55 Years Later: Why Douglas Merged With McDonnell

In January 1967, two United States aviation powerhouses, the Douglas Aircraft Company and the McDonnell Aircraft Corporation, announced their intentions to merge. The move would lead to the formation of the McDonnell Douglas Corporation, creating a stir in the market in the years to come.

MD-80 Sunset Getty
The McDonnell Douglas merger was made official on April 28th, following Douglas’ rejection from several other companies. Photo: Getty Images

Rich histories

Donald W. Douglas Sr. founded the Douglas Aircraft Company on July 22nd, 1921. The pioneer remained company president until 1957 before becoming chairman of the board until the merger in 1967. His son, Donald Douglas Jr., was also a driving force within the company since 1939. He was named as vice president in 1951 before taking over his father as president in 1957.

Douglas was a notable player in both the civil and military scenes. On the commercial side, the manufacturer was famed for the development of the DC series of aircraft that took civil aviation to new heights in the mid-20th century.

DC-3 fleet
The DC-3 and its variants were crucial in both commercial and military missions. Photo: Getty Images

James Smith McDonnell incorporated the McDonnell Aircraft Corporation in St. Louis on July 6th, 1939. The firm would go on to become a force in the aviation industry in the following decades, especially when it came to the space race and military efforts. Mr McDonnell was president until 1962 before becoming chairman and CEO.

Altogether, both companies were integral in the maturation of the US aviation market. A merger between the two firms would give them more ground across the spectrum, especially by allowing McDonnell to have significant coverage in the commercial sector.

F4 Phantom Squadron
McDonnell’s son, James Smith McDonnell III, would eventually become chairman and CEO of McDonnell Douglas. Photo: Getty Images

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Having to adapt to the changes

The post-war transformation in the market would take its toll on Douglas. Demand was at an all-time high for both civilian and fighter aircraft. The DC-8 and DC-9 were receiving a lot of attention from airlines, while the A-4 Skyhawk was increasing in popularity. However, Douglas was struggling to increase production output following the rise in demand.

There were also challenges due to staff shortages during the Vietnam War. These difficulties were on top of financial troubles that were rocking operations. As a result, Douglas was open to an offer from McDonnell, and talks began in the early 1960s.

After approximately four years of discussions, in January 1967, the leaders of two Douglas and McDonnell announced their intention of a merger. Following this step, Douglas Jr. and Mr McDonnell confirmed that the boards of their two businesses approved a definitive merger agreement on March 1st, 1967.

The plan was revealed to have Douglas Sr. serve as honorary chairman of the new McDonnell Douglas Corporation. Meanwhile, Mr McDonnell would serve as chairman and chief executive officer, and David Lewis would be the president.

Docked DC-8s
Numerous airlines were eager to get their hands on the new jets of the time. Photo: Getty Images

Significant support

On April 19th, 1967, Douglas shareholders came together in person and by proxy at an annual meeting at the Beverly Hilton Hotel. At the event, they voted to merge with the McDonnell Company amid financial struggles. Douglas highlighted that this move came about because “Douglas has been outrun by its own success.”

There was a considerable number of votes for the merger. In total, 4,897,543 shares were for the consolidation, and 41,065 were against it. In practice, over 1,200 shareholders were in favor of merging with McDonnell, with 71.98% of the vote. It was announced that Douglas Jr. Douglas would continue as head of the Douglas branch of the merged entity.

“Despite management efforts to make the Douglas acquisition fit under the McDonnell umbrella, the two remain very separate entities. Douglas, with production facilities at Long Beach, Calif., was founded and built by Donald Douglas, who began in 1920 by making a biplane of wood, wire and cloth,” The New York Times shared in 1979.

“The company dominated the commercial aircraft industry virtually without challenge until 1955, when Boeing and Lockheed began to gain ground. By 1967, when McDonnell took it over, the company had overcommitted itself and faced cash shortages and huge production costs on the DC‐9 twin jet transport.”

Delta DC-9
Delta Air Lines, who was a massive fan of the DC Series, flew the DC-9 family until 2014. Photo: Getty Images

The aftermath

Following the merger, the McDonnell Douglas Corporation would find it hard to balance success. The American Airlines Flight 191 crash that saw 271 passengers pass away on a DC-10-10 in Chicago would be a PR disaster. Other challenges with the aircraft and broader operations would also prove to be challenging.

“The McDonnell half of the company, paradoxically as strong in its defense business as ever, was having difficulty making the Douglas half perform as expected. The DC‐10, once the company’s great hope for its commercial business, has been a continuing problem ever since production began eight years ago. The plane has never made money for McDonnell Douglas and was not expected to until at least 1982,” The New York Times added.

“Last year the company lost $60 million on its commercial‐aviation business, nearly $10 million more than “McDonnell got Douglas for a song. But in the long run, it’s been an expensive proposition.”

Military contracts would provide a boost for the company. Sales of the F-4, F-15, and F-18 fighters would help McDonnell Douglas report a record income of $161.1 million in 1978.

American Airlines MD-80
McDonnell Douglas commercial aircraft such as the MD-80 would go on to become favorites among aviation enthusiasts. Photo: Getty Images

Another switch

Ultimately, McDonnell Douglas soon began discussing another merger, this time with Boeing. The announcement of a merger proposal with the fellow US behemoth was made public in 1996, with Boeing keen to make use of McDonnell Douglas’ facilities following high demand. The merger was then completed the following year.

All in all, both Douglas and McDonnell have parallels that can be drawn with their history. They were both family companies that were headed by two different generations. More importantly, the pair helped transition the United States’ aviation market into one of the most robust and influential industries in the world.

What are your thoughts about the merger between Douglas and McDonnell in 1967? What do you make of the causes and consequences of the move? Let us know what you think of the overall situation in the comment section.

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