MIAMI – Today in Aviation, following Boeing’s 1996 acquisition of Rockwell’s North American division, McDonnell Douglas merged with Boeing. The deal was settled in a US$13bn stock swap, with Boeing as the surviving company.

Boeing decided to adopt a modified version of the McDonnell Douglas logo. It shows the globe being encircled in tribute to the first aerial circumnavigation. The feat was accomplished in 1924 by Douglas aircraft.

On December 15, 1996, the Boeing Company announced that it planned to acquire the McDonnell Douglas Corporation. According to The New York Times, this would be the 10th-largest merger in American history. It would also be the largest ever in the aerospace industry.

The Pentagon, headquarters of the Department of Defense. DoD photo by Master Sgt. Ken Hammond, U.S. Air Force.

Backdrop to The Merger

In 1993, the Pentagon summoned America’s main defense contractors to a meeting now known as “The Last Supper.”

It was the end of the cold war, and the military procurement budget was about to be cut in half.

In the meeting, the administration made it clear that it would prefer to deal with a smaller number of suppliers. In all, 32 defense companies consolidated into nine.

McDonnell Douglas MD-12 concept image. Photo: McDonnell Douglas

Situation for McDonnel Douglas

For McDonnell Douglas, the prospect was alarming. It had grown out of the merger, in 1967, of California’s Douglas Aircraft company. The latter made civil jets, with the McDonnell company, a leading maker of military aircraft.

The merger did not work. The new company never calmed the antagonism of the old Douglas employees at Long Beach, California. They felt ignored by the dominant military types back in St Louis.

In 1992, McDonnell Douglas presented a study of a double-deck jumbo-sized aircraft designated MD-12. The study looked like a public relations exercise to disguise one fact. It was struggling under the pressure from Boeing and Airbus.

Boeing 787 roll out. Photo: Mark Handel.

Situation for Boeing

As for Boeing, Phil Condit, its president, worried about remaining concentrated mainly in the cyclical market for civil aerospace.

“That would have meant Boeing being a bit player in military aircraft and space, while its fortunes ebbed and flowed with the commercial aircraft cycle,” Condit said at the time.

In search of stability, he contemplated a bold move: to buy-in space and military aircraft expertise by acquiring, first, most of Rockwell International, a medium-sized American defense business.

However, Condit envisioned a much bigger deal: acquiring McDonnell Douglas. The result would be to create the world’s second-largest defense company and the largest aerospace group.

Boeing South Carolina plant. Photo: Boeing

Legacy of the Merger

Being McDonnel Boeing’s last US commercial rival, the merger signaled that aircraft manufacturing would increasingly be a competition among nations. Airbus, which sold its first jet in 1974, had already become a formidable competitor behind Boeing.

According to The Economist, Boeing would have never begun supplying services to its traditional customers without the more precise focus it developed after the merger.

It would also have not planned a new communications service or an air-traffic management contract had it not developed Phantom Works in the post-merger integration process.

Like the famous Lockheed Martin “Skunk Works,” where the Pentagon develops secret defense systems as “black programs” for the Pentagon, Phantom Works was the research and development heart of McDonnell Douglas.

Boeing made this the R&D organization for the whole company, using it as a way of integrating the company. It used Phanthom Works to get knowledge from different parts of the company and consolidate it into a business plan.

In the end, the acquisition would make Boeing the only manufacturer of commercial jets in the US. It would also catapult it ahead of the Lockheed Martin Corporation as the world’s largest aerospace company. Furthermore, it would bolster its status as the nation’s leading exporter.

Parts of this article first appeared in The New York Times and The Economist circa 1996-2000.