McDonnell Douglas Cargo Jet Program In Deeper Financial Trouble
Oct. 04, 1990
LOS ANGELES (AP) _ A confidential Pentagon analysis of the McDonnell Douglas Corp.'s C-17 cargo jet program shows a cost overrun of up to $500 million, a newspaper reported today.
A company official acknowledged the overrun but disputed the figure.
Unidentified defense officials told the Los Angeles Times they expect the overrun to cause serious financial and political trouble for the aerospace company.
''The real concern now is that this thing could blow up politically,'' a Pentagon source was quoted as saying.
McDonnell Douglas Vice President Michael Birch confirmed Wednesday the company likely will overstep its $4.9 billion budget for developing the C-17, but not by $500 million.
''We know it is going to be high, but not that high,'' Birch said.
Until last week, the company was projecting that C-17 development would run $300 million below budget.
The C-17 is being developed and produced in Long Beach at McDonnell's Douglas Aircraft Co. subsidiary, which employs 40,000 people.
Last week, the Pentagon said it stopped paying McDonnell for work on the cargo jet after questioning the contractor's project cost estimates. The Pentagon has withheld $300 million so far.
But Birch said McDonnell Douglas is certain it will profit from the C-17.
''We feel confident that we can make money on the C-17,'' Birch said. ''We are not going to do anything that hurts the long-term health of the corporation.''
Even with the cost overrun, Birch said McDonnell will not incur losses on the C-17 program until the combined ceilings of three different contracts are exceeded.
The contracts include the $4.9 billion development contract and two production contracts totaling $6.57 billion, Air Force spokesman Capt. George Sillia said.
Birch said McDonnell will borrow if necessary to overcome current problems with the C-17.
''We still have adequate capacity to borrow,'' he said. ''We still have hundreds of millions of dollars before we would exceed our debt coverage.''
McDonnell is $2.9 billion in debt. In a new credit agreement reached with bankers earlier this year, McDonnell can run debt up to $3.7 billion.