McDonnell and Douglas Aircraft Companies Merge Summary

  • Last updated on November 10, 2022

Douglas Aircraft Company, a civil aviation giant, joined McDonnell Aircraft Company, a manufacturer of primarily military aircraft, to become one of the nation’s largest aerospace companies.

Summary of Event

Douglas Aircraft Company had just emerged from a decade of success in the mid-1960’s. It maintained the leading position as supplier of commercial transport planes to airlines. Its DC-7 was capable of flying across the North American continent nonstop, and it could cross the oceans nonstop as well. Douglas pioneered the DC-8 and DC-9 jet passenger aircraft but found itself in severe financial difficulties in the mid-1960’s. Orders for the successful DC-9 and DC-8 aircraft had risen dramatically following an aggressive sales campaign, leading the company to set up new production lines for each jet at its plant in Long Beach, California. McDonnell Aircraft[Macdonnell Aircraft] Douglas Aircraft Company McDonnell Douglas[Macdonnell Douglas] Mergers, business Aircraft;manufacturers Airline industry, U.S. [kw]McDonnell and Douglas Aircraft Companies Merge (Apr. 28, 1967)[Macdonnell and Douglas Aircraft Companies Merge] [kw]Douglas Aircraft Companies Merge, McDonnell and (Apr. 28, 1967) [kw]Aircraft Companies Merge, McDonnell and Douglas (Apr. 28, 1967) McDonnell Aircraft[Macdonnell Aircraft] Douglas Aircraft Company McDonnell Douglas[Macdonnell Douglas] Mergers, business Aircraft;manufacturers Airline industry, U.S. [g]North America;Apr. 28, 1967: McDonnell and Douglas Aircraft Companies Merge[09230] [g]United States;Apr. 28, 1967: McDonnell and Douglas Aircraft Companies Merge[09230] [c]Space and aviation;Apr. 28, 1967: McDonnell and Douglas Aircraft Companies Merge[09230] [c]Transportation;Apr. 28, 1967: McDonnell and Douglas Aircraft Companies Merge[09230] [c]Manufacturing and industry;Apr. 28, 1967: McDonnell and Douglas Aircraft Companies Merge[09230] [c]Business and labor;Apr. 28, 1967: McDonnell and Douglas Aircraft Companies Merge[09230] Douglas, Donald W., Sr. Douglas, Donald W., Jr. McDonnell, James S. Lewis, David S., Jr.

The sudden demand for highly skilled aerospace workers soon exceeded the supply, and Douglas spent millions of dollars training new workers. In addition to the commercial work, the company had new orders for sales of its Skyhawk jet to the U.S. Navy and of Nike missiles to the U.S. Army, and it had contracts on the U.S. Air Force’s Manned Orbiting Station. Designs had just been completed for another jet, a “jumbo” called the DC-10.

In the spring of 1966, Douglas Aircraft reported earnings of $14 million for the previous year. By mid-year, rumors surfaced that Douglas was losing money rapidly. The second quarter report showed losses of $3 million, and after three quarters the company predicted a loss of $16 million for the year. Some analysts predicted losses of $75 million. In addition to the huge outlay to train new personnel, the company had slowed its production on its profitable orders, creating a cash drain. It also had used outdated accounting methods that had not provided adequate time to respond to the new cash demands. In December, 1966, the Douglas board of directors held an emergency meeting to invite merger partners. The board’s price was steep, as it concluded Douglas would need a $400 million cash injection to return to health.

North American Aviation North American Aviation (later, Rockwell North American Aviation) and the McDonnell Aircraft Company emerged as the favorite merger partners. In the early negotiations, North American seemed to have the advantage. It was located physically close to Douglas in California, and it had worked with Douglas as an engineering design team on the DC-3, the pathbreaking civil passenger aircraft. North American had plenty of money—$2 billion, according to Fortune magazine—and its chairman and president, R. J. Atwood Atwood, R. J. , was a close friend of Donald Douglas, Sr. McDonnell, on the other hand, specialized in military aircraft and saw the merger as strengthening its civil division. James S. McDonnell already owned 300,000 shares of Douglas Aircraft stock. He offered $45.80 a share for 1.5 million more shares. McDonnell also willingly pressed against the potential veto of the merger by the U.S. Department of Justice, while North American backed off.

The Justice Department saw no “restraint of trade,” and on January 13, 1967, the Douglas board voted to accept the McDonnell offer. The merger officially occurred on April 28. McDonnell Douglas opened for business on May 1 with 125,000 employees, plants in fourteen states and Canada, and a huge backlog of contracts from all the military service branches, from the National Aeronautics and Space Administration (NASA), and for civilian passenger aircraft. Headquarters for the company were located in St. Louis, Missouri.

The new McDonnell Douglas Corporation, as it was called, merged the Douglas facilities at Long Beach (the Aircraft Group) and Huntington Beach (Space Systems Group) with the St. Louis-based McDonnell Aircraft Company, located alongside Lambert-St. Louis International Airport. James McDonnell became the new chairman and chief executive officer, and Donald Douglas, Sr., was named honorary chairman. David S. Lewis, president of McDonnell Aircraft, was the new president.

The company delivered 102 DC-8’s and 193 DC-9’s, continued development of its DC-10 trijet, and still had half of its sales in military aircraft and space. The merger put the new corporation firmly alongside Boeing and Lockheed as a member of the “big three” of the American aerospace industry. In one of its first corporate decisions as a new company, McDonnell Douglas committed to building the new trijet aircraft, the DC-10. Designed, as was the DC-9, to be a “rubber” aircraft, capable of being extended, the DC-10 could carry more than 380 passengers. The DC-10’s entered service in 1971, just three years after McDonnell Douglas announced the commitment to build the aircraft.

The merger brought together two companies that had a history of designing and developing missiles. Douglas produced the Thor missile, an intermediate range ballistic missile, and the Nike Hercules, an interceptor missile. Before the merger, McDonnell Aircraft won the contract to design, develop, and construct the Mercury spacecraft. After the merger, McDonnell Douglas received the contract to build the S-IV upper stage for the huge Saturn rocket and the Delta launch vehicle.

Significance

The McDonnell Douglas merger typified the efforts of military and civilian aerospace companies to diversify in the Cold War period. By the mid-1960’s, when McDonnell Douglas formed, aircraft manufacturers employed 850,000 workers. The Vietnam War brought orders rolling in as the Air Force and Navy sought to replace planes damaged in combat. (That marked a peak in aerospace production, but the industry had had its share of valleys as well.)

The Cold War permitted aircraft manufacturers with defense contracts to use government funds to defray the cost of designing entire aircraft, especially tankers and transports. Even if an aircraft manufacturer did not produce a “dual use” aircraft (one capable of performing military missions or carrying normal passenger traffic), internal subsystems, wing structure concepts, propulsion systems, and computer software could be applied from military aircraft to civilian liners and vice versa. Likewise, the growing NASA budget provided a pool of nondefense aerospace funds. Furthermore, civil and commercial aviation in the United States boomed in the late 1950’s, and European nations, Latin America, and Far Eastern countries all improved their airports and increased their demand for air service. Passenger jetliners therefore were in growing demand. Thus, it paid for a company to have both military and commercial contracts.

The McDonnell Douglas merger underscored the necessity to maintain defense contractors in lean times. President Dwight D. Eisenhower had warned against the power of a military-industrial complex Military-industrial complex[Military industrial complex] but had not told the nation how to keep a defense industrial base during peacetime. More than a few military personnel suggested that they could determine the next contractor to receive a large-ticket contract from one of the services simply by asking the question “Whose turn is it?” Even purchases by the services to replace aging equipment could not maintain the defense contractors in peacetime. Government contracts for new technology and for investment in research and development aided the defense companies during “down” years.

By the 1990’s, however, despite a huge backlog of orders, McDonnell Douglas had difficulty staying profitable. Many of the same cost-effectiveness problems that had afflicted Douglas Aircraft reemerged in St. Louis twenty years later. In 1989, for example, McDonnell Douglas announced layoffs of seventeen thousand personnel, and its return on assets was the lowest of any major aerospace contractor except for General Dynamics. Indicative of the complexity of commercial/defense mergers, production work propelled McDonnell Douglas to the position of the largest defense contractor in the world by 1992. From 1989 to 1991, the company doubled its profits to $423 million.

In 1992, company officials admitted that without further diversification into the commercial area, McDonnell Douglas could not survive as a company. Indeed, five years later, in 1997, McDonnell Douglas found the answer to its competitive woes in yet another merger, this time with its major competitor, Boeing. The new Boeing company emerged as the world’s leading aircraft and aerospace enterprise, its chief competitor being Europe’s Airbus, with which Boeing engaged in fierce competition in the global marketplace in subsequent years. McDonnell Aircraft[Macdonnell Aircraft] Douglas Aircraft Company McDonnell Douglas[Macdonnell Douglas] Mergers, business Aircraft;manufacturers Airline industry, U.S.

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Badrocke, Mike, and Bill Gunston. The Illustrated History of McDonnell Douglas Aircraft: From Cloudster to Boeing. Oxford, England: Osprey Aviation, 1999. A history of McDonnell Douglas aircraft design, development, and construction. Includes many illustrations, some in color, and an index.
  • citation-type="booksimple"

    xlink:type="simple">Biddle, Wayne. Barons of the Sky, from Early Flight to Strategic Warfare: The Story of the American Aerospace Industry. Baltimore: Johns Hopkins University Press, 2001. First published in 1991, this paperback edition examines the careers of the individuals “whose names became synonymous with today’s military-industrial complex.”
  • citation-type="booksimple"

    xlink:type="simple">Bilstein, Roger. The Enterprise of Flight: The American Aviation and Aerospace Industry. Washington, D.C.: Smithsonian Institution Press, 2001. A preeminent flight scholar explores the American aerospace industry, of which McDonnell Douglas played such an integral part, and aviation in the United States.
  • citation-type="booksimple"

    xlink:type="simple">_______. Flight in America, 1900-1983. 1984. Rev. ed. Baltimore: Johns Hopkins University Press, 1994. Provides a critical and thorough analysis of aircraft and how they are designed and developed.
  • citation-type="booksimple"

    xlink:type="simple">Bluestone, Barry, Peter Jordan, and Mark Sullivan. Aircraft Industry Dynamics: An Analysis of Competition, Capital, and Labor. Boston: Auburn House, 1981. A data-intensive study, this prolabor look at the aircraft industry emphasizes the benefits of industrial policy to the exclusion of some other evidence. Excellent source material.
  • citation-type="booksimple"

    xlink:type="simple">Franklin, Roger. The Defender: The Story of General Dynamics. New York: Harper & Row, 1986. One of several good books on General Dynamics, one of McDonnell Douglas’s primary competitors.
  • citation-type="booksimple"

    xlink:type="simple">Gansler, Jacques. The Defense Industry. Cambridge, Mass.: MIT Press, 1980. Although mostly focused on the post-1970 period, an excellent analysis of defense contracting, production, and employment.
  • citation-type="booksimple"

    xlink:type="simple">Ingells, Douglas J. The McDonnell Douglas Story. Fallbrook, Calif.: Aero, 1979. A sympathetic company history, this volume nevertheless offers rare insights into the corporation from its inception in 1967 to 1978. The author had extensive contact with McDonnell Douglas designers, engineers, workers, and executives.

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