by leasing the planes and that it might be stuck with the planes in five years when the leases run out. But Worsham doesn't see it that way. "We're banking on them purchasing them--or other airlines purchasing them," he said. Already, other airlines have offered to buy the aircraft in five years if they are turned back by American or TWA, he said. But Worsham doesn't think the planes will be returned. "Let's face it, there's not going to be a better plane in this time period," he contended.
Depending on future sales, Worsham said Douglas could turn out planes even faster. Although it recently lost out to Boeing on a major sale to Delta Airlines, which wanted a plane smaller than the Super 80, Worsham said Douglas is still talking seriously about Super 80 orders with Varig of Brazil, where a DC9-80 is on a passenger-carrying demonstration, Continental Airlines, New York Air, Northwest Airlines, Alaska Airlines, Middle East Airlines, Trans Australia Airlines and Toa Domestic Airlines of Japan.
In the future are two more versions of the DC9, Worsham said. A Super 83 will be a 150-passenger, long-range version capable of Pittsburgh-West Coast distances but for use primarily by European airlines will be available in the spring of 1985, he said. A smaller Super 90 carrying between 110 to 120 passengers will be a new, modern replacement for the older DC9s, available in the spring of 1986, he said.
Although not launched yet, the two would give Douglas "a family" of DC9s with all the efficiencies that come with interchangability of spare parts and standardized training for personnel.
Although Douglas had a "pretty darn good year" with the Super 80, Worsham said, one of his major goals is to increase military sales in order to get "a good balance between military and commercial" activity.
"Our slogan is, 'get in the black, DAC,' " Worsham said, noting that Douglas is in the midst of a belt-tightening to incease productivity. The workforce in Long Beach has been reduced 20 percent to 15,000, he added, "to get ourselves down to fighting weight.
"The name of the game is to sell aggressively and remain a competitor," Worsham promised.