Downdraft at Douglas

At a time when the rest of the aerospace industry is thriving on rising demands for commercial and military planes and other sinews of the Viet Nam war, Santa Monica-based Douglas Aircraft Co. has run into unexpected trouble. Though it boasts a hefty $2.8 billion order backlog, mostly for its efficient DC-8 and DC-9 jets, the company two weeks ago jolted both its own industry and Wall Street by reporting a $3,400,000 loss during the second quarter of its fiscal year.

With that bad news, Douglas' difficulties increased. In seven trading days, Douglas common stock sank 25 3/4 points to close last week at a 1966 low of 61 3/4, or 50 1/8 points below its 111 7/8 peak in February. Many stock prices have skidded since then in the wobbly market, but the Douglas drop is the sharpest in the $22 billion aerospace industry, inflicting a $263 million paper loss on investors.

Shortage of Engines. It could not have happened at a worse time, because the company was about to borrow $75 million, through an offering of convertible debentures, to help finance the production and sale of its growing volume of planes. With the falling stock prices creating the prospect of unfavorable terms for the debentures, a group of underwriters led by Merrill Lynch, Pierce, Fenner & Smith last week postponed the issue from this week to next.

In part, Douglas is a victim of its own success. The company blames its losses, after a good first quarter, on unexpected cost increases caused by rapid expansion, and an acute shortage of seasoned aircraft workers. The company has not only been forced to undertake expensive training programs but to hire 31,000 employees in six months. Most of all, Douglas has been hit by a slowdown in deliveries of Pratt & Whitney jet engines, diverted to fighter planes bound for Viet Nam. As a consequence, Douglas expects that it will have to delay until next year the completion of up to three DC-8s and 15 DC-9s anxiously awaited by airlines. During 1966, says President Donald Douglas Jr., "the company's earnings, if any, will be nominal."

For the first half of Douglas' 1966 fiscal year, through May, profits have been nominal indeed: $645,000 on sales of $496 million. Only a tax credit of $990,000 kept Douglas from slipping into the red. Even though the company deferred part of its heavy development costs for the twin-jet DC-9, it lost money on the first 20 planes and failed to show a profit on a second group. Last week Douglas confirmed that it had raised the price for DC-9s by 4% from a minimum of $3,100,000. The increase became effective June 1, but because Douglas' books are filled with plane orders placed before that date the higher price tag will not affect its income until mid-1968.

Popular Planes. Douglas expects to solve its production snags this year, and industry analysts feel that its fiscal misfortunes, too, may be short-lived, if only because its planes remain so popular. United Air Lines has just ordered 18 more stretched-out DC-8-61 (251 passenger) liners and six DC-8F freighters, for $220 million. In a bid to capture still more of the swelling market for transports, Douglas last week rolled out the first production model of its DC-8-62, the world's longest-range (5,750 mi.) commercial jet, for flight testing. The company already has orders for 30 of them.

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