SEATTLE - Boeing Co.'s pension fund, already large, joins the ranks of the jumbo-jet-sized plans with the company's acquisition of McDonnell Douglas Corp.
Employee benefit assets at Boeing are expected to leap more than 57% as the company emerges a clear winner in the consolidation of the aerospace defense industry.
Boeing's retirement assets should total $34.2 billion - up from $21.74 billion now. That jump is the result of its recently completed purchase of Rockwell International Corp.'s defense and aerospace operation and its planned purchase of McDonnell Douglas Corp.
With the acquisition of McDonnell Douglas and its approximately $6.5 billion defined benefit plan assets plus another nearly $2.1 billion from the Rockwell plan, Boeing's defined benefit assets would total about $20.6 billion. That, coupled with about $3.1 billion in McDonnell Douglas defined contribution assets and about $800 million from Rockwell, would bring total defined contribution assets to about $13.6 billion.
Eventually, defined benefit assets from all three companies would be consolidated under the Boeing plan, many experts predict.
Michael Meyer, director of pension administration at McDonnell Douglas, said Boeing officials have not yet contacted McDonnell Douglas to discuss the pension plans.
Mr. Meyer said it was "premature" to discuss the possibility of merging the plans.
Meanwhile, the premium offered by Boeing for McDonnell Douglas as part of the acquisition could result in a windfall for participants in the McDonnell Douglas 401(k) plan, which holds about 37 million shares of company stock.
Under terms of the deal, McDonnell Douglas shareholders will receive 0.65 shares of Boeing common stock for each share of McDonnell Douglas common. Based on the Dec. 13 $101 closing price of Boeing and McDonnell Douglas' closing price of $52, the plan would reap a premium of more than $500 million as a result of the acquisition.
A Boeing spokeswoman said a transition team will work out integrating the companies, and that will include pension funds. The deal is expected to close by mid-1997.
How might the process go?
A former aerospace defense company pension executive whose company recently was acquired said the company being acquired usually opens its pension records to the acquirer for due diligence in advance of decisions on how the plans will fit together.
"We put all our records and data into a single room and (officials from the acquiring company) spent days reviewing our materials," said the executive, who asked not to be identified.
Ultimately, the plans were combined and several pension staffers were offered a transfer to the new company.
Neither Boeing nor McDonnell Douglas would release information regarding asset allocation or investment management.
But according to the 1997 Money Market Directory of Pension Funds and Their Investment Managers, Boeing uses 28 money managers, while McDonnell Douglas lists 18. The two share two managers - Capital Guardian Trust Co., Los Angeles, and Aeltus Investment Management Inc., Hartford, Conn. - and have a common master trustee, Chase Manhattan Bank, New York.
Based on Internal Revenue Service form 5500 filings from both companies for the 1994 plan year, the latest available, McDonnell Douglas had 70% of its defined benefit assets in equities vs. 58% for Boeing.
McDonnell Douglas' fixed-income exposure was low -10% - vs. Boeing's 39%. Its cash position - 16% - was high; Boeing has 1% in cash. And McDonnell Douglas had 4% of assets in real estate vs. 2% for Boeing.
Both companies appear to have overfunded pension funds. Boeing's 1995 annual report listed a surplus of about $1.9 billion on a termination basis, while McDonnell Douglas has a surplus of about $1.8 billion.
Paul Nisbet, aerospace analyst and president of JSA Research Inc., Newport, R.I., expects Boeing to merge the plans eventually. "I certainly think they will work toward that end. .*.*. At least they will reorganize the plans to where they both fit the same mold so they can put them together if they need to do so," he said.
Tom Murphy, consulting actuary at Kwasha Lipton, Fort Lee, N.J., said one reason for not merging the plans would be if Boeing intended to spin off or sell McDonnell Douglas.
But if Boeing intends to retain its acquisitions, it would make sense to merge the plans, Mr. Murphy said.
But Bill Cleary, national defined benefit practice leader at Sedgwick James Inc., Philadelphia, said it might make sense for Boeing to separate the defense-related sections into one plan and commercial aviation into another fund.