Douglas' Dilemma

Among the world's plane builders, Douglas Aircraft was long the blue chip; its series of DC planes were the workhorses that hauled the biggest percentage of the world's air travelers. But last week Douglas, which has been in the red for a year, was in deeper trouble, buffeted by the airframe industry's agonizing changeover to the age of the missile and the jet.

Pay cuts ranging from 5% to 25% were ordered for all Douglas salaried employees making more than $12,000 a year--the first widespread salary cut since the drastic postwar cutbacks in 1946. The airframe unions promptly charged that the cut was a trick to undermine their position in current contract negotiations. But Board Chairman Donald Douglas Sr. denied the charge; he announced that the step was necessary to "help place the company in a stronger competitive position at this critical period."

One of Douglas' problems is its new DC-8 jetliner. Though Douglas has orders for 156 DC-8s, development expenses were so much more than anticipated that the firm is not yet near breaking even. Douglas also had to redesign parts of the DC-8 after the plane failed to meet its initial guarantees (Douglas' explanation: the DC-8 will go as fast as claimed--550 m.p.h.--but has to burn too much fuel to do so). Losses on the DC-8 contributed heavily to a net loss of nearly $34 million reported by the company for the year ending in November.

But the DC-8 is only one of Douglas' troubles. The phasing out of manned aircraft and quick changes in missile technology are leaving the company without a bread-and-butter contract. Items: P: The Thor program is fast ending.

Though there are firm orders (twelve units) for the Thor Delta, the production peak has been passed. The last Thor was delivered last month. P: The Air Force's Skybolt, an air-launched ballistic missile, may eventually be a big program (some estimates put it well over $500 million), but it is still in the early development stages and is by no means large enough to fill the hole left by Thor.

P: The C-133B transport program, which involved well under 100 planes, is due to phase out in 1961, and the A3D attack-plane program is due to run out next January, although orders for the A4D attack plane will run for several years. P: The anti-missile Nike Zeus has an uncertain future, but the antiaircraft Nike Hercules is still an important part of Douglas business.

Such changes make it fairly certain that Douglas will become a smaller company. On the bright side is the fact that Douglas has already substantially written off costs of its DC-8, has thus taken its licks early and is in a good competitive position to profit on jet sales from now on. The company also has plenty of cash ($35 million) and working capital ($154 million), and recently tied up with France's Sud-Aviation (TIME, Feb. 22) to market the twin-jet Caravelle, thus enabling itself to cover both the long-and short-range jet field.

Once opposed to the idea of moving into electronics, Douglas may be forced to change its mind, use its spare cash to buy into electronics firms, where it stands a chance at grabbing some fat Government research and development contracts. Last week the company promised "additional cost-cutting steps." A good possibility: methodical layoffs that by the end of 1961 could pare 10,000 people from its payroll of 62,500--already down 7,000 from last year.

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