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DOUGLAS AIRCRAFT CO. ISSUES NEW COST ESTIMATE FOR C-17 CONTRACT

 DOUGLAS AIRCRAFT CO. ISSUES NEW COST ESTIMATE FOR C-17 CONTRACT
 LONG BEACH, Calif., April 23 /PRNewswire/ -- Douglas Aircraft Co. today announced an approximate 3 percent increase in its estimate for completing the contract for the development and the two initial production lots of the C-17 transport aircraft it is building for the U.S. Air Force. Douglas' fixed price contract covers full-scale engineering and development, three test airframes, the first six production aircraft and the complete test program.
 The projected increase raises the estimate at completion of the combined contract to approximately $7.39 billion, including reserves. There will be no increased cost to the government since Douglas' estimated costs have been greater than the contract's fixed ceiling price. (As a result, McDonnell Douglas (NYSE: MD) yesterday recorded a pre-tax charge against first quarter earnings of $80 million dollars due to losses on the C-17 program.)
 "This refined, bottoms-up estimate is the result of evaluating all remaining tasks in light of lessons learned and the current performance on the C-17 program," said David O. Swain, executive vice president of Douglas' government segment. "We are unhappy with this projected growth, but since the work on the contract is now more than 92 percent complete and our flight test program is moving forward, we are quite confident in our estimates at this point in the program.
 "We also have completed an extensive estimate of our follow-on, Lot III contract for the next four production aircraft. There has been no significant increase in our cost estimates," Swain said. "The most significant cost item in this contract is supplier cost and currently 97 percent of these costs have been negotiated.
 "The cost performance on Lot III is most significant," Swain emphasized, "because it becomes a benchmark for projecting production costs of follow-on contracts. However the dominant factors affecting future program cost still will be production rate and the planned total quality of aircraft."
 Meanwhile the first test aircraft, T-1, continues to perform well in its flight test program at Edwards Air Force Base, Calif. During the month of April, the C-17 has flown 10 missions, including aerial refueling from a KC-135 tanker and high speed cruise. To date, the test aircraft has completed 55 missions totaling 168.8 hours.
 Swain attributed the revised cost estimate to several factors, including disruptions caused by layoffs in Douglas' commercial segment, additional engineering requirements, increased supplier costs and investments to improve production quality.
 Significant layoffs in Douglas Aircraft's commercial airline business during the first quarter had a temporary impact on C-17 production efficiency due to union bumping into the military program. Approximately 20 percent of the C-17 production work force was affected, causing a disruption due to the loss of learning and specific job experience.
 Additional engineering costs projected for the ground laboratory tests and the flight test program, along with actions to ensure a high quality support equipment program, also increased the C-17 development cost estimate.
 "We are incorporating items being discovered as part of the ground and flight test programs into the design and production of the airplane," Swain said. "The changed cost estimate also reflects significant investments by the company to reduce out-of-position work and to improve production quality. These benefits will be experienced primarily on Lot III and following contracts."
 Some of the growth was attributed to increased supplier costs resulting from evolution of the C-17's design.
 The flying test aircraft, T-1, has experienced three fuel leaks and fixing those has added to costs, Swain said. The C-17 employs a so-called "wet wing" design. The entire wing -- except for a dry bay over the fuselage -- is composed of four large fuel tanks. It is a huge, complex, flexible structure -- wider than a football field -- with attached slats, flaps, engine pylons, piping, pumps and electrical connectors.
 "Just finding the source of the small leaks has taken most of our down time in the flight test program. However, we have determined that the leaks are a manufacturing process issue, not a design problem," said Swain. "We are spending the time and incurring the expense to go back through the production processes on each completed wing set and are taking the appropriate corrective actions.
 "As a result, there has been a delay in the delivery of our first production aircraft, and an impact on cost growth," said the Douglas executive. "But more importantly, our entire production team is highly focused on assuring the quality of the delivered product."
 Swain also noted that the split of Douglas Aircraft's government and commercial segments at the beginning of the year has not added any costs to the government contracts. In fact, general overhead expenses during the first quarter of 1992 were lower than they were prior to the restructuring.
 Douglas continues to expect the C-17 program to be profitable in 1993. Swain stated, "Our learning curve is beginning to have an impact. We are building each subsequent C-17 with 25 percent fewer labor hours than the previous aircraft. Our production line is working more efficiently -- the processes are maturing and we are accomplishing more work in the planned manufacturing sequence.
 "With the vast share of our development and lab test facility costs behind us, we fully expect continuing quality improvements and a completely successful flight test program," Swain said.
 The C-17, designed to fulfill airlift needs well into the next century, can carry large combat equipment and troops or humanitarian aid across international distances directly to forward, austere airfields anywhere in the world. It has a maximum payload of 172,200 pounds and can be refueled in flight.
 The U.S. Air Force plans to acquire 120 C-17s, with the first full squadron operational by the end of 1994.
 Douglas Aircraft's main C-17 production and ground test facilities are located in Long Beach. Additional aircraft components for the aircraft are produced at McDonnell Douglas facilities in Torrance, Calif.; St. Louis; Columbus, Ohio; and Macon, Ga. More than 2,500 outside suppliers also participate in the C-17 program.
 -0- 4/23/92
 /CONTACT: Jim Ramsey, 310-496-5027, or Larry McCracken, 310-522-2552, both of Douglas Aircraft Co./ CO: Douglas Aircraft Co. ST: California IN: ARO SU: CON


AL -- LA020 -- 1911 04/23/92 12:54 EDT
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Date:Apr 23, 1992
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