McDonnell to Cut Up to 17,000 Jobs by Year-End : Aerospace: Analysts and employees ask how the firm can meet its schedules with fewer people when it was unable to meet them before.

In an urgent and drastic effort to improve profitability, McDonnell Douglas will eliminate up to 17,000 jobs this year, including 9,000 in Southern California, all part of a previously announced $700-million cost reduction plan, the company said Monday.

Since the cutbacks include an earlier round of layoffs announced in April, the additional reductions are somewhat less than the worst expectations held by workers and securities analysts. With 4,000 jobs already being eliminated in Southern California, the reductions announced Monday will mean another 5,000 local jobs will go this year.

If McDonnell succeeds in eliminating $700 million in costs without sacrificing revenues, the company would reap huge profits. But investors were skeptical Monday that the firm’s future is so bright. McDonnell stock plummeted $2.50 to $42.375, a drop that reflected disappointment that even more drastic action was not taken.

The firm’s Douglas Aircraft unit, which will bear the brunt of the layoffs, lost $222 million in 1989. Suffering from production delays and technical problems on its MD-11 jetliner, its MD-80 jetliner and its C-17 military transport, Douglas is expected to close 1990 with an estimated loss of about $100 million.

In a telephone press conference from St. Louis, company Chairman John McDonnell refuted rumors that the company is about to sell its Douglas Aircraft unit in Long Beach or that the current reductions are the first steps toward moving Douglas out of California.

McDonnell, speaking to reporters for the first time in months, also disputed that his massive management reorganization undertaken last year to infuse the company with Japanese-style teamwork and help motivate workers, has been a failure.

“I would not say that (the reorganization) did not work,” McDonnell said. “We made some mistakes and we are in the process of correcting those mistakes.”

One apparent mistake was allowing employment to explode at Douglas Aircraft during 1989. McDonnell acknowledged that his management had allowed hiring and overall costs to go “out of control.”

The Douglas unit began 1990 with about 53,000 direct workers, thousands of whom had been hired last year. As of last week, Douglas had 49,000 direct workers. The total includes 40,100 in Long Beach; 4,700 in Torrance; 1,100 in Columbus, Ohio; 500 in Salt Lake City; 350 in Macon, Ga.; 300 in Melbourne, Ark.; 150 in Palmdale, and 1,800 in various locations around the world.

Under the plan disclosed Monday, McDonnell Douglas will eliminate between 14,000 and 17,000 jobs, about 11% of its work force. The reductions include layoffs of 4,500 workers in St. Louis at the company’s headquarters and at its combat aircraft operation. Another 1,000 layoffs will be scattered at other locations in 25 states around the nation.

Douglas Aircraft will lose about 2,000 to 2,500 direct jobs, including about 1,150 to 1,650 in Long Beach, 700 in Torrance, 150 in Columbus. In addition, about 1,500 workers under contract or so-called job shoppers, will be released.

McDonnell will also eliminate 1,000 workers at its Huntington Beach space systems and Culver City helicopter operations units.

John McDonnell said he did not have a breakdown in how the cutbacks will be apportioned between salaried and hourly workers, but he said most of the cuts will affect “primarily office-type” workers. It was left unclear whether the firm has an overall strategic plan to execute the layoffs.

In the previous round of layoffs announced in April, Douglas said it would eliminate 4,000 jobs held by direct employees and 3,000 jobs held by job shoppers. It ended up eliminating only about 4,000 of those 7,000 jobs, however.

Douglas spokesman Don Hanson said a concerted effort to find new jobs within the company helped to hold down the number of layoffs in the previous round of reductions. But in the current round, it is unlikely that so many workers will be spared, he said.

In addition to layoffs, McDonnell will attempt to reduce overtime and capital spending. It also will cut by 50% its contribution to an employee savings plan for salaried workers, sparing the company $60 million in costs annually.

Laid-off workers will be provided with counseling services and assistance in finding new jobs but not severance pay or an early retirement package.

The elimination of $700 million in annual costs would boost McDonnell profits by nearly $12 per share, said Prudential-Bache analyst Paul Nisbet, but “nobody believes this is going to translate so readily to the bottom line. The question is whether they can operate as promised in their schedules with 17,000 fewer workers.”

Indeed, John McDonnell said that the company is “looking at over the next few years a substantial growth in our business” as it begins to deliver on its vast backlog of commercial jetliners. A number of analysts and employees were left asking how the company can meet its schedules with fewer people when it was unable to meet them before.

Even if Douglas can restore order to its programs, however, securities analysts remain concerned about the long-term future of the operation.

“Can you conceive of this company having the resources to spend $4 billion like Boeing to develop an entirely new aircraft?” asked Paine Webber analyst Phil W. Friedman. “It is unfathomable.”