Mc Donnell Douglas' Flight Plan

CEO Harry Stonecipher is revving things up at McDonnell Douglas

Outside the windows of the seventh-floor executive suite at McDonnell Douglas Corp., beneath echoing skies where fighter planes and carrier jets prove their mettle, looms a billboard that reveals just one of the hurdles facing CEO Harry C. Stonecipher. The St. Louis-based aerospace giant traditionally has rented the billboard to plug new aircraft and inspire pride and loyalty among workers. But in recent months, the space has often been hijacked by the company's union to trumpet some choice messages of its own. "Don't Be A Dirty Harry, Keep Our Jobs In St. Louis," one screamed. Demanded another: "Harry Stonecipher, Stop Outsourcing Our Jobs."

Since the 60-year-old Stonecipher took the helm nearly two years ago, he has had his share of successes--most notably, rescuing the troubled C-superscript17 transport program. But he has also faced plenty of headaches. Two months after his arrival, Scandinavian Airlines System (SAS) bailed out of a gentleman's agreement to order the commercial airline division's proposed MD-superscript95 and chose Boeing's 737 jetliner. A year later, Stonecipher bounced back with a commitment from ValuJet Airlines Inc. to buy 50 of the $20 million, 100-seat planes. Late last year, secret talks with Boeing Co. about a possible merger of defense operations broke down. In early June, the union took its case beyond the billboard; 6,700 workers walked out. Then, on June 17, the Federal Aviation Administration grounded ValuJet, leaving the only signed order for the MD-superscript95 in limbo.

So far, though, Stonecipher hasn't buckled. The first nonfamily member to run the company, he has moved swiftly out of the shadow of his predecessor, John F. McDonnell. While McDonnell is still chairman, Stonecipher, who declined to be interviewed for this article, is putting his imprint on the $14.3 billion company--and stepping on some toes in the process. He has bruised egos by bringing in new managers, miffed workers by outsourcing jobs in the U.S. and abroad, and shaken up marketing by firing the old ad agency and hiring new salespeople. But his reforms have calmed a board that wanted more aggressive management. Since he took over, the stock price has moved from 18 1/2 to about 50, adjusted for two splits. In the first quarter of 1996, strong military performance pushed net earnings up 25% over a year earlier, to $198 million. Says a board member: "Harry has even exceeded our high expectations. While he doesn't quite walk on water, he does know where all the rocks are."

Indeed, those rocks tripped up his predecessors. After founder James S. McDonnell retired in 1972, McDonnell Douglas suffered costly setbacks under his nephew, Sanford, and then his son, John F., who took charge in 1988. Performance floundered in part because of an ill-fated $1.5 billion investment in data processing, in part because the company ran so late and over budget on its contract to build the Air Force's C-superscript17 that by 1990, insolvency loomed. Before hiring Stonecipher, John McDonnell set the company back on course with a drastic restructuring that slashed operating costs and eliminated nearly half the workforce. But the C-superscript17 program was still in trouble, and the commercial airline division, Douglas Aircraft Co., had been neglected. Today, Douglas' share of the world's jetliner market, which stood at 22% in 1990, has fallen to 10%, vs. 60% for Boeing and 30% for Airbus Industrie.

Stonecipher is pushing hard to complete the turnaround. Decisive and hands-on, the son of a Tennessee coalminer started out as a lab technician at General Motors Corp.'s Allison Div. after earning a BS in physics from Tennessee Technological University. In 1960, he joined General Electric Co.'s jet-engine division, where he spent 27 years in engineering and management posts. In 1987, he moved to Sundstrand Corp. and within two years was named CEO, with a mandate to clean up the scandal-plagued aerospace and industrial parts maker. He negotiated a $200 million settlement of charges that the company had overbilled the Pentagon. He also cut 4,100 of 13,600 jobs, yet Mel Paris, president of Sundstrand's Local 592, remembers him for reducing management-labor friction. Stonecipher didn't mince words or tolerate excuses, says Paris, but "he stopped on the plant floor to talk to people, and that impressed us."

At McDonnell Douglas, Stonecipher quickly scored victories on the defense side. He worked closely with the Pentagon to restore the C-superscript17 program and in May, 1995, McDonnell won a $14.2 billion contract to build 80 more of the cargo planes. In October, it won a $1.5 billion Pentagon contract to build satellite-guided "smart bombs." And in June, the Air Force awarded McDonnell and Lockheed Martin Corp. a $3 billion contract to develop a new missile system.

DESPERATE. Early on, Stonecipher decided the 29-year-old merger between McDonnell and Douglas had never been consummated. Some executives at Long Beach (Calif.)-based Douglas, for example, had never visited headquarters. So he set up task forces to foster the exchange of design, manufacturing, and management techniques. Among the early fruits: the discovery of technologies that can be used by both sides of the company.

The biggest challenges now lie in commercial aviation. One problem: Douglas, which accounts for about 27% of McDonnell's revenues, has relied on its 163-seat MD-superscript90 and 300-passenger MD-superscript11, rather than widen its array of planes as Boeing and Airbus have. Desperate to launch the smaller MD-superscript95, Stonecipher is out hustling for Douglas. Early on, he began making overseas sales calls with the late Commerce Secretary Ronald H. Brown and leading his sales team in meetings to shore up relationships with customers in the U.S. and abroad. He dismissed J. Walter Thompson Co., McDonnell's agency for nearly 50 years, and hired McCann-Erickson Worldwide in a quest for ads that "make the hair on my arms stand up," according to Dan O'Brien, who handled the account at Thompson. "He's shaking things up, so we had to go," says O'Brien, now with Ameritech. "And from the look of the new campaign, I think he has delivered."

"BRUTE FORCE." The executive suite bears Stonecipher's stamp, too. In May, 1995, he lured Edward C. Bavaria, once a GE Engine marketing chief, out of retirement to help rebuild Douglas' customer base. And to wring out production inefficiencies, he recently made Michael M. Sears, who had managed some of McDonnell's most successful military programs, head of Douglas. Since Stonecipher arrived, Douglas' three-year product cycle time for new customers has been cut to 20 months. He's counting on Sears to drive it down further. "We haven't spent a lot of money on equipment and technology," notes Michael Marino, a manufacturing general manager. "A lot of the cycle time we cut with brute force."

Stonecipher has been less successful in the market. Douglas snared just 11 aircraft orders in the first quarter, while Boeing won 180. Since ValuJet's grounding, Stonecipher has been pursuing officials of Northwest and Continental, which own fleets of aging DC-superscript9s the MD-superscript95 would replace. "If ValuJet doesn't stay viable, there are plenty of other possibilities," says one McDonnell executive, who says company research indicates airlines will purchase between 1,700 and 2,000 planes in the 100-seat niche over the next 20 years.

It seems unlikely Stonecipher will pry himself off the hot seat soon. He's playing hardball with the union by hiring temporary replacement workers, and the strike could drag on, observers say, as the company exploits it to implement sweeping changes in its St. Louis plants. He's also standing firm on outsourcing.

Stonecipher never planned on a long honeymoon, anyway. Shortly after taking over, he told one executive: "For the first 100 days, I'm going to get along with everyone. After that, everybody's going to have to get along with me." And for those who don't, there's always the billboard.

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