MD-95'S Future Uncertain -- Boeing To Phase Out MD-80, MD-90

The future of the MD-95, a 100-seat jet developed by Boeing's Douglas Products Division, remains unclear after an announcement today that Boeing will build the 50 airplanes ordered by launch customer AirTran but has not decided the long-term future of the model.

Boeing also announced, as expected, that it will phase out the MD-80 and MD-90 models produced by Douglas at Long Beach, Calif., in about 18 months and will continue offering the larger, three-engine MD-11.

The plans are part of new marketing strategies set by Boeing after its $16.3 billion acquisition of McDonnell Douglas in August.

The future of Douglas Products employees - 10,500 at Long Beach, 2,000 at a wing factory in Toronto, 525 at a fuselage plant in Salt Lake City, and 170 in Melbourne, Ark. - will be decided in January, said Ron Woodard, president of Boeing Commercial Airplane Group.

The company also hopes to decide by then what to do with the factory space occupied by the phased-out assembly lines. Boeing could move some parts production or assemble one of its future derivative models there.

Woodard said his division no longer is considering transfering Douglas workers to the Seattle-area to handle the production crisis here, saying Boeing has enough workers now. But he stressed that work will continue at the Douglas factory for several years under the latest plans, so no jobs will be lost in the immediate future.

The financial effect of the phaseout will be included in fourth-quarter operating results, Woodard said. At least one stock analyst has estimated a $1 billion write-off for the restructuring, but Woodard wouldn't verify that figure.

The MD-95, in early production at the Long Beach factory, has only one customer - Atlanta-based AirTran (formerly ValuJet), which has ordered 50 and has options for 50 more.

"Production beyond the launch order of 50 airplanes - as well as any development of MD-95 derivatives - will depend on reducing the cost of producing the airplane," Woodard said.

Boeing will discuss the possibility of developing derivative models in other sizes and the cost issue with foreign partners helping to develop and produce the jet and with suppliers, Woodard said. Company officials have to decide whether there is a market for the jet, which is smaller than any that Boeing has produced in this area.

Some analysts have speculated that Boeing might try to enter the regional-jet market with the MD-95. Woodard said Boeing has projected a market for up to 2,300 airplanes of that size over the next 20 years, but he said it was a replacement market rather than a growth market.

The three-engine MD-11's future is seen by industry analysts more as a freighter model than a passenger jet. Boeing also said it will focus its marketing efforts on the cargo version, which is sized between Boeing's 767 and 747 freighters. The model has 19 unfilled orders. One airplane is produced a month.

Woodard said Boeing sees a potential market for up to 300 MD-11s. He mentioned the possibility of derivative models or the reinstatement of the MD-12, a larger airplane, but he said no one is working on the MD-12 at this time.

The MD-80-90 series, with 1,200 in service, is being produced at a rate of four a month. There are 13 unfilled orders for the MD-80 and 91 for the MD-90. They compete with Boeing's 737s.

Woodard said Boeing would continue to make parts for and service the jets. Boeing said it also will continue working with China to help it build 20 MD-90 airplanes in Shanghai between 1998 and 2000 and may pursue more work there.

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