Catch a Falling TriStar
By John Greenwald
Lockheed decides to drop out of commercial aviation
Business sense won out over pride last week, as the Lockheed Corp. announced that it was stopping production of its spectacularly unprofitable L-1011 TriStar wide-bodied jetliner. The California aerospace giant has lost $2.5 billion on the TriStar since 1968 and, with airlines currently mired in a three-year-long slump, it could see no relief in sight. Chairman Roy W. Anderson said that there was "no other choice but to begin now to phase the TriStar out in an orderly manner." The company will now concentrate mainly on defense production.
When the last of those jets is delivered in 1984, the American civil aviation business, which still produces 85% of the Western world's commercial jet aircraft, will be down to just two companies: Boeing and McDonnell Douglas. Both of them are also caught in the turbulence of the worldwide slowdown in air travel. Douglas had to swallow $144.3 million in development costs for the DC-9 Super 80 at a time when it sold only twelve DC-10s, and warned in September that it might have to stop production of wide-bodied DC-10s if the Air Force canceled orders for a military tanker version.
Even mighty Boeing is facing a drop in business. The Seattle-based firm has taken only 23 orders for its jumbo 747 in 1981, as compared with 49 last year, and just 24 for the medium-range 727, down from 74 in 1980. Also troubling Boeing is the proposal by American, Air Canada and other airlines to refit their aging 727 planes with new engines rather than Duy the new aircraft the company has designed. Boeing Chairman T.A. Wilson already admits that sales next year will be much slower than in 1981.
Trouble struck Lockheed's TriStar just after the first of the 300-passenger jets rolled off the Palmdale, Calif, assembly line. Production temporarily stopped in February 1971, when Britain's Rolls-Royce, the prime engine supplier, went bankrupt. The British government took over Rolls-Royce's aero-engine division, but demanded proof that Lockheed was financially sound before providing the equipment. Lockheed was indeed in trouble, but Congress approved a controversial $250 million loan guarantee for the company. The first TriStar was delivered to Eastern Air Lines in April 1972, about six months later than scheduled. The delays and uncertainties caused by the Rolls-Royce bankruptcy gave Boeing and McDonnell Douglas an additional competitive lead in the wide-bodied market. Lockheed was never able to make up that disadvantage, even though airlines found the TriStar plane reliable and efficient. The largest TriStar customer was Delta Air Lines, which operates 35 of the 220 now in service, and is buying three of the remaining 24 on firm order.
Lockheed flew into more turbulence during the mid-1970s, when it admitted making questionable overseas payments. The ensuing scandals rocked the Japanese and Italian governments, and in The Netherlands, the then queen's consort was forced to give up virtually all his military and business positions. The jumbo jet even gave Lockheed headaches when times were good. Orders poured in so fast in 1978 and 1979 that the company was forced to pay premium wages and materials prices to meet the unanticipated demand. The result: Lockheed lost $199 million on the TriStar last year, and the company's overall earnings fell 51%.
The end of the TriStar program should improve Lockheed's financial position. The firm's stock rose from 41 3/8 to 49 1/4 on the day after the announcement. Sales of the TriStar accounted for only about 18% of Lockheed's $5.4 billion in revenues last year. The company is the sixth largest American defense contractor and its most profitable products are missiles and space and electronic equipment followed by military air transports and reconnaissance jets.
But military contracting can be troublesome too, despite the vaunted plans of the Reagan Administration. The U.S. Navy announced last week that it was planning to cancel the purchase of at least $1.25 billion worth of Lockheed's P-3C Orion antisubmarine aircraft in order to save money for other programs.
Although Boeing's sales are slowing a bit, the company still dominates world commercial aviation. Boeing now has enough back-ordered planes to keep it busy into 1986, and it will be putting a new craft into service annually for the next three years: the 767 in 1982, the 757 in 1983 and the 737-300 in 1984. The first 757 will be unveiled next month in Seattle. Just behind those planes are plans for a new craft code named the 7-7. This would be a 150-passenger plane. Boeing is currently talking to the Japanese government's Central Transport Development Corp. about possible joint production of the 7-7.
McDonnell Douglas is looking to defense business to keep its assembly lines full. The company sold $2.2 billion worth of DC-10 and DC-9 aircraft last year, or about 37% of the firm's $6.1 billion in revenues. Analysts expect the commercial share of sales to shrink due to slowing air traffic and a rising backlog of government orders. The company's military hardware includes Harpoon antiship missiles and F-15 Eagle jet fighters. But McDonnell Douglas will not be dropping out of commercial aviation. It has signed a memo of understanding with Fokker aircraft of The Netherlands to study the possibility of a new 150-passenger jet that would compete with the 7-7.
While U.S. aviation manufacturers are running into troubles, the European Airbus, a medium-range wide-bodied jet that flies about 250 passengers and is built by a consortium of four governments, continues to make inroads. Airbus Industrie has passed both McDonnell Douglas and Lockheed to become the second largest seller of commercial jets in the world. A total of 320 of the wide-bodied airliners have been sold since 1974. The consortium is also planning a plane for the highly competitive 150-seat market. One interested prospect: Atlanta-based Delta, currently the most profitable U.S. carrier. America's once unchallenged supremacy in commercial aircraft may well be gone forever. --By John Greenwald. Reported by Jerry Hannifin/Washington and Joseph J. Kane/Burbank
With reporting by Jerry Hannifin/Washington, Joseph J. Kane/Burbank
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