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Boeing Talking with Aeritalia, Aerospatiale About Selling de Havilland

July 20, 1990

SEATTLE (AP) _ The Boeing Co., which has never been content with its de Havilland commuter aircraft division, said Friday it is discussing selling the Canadian operation to Aeritalia of Italy and Aerospatiale of France.

Boeing Canada’s de Havilland Division, based in Downsview, Ontario, builds the Dash 8-series turboprop commuter plane. Boeing bought de Havilland from the Canadian government in 1986, and company executives have since made no secret of their disappointment in the subsidiary’s performance.

Boeing corporate spokesman Paul Binder declined to give revenue or earnings figures for de Havilland, which employs 5,400. But industry analysts say it has been a money-loser.

In a news release, Boeing said any sale would involve an orderly transfer of responsibility to the buyers with continuing Boeing support. A sale would be subject to approval of the Canadian government, it said.

Binder declined to elaborate beyond the company’s two-paragraph news release.

″At any time we get anything more firm, we will make an announcement,″ he said.

Representatives of Aerospatiale and Aeritalia, both government-owned, could not be reached for comment.

Aeritalia has long worked with Boeing to produce parts for Boeing’s 767 jetliners. Aerospatiale is one of the companies in the European consortium Airbus Industrie, one of Boeing’s prime competitors for commercial jets.

Aeritalia and Aerospatiale are partners in Avions de Transport Regional, a company that produces the ATR 42 and ATR 72 turboprop commuter planes.

Boeing bought de Havilland for 90 million Canadian dollars, a price critics said was too cheap.

But Boeing has since invested more than 400 million Canadian dollars in new plant facilities, equipment and research and development, said de Havilland President Ron Woodward. Boeing also brought millions of dollars of new business to de Havilland and other Canadian divisions, meeting a provision of the purchase agreement.

Boeing officials believed de Havilland would be a good match, despite the Canadian company’s longstanding economic and labor troubles. Boeing executives said de Havilland’s commuter planes would complement the Seattle plane builder’s broad line of jet aircraft.

Boeing was able to boost de Havilland’s production, but poor profitability, continuing labor problems - including an 11-week strike in 1987 - and needed improvements to the plant near Toronto soured some company executives on the acquisition. Dean Thornton, president of Boeing Commercial Airplane Group, has said he personally regretted the purchase.

Wolfgang Demisch, an aerospace analyst at Union Bank of Switzerland in New York, estimated de Havilland’s 1989 revenues at $750 million, while Bill Whitlow of Dain Bosworth in Seattle pegged it at $700 million. Both said Boeing has been losing money on the division.

″I would guess that Boeing has come to the conclusion they’re not going to be able to turn it around as they’d like to,″ Whitlow said.

The commuter aircraft market ″has been ruthlessly competitive,″ Demisch said, and Boeing hasn’t been able to get the prices it would like.

Unlike large commercial jets, where only Boeing, Airbus and McDonnell Douglas dominate, the market has 16 or more players. Demisch and Whitlow said many of those companies are owned or heavily subsidized by their governments, making it difficult for private companies to compete.

De Havilland builds the 36-40 passenger Dash 8-100 and the 50-56 passenger Dash 8-300. It plans to launch the 70-seat Dash 8-400 this December.

It had a backlog of 125 aircraft as of June 30 and planned to deliver 73 planes this year.

Its planes compete directly with ATR’s aircraft, Demisch said. But he said Aeritalia and Aerospatiale may be seeking to broaden their product mix in addition to absorbing a competitor.

In February, Boeing settled a lawsuit against the Canadian government over the de Havilland acquisition. The agreement, Canadian Industry Minister Harvie Andre said, called for Boeing to receive up to 161 million Canadian dollars in cash and incentives. It also settled Boeing’s claim that it had to spend more than 110 million Canadian dollars to improve health and safety at the Downsview plant.

Boeing had 1989 profits of $973 million on sales of $20.3 billion in 1989.

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