McDonnell Douglas Corp. and China yesterday signed a coproduction agreement under which China will purchase 26 McDonnell Douglas jetliners for use by its domestic airline and will assemble 25 of them in Shanghai.
The value of the contract was not disclosed in the McDonnell Douglas statement, but aviation sources said the price tag will be about $800 million with options that could increase it to $1.2 billion.
The agreement, more than 10 years in negotiation, is the largest coproduction contract between a U.S. manufacturer and the Chinese, according to Crawford F. Brubaker, who is deputy assistant Commerce secretary for aerospace and has followed the negotiations closely.
"It's a major step forward as far as we are concerned," said Brubaker. "For long-term relationships and building customer desires for U.S. equipment, this kind of program works beautifully."
China and the Boeing Co. are still in negotiations on a major purchase agreement of Boeing 747s and 767s and possible coproduction of Boeing 737s, a spokesman said. That deal, if concluded, will also reportedly be in the $1 billion range and will give China a good look at the production techniques of the two U.S. commercial transport manufacturers.
The first plane in the Douglas order will be built at its plant in Long Beach for delivery to CAAC -- the Chinese airline -- later this year, McDonnell Douglas said. The other 25 MD80s will be partially assembled in Long Beach and shipped to China for completion at Shanghai Aviation Industrial Corp.
The agreement includes options for Shanghai Aviation's acquisition of components for 15 more aircraft. CAAC purchased two MD80s earlier and has them in commercial service.
Douglas already has received the necessary export licenses from the Commerce Department. The U.S. Federal Aviation Administration has agreed to extend its production certificate "to cover work done under Douglas cognizance in the Shanghai Aviation factories, and the aircraft assembled there can receive FAA airworthiness certificates," Douglas said.
FAA spokesman Dennis Feldman confirmed that arrangement and said the FAA will send inspectors to China before production begins, then monitor the work periodically. That is standard FAA practice at U.S. manufacturing sites.
James Worsham, president of the Douglas Aircraft Co., a McDonnell Douglas subsidiary, said, "This arrangement adds 26 to 41 more aircraft to our MD80 production schedule at Long Beach, and at the same time gives the Chinese an opportunity to improve their own aircraft manufacturing capability. It's a mutually beneficial partnership, with super possibilities for the future."
McDonnell Douglas said the agreement also calls for establishing a joint Douglas-Chinese task force to study the engineering and market feasibility of possible new commercial transports.
China has been seeking for years to become a bigger player in the aerospace market, but so far has been confined primarily to sub-assemblies, including landing gear doors for the twin-engine MD80, a derivative of Douglas' popular DC9.
In 1980, The Washington Post's Jay Mathews reported that Chinese aircraft engineers had taken one of the Boeing 707s the country purchased in 1972 and built their own copy of it, which they called the Y10. There was much concern at that time about the problem of technology transfer, but those fears seem to have been resolved with the move toward coproduction agreements.
The Douglas planes will be powered by Pratt & Whitney JT8D engines, will seat 147 passengers in a mixed-class arrangement and have a range of 2,360 miles.
The company is creating a subsidiary, McDonnell Douglas China Inc., to support the program. It is headed by Gareth C. C. Chang, a native of China who was educated in California and joined Douglas in 1979. About 50 Douglas employes will move to Shanghai for the program.
Douglas will begin training Shanghai Aviation employes in May at Long Beach, it said.
The announcement ends years of anticipatory news stories and speculation about agreements. Negotiations between China and John Brizendine, then Douglas president, began at least 10 years ago, although the McDonnell Douglas press release yesterday listed negotiation time at six years.
Worsham, interviewed in Long Beach last November, was asked about the status of the coproduction agreement with China, and said, "It's very slow but very positive. The Chinese invented the word negotiation. I may be retired and my successor may be retired, but I think we'll make it with China."