McDonnell Douglas Corp., a major defense contractor and civilian aircraft builder, will have to lay off 10,000 to 15,000 employees to achieve its goal of slashing $700 million in annual costs, analysts said.
McDonnell Douglas announced the cost-cutting plan this week, saying it would entail "substantial layoffs across the corporation" but did not say how many jobs would be lost.Despite the sweeping cost-cutting plan, which the company said would be developed over the next three months, several analysts said they were not convinced the plan would make a difference for the company.
The nation's largest defense contractor and No. 2 commercial aviation company, after Boeing Co., has been plagued by cost overruns, write-offs, late jet deliveries and declining military spending.
The St. Louis-based company must reduce its 130,000-employee work force by at least 10 percent, or 13,000, to achieve its cost-cutting goal, said Lawrence Harris of Bateman Eichler, Hill Richards.
Most of the savings will have to come from layoffs, Harris said, because McDonnell said it does not want to sacrifice quality or delivery schedules.
Other analysts' estimates range as high as 15,000 employees.
McDonnell Douglas previously announced plans to cut 4,000 jobs at its Douglas Aircraft Co. unit in Long Beach, Calif., which produces mainly commercial jetliners and has been unprofitable. Those cuts will be included in the $700 million reduction plan, the company said.
A major portion of the further cutbacks are likely to come at the company's McDonnell Aircraft Co. unit in St. Louis, which produces jet fighters, some of which are slated for cancellation, analysts said.
"St. Louis is very vulnerable," said analyst Judith Comeau of Goldman, Sachs & Co.
"Two of their three major programs are slated for cancellation and they have to shrink. They may just accelerate that," said Comeau. The Pentagon plans to stop buying after 1991 the F-15E Eagle fighter and the AV-8B Harrier jet, both of which are made by McDonnell Aircraft.
The unit, which employs 30,000 people, also faces problems with other programs.
McDonnell Chairman John McDonnell said in a letter to employees that the company "faces potentially serious cost problems" on the A-12 and the T-45A Goshawk Navy trainer and the Douglas-built C-17 military transport.
Analysts said cost reductions and layoffs on those fixed-price programs may be necessary.
Last year, McDonnell Douglas' earnings slumped 37 percent to $219 million from a the year-earlier period. Revenues were $14.6 billion.
Several analysts said they were unsure the cost-cutting plan would necessarily help the company.
"These layoffs would have to take place anyway, said Michael Rosen of Smith Barney, Harris Upham & Co. "It almost seems like an act of desperation."
Rosen said McDonnell's statements about the T-45 and C-17 projects caused him to lower his 1990 earnings estimates for the company to a loss of $2 a share. He also said he reiterated his recommendation to sell the stock.