With Airbus building and selling A320s at record rates, it is fascinating to go back 34 years to when an extraordinary deal to link two aerospace giants went sour over a lunch.
The deal, was for McDonnell Douglas Long Beach to build A320s and stretch the MD11 airframe, and use the A330/A340 wing to build the AM300.
It started in 1982 when, Sandy McDonnell, then Chairman of MDC appointed GE’s VP of Marketing Development Jim Worsham to take up an EVP position at Douglas.
Worsham had met Sandy McDonnell during the successful campaign to sell F-18s to the Royal Australian Air Force.
Worsham landed at the right time. Deregulation was rapidly changing market dynamics with point-to-point giving way to hub-and-spoke operations, which demanded smaller 150 seat jets.
Worsham responded with a once-only innovative rent-a-plane deal and secured orders from TWA and American for a total of 35 Super 80s and sold another 30 to Alitalia.
A beaming Worsham, who was appointed President of Douglas on 15 November 1982, told the Los Angeles Times that “reports of Douglas’ death were exaggerated.”
The Super 80 orders sparked an avalanche of business so the agenda of international collaboration fell off MDC’s radar for a short time. The production rate on the DC-9 Super 80, later renamed the MD80 to deflect the bad publicity relating to the DC-10, soared to 2.5 a week in 1987. With orders flowing plus fat military contracts, Worsham was able to get Douglas back into profit.
In late 1986, MDC launched a modest improvement of the DC-10 – dubbed the MD-11 – with various commitments for 92 aircraft from 12 airlines but it was a compromised design because of the decision by the MDC board not to sanction funding for an all-new wing.
So, in 1987, the MD11 was at the limit of its design guarantees and battling Airbus’ all-new A340/A330 combo.
“At MDC we were starved of R&D,” Worsham told the author in 2004. “So, we were shopping around for a new wing which would cost at least $1 billion so we could stretch the MD11.” In October of 1987, MDC even proposed a stretched MD11 with the existing wing but with a much-reduced range of just 5,000nm – well down from the 7,920nm of the standard offering.
Ironically, while bleating about Airbus’ “subsidies” from European Governments in its 1987 annual report, MDC was actively courting Airbus for a marriage of sorts to take advantage of its deep pockets.
Worsham was bullish about a French connection for MDC drawing on his vast experience with GE and Snecma. He also had great respect for Airbus leaders, lauding Felix Kracht and Roger Beteille as “great visionaries.” He added that in his view Kracht was a “manufacturing genius,” and Beteille was an “engineering giant.”
“I had the idea of getting MDC and Airbus into some sort of marriage,” he recounted. Worsham raised the issue with Airbus executives at the famous Conquistador Club for aircraft manufacturing chiefs at a Wyoming ranch in 1987.
The basis of the discussions started with the MD11 utilizing the wing of the A330/A340. Talks focused on a stretched MD11 with an A330 wing (AM300) to challenge the 747. A new 100-seat aircraft or a joint endeavour with the A320 was considered.
According to Worsham and insiders at Airbus, an agreement was tantalizingly close and it was “looking win, win”. Airbus was still yet to crack the US market and many saw a tie-up with MDC as the answer. In 1987, Airbus aircraft only made up 2 per cent (53 aircraft) of the US fleet, although another 60 were on order.
In March 1988, European Government ministers gave Airbus until July to bed down a deal with MDC. Airbus also talked with Lockheed about a US production line for the A320 but Henri Martre, the then-head of Aerospatiale and a member of the Airbus supervisory board, told trade media that “the Airbus partner companies were in agreement with the Government view that McDonnell Douglas offered the best possibility for successful cooperation.”
Worsham confirmed that at all levels of middle management there was consensus and real cooperation between Airbus and MDC and Airbus insiders say that agreement was imminent with press releases drafted detailing the agreement.
Many studies were done by Douglas engineers on the production with the A320 sharing Building 54 with the C-17.
However, Worsham claims that the luncheon meeting in Germany between the then-Chairman of the Airbus Supervisory Board, the late Franz-Josef Strauss, and the new MDC Chairman John McDonnell was a disaster. “This is a people business and John and the late Franz-Joseph just didn’t get on. I knew almost immediately that the deal was dead.”
“It was an irresistible force meeting an immovable object. John was very proud of what McDonnell Douglas had achieved and of the turnaround that had been made, while Franz-Joseph was equally proud of what Airbus had achieved and was very dedicated to what Airbus could accomplish.”
“I think the President of Airbus Jean Pierson and I could have worked a deal,” said Worsham. “And middle management and the technical people were onside.”
Strauss, who collapsed and died while hunting a few months after the meeting with John McDonnell, was described by one Airbus official “as a strong-willed, sometimes controversial German politician, who had made aviation his speciality. Strauss had been extremely active in the re-establishment of the German aerospace industry post-war.”
At the lunch, John McDonnell was upbeat that MDC had sold over 100 MD80s in each of the previous four years and the MD11 was starting to win more sales battles.
In fact, in 1988 the MD11 won 17 sales campaigns and McDonnell is likely to have gone into the luncheon knowing that Delta’s major MD11 order was very close.
In MDC’s 1988 annual report, John McDonnell said, “Another reason for confidence in MDC’s future is the rapid growth of some of our commercial businesses. MDC re-emerged as a clear number 2 in the commercial aircraft business as a result of a great surge in orders for the MD80 and MD11 in 1988.”
What he didn’t know was that his strategy of not committing to a new wing for the MD11 to save money would prove a disaster sowing the seeds for the collapse of MDC.
Adam Brown, Airbus VP of Customer Affairs in 2004 was part of the evaluation process in 1987/88 and told the author that “Worsham believed that Airbus and MDC could collaborate on a single program (AM300) while competing on others. We believed that it has to be a complete marriage across the whole product line.”
Brown said that Airbus developed a total plan for one product line. The AM300 was at the top of the range and to maximize its appeal to both Airbus and MDC customers would be offered the option of either an MD11 or A330/340 cockpit and flight system.
“There would be work-sharing on the A330/A340 calculated equally to give each partner the same ratio between investment and revenue and MDC agreed to halt the MD11 once the joint program was in place.
Eventually, according to Brown John McDonnell and Jim Worsham accepted this way forward and met with Airbus to finalize the deal.
“At this point, a press release was drafted” but it fell apart over the definition of a joint single-aisle 100-seat aircraft to be developed.”
McDonnell wanted yet another derivative of the MD80/90 but Airbus – rightly – rejected that as old technology.
Worsham reflected that he was in absolute shock after the lunch. Months of negotiations were in tatters in just 45 minutes. “Strauss suggested that Douglas didn’t have a hell of a lot to offer with old technology and obsolete stuff and that really rubbed John the wrong way. Many things work because of chemistry and this wasn’t one of them.”
Worsham considered ruefully that the last chance at European cooperation for McDonnell Douglas became just crumbs on a luncheon table somewhere in Germany. “I can’t even remember what the name of the city was.”
As history shows McDonnell’s reluctance to spend money on designing and building all new aircraft led to a collapse in orders and forced the merger with Boeing in late 1996.
Airbus has now sold over 16,000 A320s and is increasing the production rate to 70 a month.
Putting that extraordinary number into perspective McDonnell Douglas built just 2,438 DC-9/MD80/MD90s/MD95s. And the variant that John McDonnell wanted a new single-aisle based on sold just 116 and its smaller sibling, the MD95 (Boeing 717) just 155.