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After Startling Contract Loss, McDonnell Braces for Future

By Ralph Vartabedian
Los Angeles Times

In a lounge atop the National Press Club in Washington two weeks ago, the chief executives of Northrop Grumman Corp. and McDonnell Douglas Corp. confidently predicted their team would suceed in the high-stakes Pentagon program to build a new generation jet fighter.

The two men - whose companies now produce the world's most lethal combat aircraft - brushed aside questions about what they might do if they lost the competition.

"I haven't given it any thought," said McDonnell chief executive Harry Stonecipher.

But now Stonecipher has plenty to worry about, following the Pentagon's stunning decision Saturday to drop McDonnell and Northrop from the competition for the new jet, known as the joint strike fighter.

The two companies chosen as finalists in the program, Lockheed Martin Corp. and Boeing Co., are now in a position to assume leadership of the elite business that remains a coveted symbol of military and technological prowess.

The rejection marks a stunning setback to McDonnell, the St. Louis-based firm that has dominated the world market for combat jets ever since the Vietnam War with its F-4 Phantom jet fighter.

"It is a loss, a devastating loss, no question about it," said Fred Hill, vice president of communications.

Stonecipher vowed to reporters on Saturday to "pull up our socks and get on with life" but the loss of a program touted as being worth more than $200 billion will leave some huge holes in those socks.

The defeat for Northrop is less devastating, since the company in the past two years has focused increasingly on the defense electronics market and appears headed to overtake Hughes Electronics, according to Loren Thompson, a defense expert at the deTocqueville Institution.

But the loss also represents what may be a final defeat for Northrop's 15-year-old ambition and heavy investments to be in the aircraft business's top tier.

The long-term outlook for McDonnell is considerably bleaker, since the company has elected to not diversify during the defense industry consolidation of the 1990s.

"This loss is devastating for McDonnell," Thompson said. "There has never been anything like the Joint Strike Fighter and probably won't be in our life times. Not to be a part of it is not to be a big part of the aerospace industry."