<PAGE> 1

                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


 [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

 For the quarterly period ended                 September 30, 1996
                                ----------------------------------

 OR

 [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

 For the transition period from                 to
                                -------------      --------------

 Commission file number    1-3685
                           ----------------


                          MCDONNELL DOUGLAS CORPORATION
          ------------------------------------------------------
          (Exact name of registrant as specified in its charter)


             Maryland                            43-0400674
            ---------                            -----------
 (State or other jurisdiction of     (I.R.S. Employer Identification No.)
  incorporation or organization)


                Post Office Box 516, St. Louis, MO  63166
               -------------------------------------------
          (Address and zip code of principal executive offices)


                                 314-232-0232
            ----------------------------------------------------
            (Registrant's telephone number, including area code)


 Indicate  by check  mark  whether  the  registrant  (1) has filed  all  reports
required to be filed by Section 13 or 15 (d) of the  Securities  Exchange Act of
1934  during  the  preceding  12 months  (or for each  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

        Yes   X    No     .
            ----     ----


================================================================================

 Common shares outstanding at October 31, 1996 - 212,162,047 shares


<PAGE> 2



     TABLE OF CONTENTS




     PART I     FINANCIAL INFORMATION                                      Page


                ITEM 1.  FINANCIAL STATEMENTS

                    CONSOLIDATED STATEMENT OF EARNINGS                      3-4

                    BALANCE SHEET                                           5-6

                    CONSOLIDATED STATEMENT OF CASH FLOWS                      7

                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS             8-14

                ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND RESULTS OF OPERATIONS         15-24



     PART II    OTHER INFORMATION

                ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                    25





<PAGE> 3


     PART I  FINANCIAL INFORMATION
     ITEM 1. FINANCIAL STATEMENTS


     MCDONNELL DOUGLAS CORPORATION
     CONSOLIDATED STATEMENT OF EARNINGS
     (Millions of dollars, except share data)


     THREE MONTHS ENDED SEPTEMBER 30                    1996         1995
                                                      --------     ------
                                                           (unaudited)

     Revenues                                          $ 3,308      $ 3,346

     Costs and expenses:
       Cost of products, services and rentals            2,666        2,784
       General and administrative expenses                 183          160
       Research and development                             94           75
       Interest expense:
         Aerospace segments                                 31           14
         Financial services and other segment               32           26
                                                       --------     -------

           Total Costs and Expenses                      3,006        3,059
                                                       --------     -------

         EARNINGS BEFORE INCOME TAXES                      302          287

     Income taxes                                          107           95
                                                       --------     -------

         NET EARNINGS                                  $   195      $   192
                                                       ========     =======


     EARNINGS PER SHARE                                $   .90      $   .85
                                                       ========     =======

     DIVIDENDS DECLARED PER SHARE                      $   .12      $   .10
                                                      =========    ========







     The accompanying  notes are an integral part of the consolidated  financial
     statements.


<PAGE> 4




     MCDONNELL DOUGLAS CORPORATION
     CONSOLIDATED STATEMENT OF EARNINGS
     (Millions of dollars, except share data)


     NINE MONTHS ENDED SEPTEMBER 30                      1996         1995
                                                       --------     ------
                                                            (unaudited)

     Revenues                                          $ 9,743      $10,601

     Costs and expenses:
       Cost of products, services and rentals            7,843        8,914
       General and administrative expenses                 529          499
       Research and development                            273          215
       Interest expense:
         Aerospace segments                                 93           86
         Financial services and other segment               94           81
                                                       --------     -------

           Total Costs and Expenses                      8,832        9,795
                                                       --------     -------

         EARNINGS BEFORE INCOME TAXES                      911          806

     Income taxes                                          330          286
                                                       --------     -------

         NET EARNINGS                                  $   581      $   520
                                                       ========     =======


     EARNINGS PER SHARE                                $  2.66      $  2.28
                                                       ========     =======

     DIVIDENDS DECLARED PER SHARE                      $   .36      $   .30
                                                      =========    ========







     The accompanying  notes are an integral part of the consolidated  financial
     statements.


<PAGE> 5


     BALANCE SHEET
     (Millions of dollars and shares)


                                              McDonnell Douglas Corporation
                                              and Consolidated Subsidiaries
                                              -----------------------------
                                                   September 30  December 31
                                                        1996         1995
                                                      --------    --------
                                                    (unaudited)
     Assets
       Cash and cash equivalents                      $   567     $   797
       Accounts receivable                                879         821
       Finance receivables and property on lease        2,819       2,347
       Contracts in process and inventories             3,652       3,421
       Prepaid income taxes                                 -           -
       Property, plant and equipment                    1,446       1,471
       Investment in Financial Services                     -           -
       Other assets                                     1,585       1,609
                                                      --------    -------
     Total Assets                                     $10,948     $10,466
                                                      ========    =======

     Liabilities and Shareholders' Equity
     Liabilities:
       Accounts payable and accrued expenses          $ 2,408     $ 2,284
       Accrued retiree benefits                         1,131       1,205
       Income taxes                                        76           3
       Advances and billings in excess of related
         costs                                          1,252       1,147
       Notes payable and long-term debt:
         Aerospace segments                             1,196       1,251
         Financial services and other segment           1,794       1,469
                                                      --------    -------
                                                        7,857       7,359

     Minority Interest                                     67          66

     Shareholders' Equity:
       Preferred Stock - none issued
       Common Stock - issued and outstanding:
         1996, 212.9 shares; 1995, 223.6 shares           213         224
       Additional capital                                   -           -
       Retained earnings                                2,839       2,835
       Unearned compensation                              (28)        (18)
                                                      --------    --------
                                                        3,024       3,041
                                                      --------    --------
     Total Liabilities and Shareholders' Equity       $10,948     $10,466
                                                      ========    ========

     The accompanying notes are an integral part of the financial statements.


<PAGE> 6







            MDC Aerospace                   Financial Services
       ----------------------             ------------------------
     September 30  December 31            September 30  December 31
         1996         1995                     1996         1995
       -------     --------                 ---------     ------
      (unaudited)                         (unaudited)

       $   550      $   784                 $    17      $    13
           963          934                       3            2
           235          165                   2,584        2,182
         3,652        3,421                       -            -
           274          315                       -            -
         1,384        1,358                      62          113
           368          331                       -            -
         1,513        1,527                      72           82
       --------     --------                --------     -------
       $ 8,939      $ 8,835                 $ 2,738      $ 2,392
       ========     ========                ========     =======



       $  2,331     $ 2,183                 $   164      $   216
          1,131       1,205                       -            -
             -            -                     350          318

          1,211       1,111                      41           36

          1,175       1,229                      21           22
             -            -                   1,794        1,469
       --------     --------                --------     -------
          5,848       5,728                   2,370        2,061

             67          66                       -            -




            213         224                       -            -
              -           -                     238          238
          2,839       2,835                     130           93
            (28)        (18)                      -            -
       ----------   --------                -------       ------
          3,024       3,041                     368          331
       ---------    --------                --------     -------
       $  8,939     $ 8,835                 $ 2,738      $ 2,392
       =========    ========                ========     =======


     As used on this page, "MDC Aerospace"  means the basis of  consolidation as
     described in Note 1 to the financial statements; "Financial Services" means
     McDonnell Douglas Financial Services  Corporation and all of its affiliates
     and associated companies and McDonnell Douglas Realty Company. Transactions
     between MDC Aerospace and Financial  Services have been eliminated from the
     "McDonnell Douglas Corporation and Consolidated Subsidiaries" columns.


<PAGE> 7


     MCDONNELL DOUGLAS CORPORATION
     CONSOLIDATED STATEMENT OF CASH FLOWS
     (Millions of dollars)


     NINE MONTHS ENDED SEPTEMBER 30                     1996         1995
                                                      --------     ------
                                                          (unaudited)
     OPERATING ACTIVITIES
       Net earnings                                   $  581       $  520
       Adjustments to reconcile net earnings to net
         cash provided by operating activities:
           Depreciation and amortization                 198          197
           Pension income                                (98)        (131)
           Change in operating assets and liabilities     54          189
                                                      ------      -------

         NET CASH PROVIDED BY OPERATING ACTIVITIES       735          775


     INVESTING ACTIVITIES
       Property, plant and equipment acquired           (141)         (99)
       Finance receivables and property on lease        (506)         (25)
       Proceeds from sale of assets                        -           25
       Other                                              27          (33)
                                                      -------     --------

         NET CASH USED BY INVESTING ACTIVITIES          (620)        (132)

     FINANCING ACTIVITIES
       Net change in borrowings (maturities 90 days
         or less)                                         64          (95)
       Debt having maturities more than 90 days:
         New borrowings                                  366          411
         Repayments                                     (160)        (327)
       Proceeds of stock options exercised                 1            1
       Common shares purchased                          (541)        (325)
       Dividends paid                                    (75)         (69)
                                                      -------      -------

         NET CASH USED BY FINANCING ACTIVITIES          (345)        (404)
                                                      -------      -------

         INCREASE (DECREASE) IN CASH AND CASH
           EQUIVALENTS                                  (230)         239

     Cash and cash equivalents at beginning of year      797          421
                                                      -------      ------

     Cash and cash equivalents at end of period       $  567       $  660
                                                      =======      ======




     The accompanying  notes are an integral part of the consolidated  financial
     statements.


<PAGE> 8


     MCDONNELL DOUGLAS CORPORATION
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     SEPTEMBER 30, 1996
     (Millions of dollars)




     1.   Basis of Presentation

     The accompanying  unaudited  consolidated  financial statements reflect all
     adjustments (which comprise only normal recurring accruals)  necessary,  in
     the  opinion  of  management,  for a fair  presentation  of  the  financial
     position,  the  results of  operations  and the cash flows for the  interim
     periods  presented.  The statements  should be read in conjunction with the
     consolidated   financial  statements  and  footnotes  thereto  included  in
     McDonnell Douglas  Corporation's Annual Report to Shareholders for the year
     ended December 31, 1995.

     The consolidated  financial  statements  comprise the accounts of McDonnell
     Douglas  Corporation  and its  subsidiaries,  including  McDonnell  Douglas
     Financial  Services  Corporation  (MDFS),  which is the  parent  company of
     McDonnell  Douglas  Finance  Corporation  (MDFC).  In  consolidation,   all
     significant intercompany balances and transactions are eliminated.

     The  consolidating  balance  sheet  represents  the  sum of all  affiliates
     companies  that  McDonnell  Douglas  Corporation   directly  or  indirectly
     controls  through  majority  ownership  or  otherwise.  Financial  data and
     related measurements are presented in the following categories:

        MDC Aerospace.  This represents the  consolidation of McDonnell  Douglas
        Corporation  and all of its  subsidiaries  other than MDFS and McDonnell
        Douglas  Realty  Company  (MDRC).  Those two are presented on a one-line
        basis as Investment in Financial Services.

        Financial Services.  This represents the consolidation of MDFS (and
        its subsidiaries) and MDRC, both wholly-owned subsidiaries of
        McDonnell Douglas.

        McDonnell Douglas Corporation and Consolidated Subsidiaries.  This
        represents the consolidation of McDonnell Douglas Corporation and
        all its subsidiaries (the Company).

     Reclassification

     In 1996,  McDonnell  Douglas  reclassified  cash flow  related  to  certain
     finance  receivables  and property on lease from  operating  activities  to
     investing activities.  The prior year has been restated to conform with the
     1996 presentation.



<PAGE> 9


     Stock Split

     In January  1996,  the McDonnell  Douglas  Board of Directors  authorized a
     two-for-one  stock split to be implemented by a stock dividend of one share
     for each  share  outstanding  to  shareholders  of record on May 10,  1996,
     payable on May 31,  1996.  Shareholders'  equity has been  restated to give
     retroactive  recognition  to the stock split for all periods  presented  by
     reclassifying  from retained  earnings to common stock the par value of the
     additional  shares arising from the split.  In addition,  all references to
     number of shares, per share amounts, and market prices of common stock have
     been restated to reflect the stock split.

     2.   Contracts in Process and Inventories

     Contracts in process and inventories consisted of the following:

                                               September 30    December 31
                                                      1996         1995
                                                   --------     --------
     Government contracts in process               $ 4,762      $ 5,451
     Commercial products in process                  2,512        1,936
     Material and spare parts                          771          634
     Progress payments to subcontractors               990        1,185
     Progress payments received                     (5,383)      (5,785)
                                                   --------     --------

                                                   $ 3,652      $ 3,421
                                                   ========     =======

     Substantially all government contracts in process (less applicable progress
     payments received) represent unbilled revenue and revenue that is currently
     not billable.

     The U.S. Navy on January 7, 1991,  notified  McDonnell  Douglas and General
     Dynamics  Corporation  (the Team) that it was  terminating  for default the
     Team's  contract  for  development  and  initial  production  of  the  A-12
     aircraft,  and  demanded  repayment  of amounts paid to the Team under such
     contract.  The Team  filed a legal  action to contest  the  Navy's  default
     termination,  to assert its rights to convert  the  termination  to one for
     "the  convenience of the  Government,"  and to obtain payment for work done
     and costs  incurred on the A-12 contract but not paid to date. At September
     30, 1996, Contracts in Process and Inventories included  approximately $574
     million of recorded costs on the A-12  contract,  against which the Company
     has  established  a loss  provision  of $350  million.  The  amount  of the
     provision,  which  was  established  in 1990,  was  based on the  Company's
     belief,  supported by an opinion of outside  counsel,  that the termination
     for default would be converted to a termination for  convenience,  that the
     Team would establish a minimum of $250 million in claims adjustments,  that
     there  was a range  of  reasonably  possible  results  on  termination  for
     convenience,  and that it was prudent to provide for what the Company  then
     believed  was  the  upper  range  of  possible  loss  on  termination   for
     convenience,  namely $350 million.  On December 19, 1995, the U.S. Court of
     Federal Claims ordered the Government's termination of the A-12 contract

<PAGE> 10

     for  default  be  converted  to  a  termination   for  convenience  of  the
     Government. On September 6, 1996, the U.S. Court of Federal Claims deferred
     the  then  scheduled   trial  to  determine  the  Team's   termination  for
     convenience  recovery,  noting that the parties had agreed in  principal to
     stipulate a damage  amount based on the Court's prior  rulings.  A judgment
     based on such a  stipulation  is expected to be entered in the near future.
     While the Government is expected to appeal the judgment,  McDonnell Douglas
     believes the judgment will be sustained on appeal.  Final resolution of the
     A-12 litigation will depend on conclusion of the damages stipulation,  such
     appeals,   and  possible  further   litigation  or  negotiations  with  the
     Government. If sustained, however, the expected damages judgment, including
     expected  interest  which the  Government  is disputing,  ultimately  could
     result in  pre-tax  income  ranging up to an amount  which  could more than
     offset the loss provision established in 1990.

     In 1984, the Company entered into a full-scale  development letter contract
     for the  T-45  Training  System.  The  final  negotiated  firm  fixed-price
     contract was agreed to in 1986. As a result of flight testing in late 1988,
     the Navy indicated that changes to the T-45 aircraft were necessary to meet
     its operational desires.  The Company proceeded with the improvements,  and
     their  cost  increased  the  cost at  completion  for the  development  and
     low-rate  initial-production  contracts  to a point where it  exceeded  the
     fixed price of such contracts. The Company submitted claims to the Navy for
     an  equitable   adjustment  in  contract   price  and  schedule  and  other
     appropriate  relief for such  improvements,  and  recorded  $225 million as
     expected  recovery on such claims. In August 1996, the Company and the Navy
     agreed to settle the T-45  claims,  and in  September  1996,  the Navy paid
     McDonnell  Douglas  $209  million.  The  agreement  also  provided  for the
     resolution of several contract issues and the conclusion of certain current
     business  arrangements.  McDonnell Douglas recorded a $14 million charge to
     pre-tax  earnings  in the  third  quarter  of 1996 in  connection  with the
     settlement and the resolution of such contract issues.

     Prior to October 1, 1995,  MD-11  production and tooling costs were charged
     to cost of sales based on the estimated  average unit cost for the program.
     The  estimated  average  unit  costs  were  based  on cost  estimates  of a
     301-aircraft  program.  The  costs  incurred  per  unit  in  excess  of the
     estimated  average unit cost were  deferred,  to be recovered by production
     and sale of lower-than-average  cost units. In applying the program-average
     method,  the Company  estimated  (a) the number of units to be produced and
     sold in the  program,  (b) the rate at which the units were  expected to be
     produced and sold, and thus the period of time to accomplish  that, and (c)
     selling prices, production costs, and the gross profit margin for the total
     program.

     Effective  October 1, 1995,  McDonnell  Douglas  changed its accounting for
     cost of sales on the MD-11 aircraft program from the  program-average  cost
     basis to the specific-unit cost basis. At the same time,  McDonnell Douglas
     revalued  MD-11 program  support  costs  previously  valued in  inventories
     consistent  with the  program-average  cost concept.  MD-11 program support
     costs  are  now  allocated  to  current  production.  This  change  to  the
     specific-unit costing method for the MD-11 program was made in recognition

<PAGE> 11

     of production  rates,  existing  order base, and length of time required to
     achieve program deliveries,  and thus, the resultant  increased  difficulty
     which  became  apparent  in the  fourth  quarter  of 1995 - in  making  the
     estimates necessary under the program-average method of accounting. Because
     the effect of this change in accounting  principle was inseparable from the
     effect of the change in accounting  estimate,  the change was accounted for
     as a change in estimate. As a result,  McDonnell Douglas recorded a noncash
     charge to operations of $1.838 billion in the fourth quarter of 1995.

     3.   Debt & Credit Arrangements

     MDC Aerospace Credit Agreements

     At September 30, 1996, MDC Aerospace has a revolving credit agreement (RCA)
     under which MDC Aerospace may borrow up to $1.75 billion through June 2000.
     Under the RCA,  the interest  rate,  at the option of MDC  Aerospace,  is a
     floating rate generally based on a defined prime rate, a fixed rate related
     to the  London  interbank  offered  rate  (LIBOR),  or as  quoted  under  a
     competitive bid. A fee is charged on the amount of the commitment.  The RCA
     contains  restrictive  covenants including but not limited to net worth (as
     defined),  indebtedness,   subsidiary  indebtedness,   customer  financing,
     interest coverage and liens. There are no amounts outstanding under the RCA
     at September 30, 1996.

     In August 1996, MDC Aerospace filed a shelf registration statement with the
     Securities and Exchange  Commission (SEC) relating to debt securities.  The
     filing increased a prior offering, commenced in 1992 for up to $550 million
     of notes (which at August  1996,  had a balance of unissued  securities  of
     $198  million),  by an  aggregate  principal  amount of $1  billion.  As of
     September  30, 1996,  MDC  Aerospace  had $1.198  billion of unissued  debt
     securities  registered  with the SEC. The interest rate  applicable to each
     note and certain other variable terms are established at the date of issue.

     Senior  debt  securities   totaling  $1.146  billion  were  outstanding  at
     September  30, 1996.  The notes were issued in 1992 and 1993 with  interest
     rates of  8.25%  to  9.75%  and  maturities  from  1997 to 2012.  Aerospace
     long-term  debt also includes  aerospace-related  obligations  of McDonnell
     Douglas Realty Company in the amount of $21 million at September 30, 1996.

     Financial Services Credit Agreements

     In  August  1996,  MDFS and  MDFC  amended  their  joint  revolving  credit
     agreement to, among other things,  provide for increased borrowing capacity
     and extend the maturity date. Under the amended agreement,  MDFC may borrow
     a maximum  of $240  million,  reduced  by MDFS  borrowings  under this same
     agreement.  By terms of this agreement,  which expires in August 2001, MDFS
     can borrow no more than $16 million.  The interest  rate,  at the option of
     MDFC or MDFS, is either a floating rate generally  based on a defined prime
     rate or fixed rate related to LIBOR.

<PAGE> 12


     There were no outstanding  borrowings under this agreement at September 30,
     1996.  Commercial  paper  issued by MDFC in the amount of $74  million  was
     outstanding at September 30, 1996. The joint RCA could therefore be used to
     support the full amount of commercial paper.

     The  provisions  of various  credit  and debt  agreements  require  MDFC to
     maintain a minimum net worth, restrict indebtedness,  and limit MDFC's cash
     dividends and other distributions.

     During the 1995 second quarter,  MDFC filed a shelf registration  statement
     with the SEC relating to up to $750 million  aggregate  principal amount of
     debt securities.  MDFC established a $500 million  medium-term note program
     under this registration statement, and as of September 30, 1996, had issued
     $290 million of such notes.

     During July 1995, MDFS initiated a medium-term note program under a private
     placement  of up  to  $100  million  principal  amount.  This  program  was
     increased to $200 million in April 1996. As of September 30, 1996, MDFS had
     issued $135 million of securities under this program.

     MDFC's senior debt at September 30, 1996,  included $59 million  secured by
     equipment  that had a carrying  value of $84  million.  MDRC's  debt of $30
     million at September  30, 1996,  was secured by  indentures of mortgage and
     deeds of trust on MDRC's  interest in real estate  developments  that had a
     carrying value of $60 million.

     4.   Income Taxes

     McDonnell  Douglas  reduced its tax  provision  by $11 million in the third
     quarter of 1995 as a result of resolution of certain tax issues.  The total
     impact, including the reduction in accrued interest, was an increase in net
     earnings of $25 million in 1995.

     5.   Financial Instruments

     McDonnell   Douglas  uses  derivative   financial   instruments  to  manage
     well-defined  foreign exchange subcontract price risks and foreign currency
     denominated  debt risks,  and on a selective  basis to reduce the impact of
     interest-rate  fluctuations on certain debt instruments.  McDonnell Douglas
     does not trade in derivatives for speculative purposes.

     At September 30, 1996, the notional  amount of forward  exchange  contracts
     denominated in currencies of major  industrial  countries was $331 million.
     The term of currency derivatives varies, but the longest is three years.

     At September 30, 1996, MDFC had interest rate swap  agreements  outstanding
     as follows:


<PAGE> 13


                                 Contract   Notional   Receive       Pay
                                 Maturity    Amount     Rate         Rate
                                 --------   --------   --------   --------

     Lease obligations         2006 - 2008    $409     Floating   6.7% - 7.6%
     Medium term notes             1997       $ 20     Floating       6.7%
     Medium term notes         2000 - 2001    $ 50     5.8% - 6.1%  Floating

     The floating rates are based on LIBOR or Federal Funds.

     6.   Commitments and Contingencies

     A number of legal  proceedings and claims are pending or have been asserted
     against the Company,  including  legal  proceedings  and claims relating to
     alleged  injuries to persons  associated  with the  disposal  of  hazardous
     substances.  A substantial  portion of such legal proceedings and claims is
     covered by insurance or settlements with insurance  companies.  The Company
     believes  that the final  outcome of such  proceedings  and claims will not
     have a material  adverse  effect on its  earnings,  cash flow, or financial
     position.

     The marketing of commercial  aircraft at times will result in agreements to
     provide or  guarantee  long-term  financing of some portion of the delivery
     price of  aircraft,  to lease  aircraft,  or to  guarantee  customer  lease
     payments, tax benefit transfers, or aircraft values. At September 30, 1996,
     the Company had made offers of this  nature to  customers  totaling  $2.801
     billion related to aircraft on order or under option scheduled for delivery
     through  the year  2011,  and had made  guarantees  and  other  commitments
     totaling $741 million on delivered  aircraft.  MDFS also had commitments to
     provide leasing and other financing in the aggregate amount of $201 million
     at  September  30,  1996.  The  Company  does not  expect  these  offers or
     commitments to have a material  adverse effect on its earnings,  cash flow,
     or financial position.

     The Company's  outstanding  guarantees  include  amounts  related to MD-11s
     operated by Viacao Aerea  Rio-Grandense  S.A.  (VARIG).  During 1994, VARIG
     notified  its  aircraft   lenders  and  lessors  that  it  was  temporarily
     suspending  payments pending a restructuring of its financial  obligations.
     In connection with that  restructuring,  the Company made lease,  loan, and
     interest payments totaling $65 million on behalf of VARIG in 1994 and 1995.
     During January 1996,  VARIG  requested  deferral of additional  obligations
     covering  the January  1996  through  January  1998  period.  VARIG and the
     Company  agreed  to  defer  certain  payments  owed  to the  Company,  with
     repayment by VARIG to begin in 1998. These restructurings and payments have
     not had and, assuming restructuring steps are successful,  are not expected
     to have a material adverse effect on the Company's earnings,  cash flow, or
     financial position.

     The  Company  is a party to a  number  of  proceedings  brought  under  the
     Comprehensive  Environmental  Response,  Compensation,  and Liability  Act,
     commonly  known as Superfund,  or similar state  statutes.  The Company has
     been  identified as a potentially  responsible  party (PRP) at 33 sites. Of
     these, the Company  believes that it has de minimis  liability at 21 sites,
     including 14 sites at which it believes that it has no future liability. At

<PAGE> 14

     four of the sites where the Company's  liability is not considered to be de
     minimis, the Company lacks sufficient information to determine its probable
     share or amount of  liability.  At the  remaining  eight sites at which the
     Company's  liability is not  considered  to be de minimis,  either final or
     interim cost sharing  agreements have been effected between the cooperating
     PRPs, although such agreements do not fix the amount of cleanup costs which
     the parties will bear.  In  addition,  the Company is  remediating,  or has
     begun environmental  engineering studies to determine cleanup requirements,
     at certain of its current  operating  sites or former  sites of  industrial
     activity.

     At September  30, 1996,  the accrued  liability  for study and  remediation
     expenditures  at Superfund  sites and for the Company's  current and former
     operating  sites was $44 million.  Because of  uncertainty  inherent in the
     estimation  process,  it is at least reasonably  possible that actual costs
     will differ from  estimates.  Ongoing  operating and  maintenance  costs on
     current  operating sites and remediation  expenditures on property held for
     sale are not included in this amount. The Company believes any amounts paid
     in excess of the accrued  liability will not have a material  effect on its
     earnings,  cash  flow,  or  financial  position.  Claims for  recovery  are
     recorded as  receivables  and  therefore  have not been netted  against the
     environmental   liabilities.   Receivables  have  been  recorded  from  one
     insurance carrier with which  environmental  coverage has been agreed,  and
     total $8 million at September 30, 1996.


     7.   Operations of MDFS

     The condensed  financial data presented below have been summarized from the
     consolidated financial statements of MDFS:

     Nine Months Ended September 30               1996             1995
                                                --------         ------

     Earned income                              $ 166            $ 143
     Costs and expenses                           117              101
     Net earnings                                  32               27
     Dividends                                      -               26

     8.   Supplementary Payment Information

     Supplementary  interest and income tax payment information consisted of the
     following:

     Nine Months Ended September 30               1996             1995
                                                --------         ------

     Interest paid                              $ 168            $ 155
     Income taxes paid                            244              217

     9.   Earnings Per Share

     Earnings per share  computations are based upon the weighted average common
     shares outstanding  during the nine-month period,  which were 218.2 million
     in 1996 and 228.1 million in 1995.


<PAGE> 15


     ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS


     The following  discussion and analysis  should be read in conjunction  with
     the Notes to  Consolidated  Financial  Statements  beginning on page 8, and
     with  Management's  Discussion  and  Analysis of  Financial  Condition  and
     Results of Operations (MD&A), Audited Consolidated Financial Statements and
     Notes to Consolidated  Financial Statements appearing in the Company's 1995
     Annual Report to Shareholders (the 1995 Annual Report).

     Forward-Looking Information

     Statements and financial  discussion  and analysis by management  contained
     herein and in the MD&A of the 1995 Annual  Report which are not  historical
     facts are forward-looking  statements.  Such forward-looking  statements in
     this  document  are made  pursuant  to the safe  harbor  provisions  of the
     Private   Securities   Litigation  Reform  Act  of  1995.   Forward-looking
     statements involve a number of risks and uncertainties. For a discussion of
     certain risks and uncertainties  which may affect the actual results of any
     forward-looking  information  contained herein, refer to the Form 8-K filed
     by the Company with the Securities and Exchange  Commission  (SEC) on April
     17, 1996.

     Results of Operations

     McDonnell  Douglas  revenues were $3.3 billion in the third quarter of both
     1996 and  1995.  Revenues  for the  first  nine  months  of 1996  were $9.7
     billion,  down from  $10.6  billion  in the first  nine  months of 1995.  A
     decrease in revenue in the commercial  aircraft  segment was only partially
     offset  by  increased  nine  month  revenues  in the  missiles,  space  and
     electronic systems segment.

     Net earnings for the third quarter of 1996 were $195  million,  or $.90 per
     share,  which  included an after-tax  charge of $9 million,  or 4 cents per
     share,  for settlement of T-45 claims.  That compares with earnings of $192
     million,  or $.85 per share,  in the 1995  third  quarter,  which  included
     earnings of $25 million,  or $.11 per share,  as a result of  resolution of
     certain tax  issues.  Net  earnings  for the first nine months of 1996 were
     $581 million, or $2.66 per share,  compared with $520 million, or $2.28 per
     share,  in the first nine months of 1995.  The 1996 earnings per share were
     17 percent higher than the 1995 first nine months. The 99-day strike at the
     St. Louis, Mo.,  facilities,  which ended in mid-September,  has not and is
     not expected to have a material adverse effect on its earnings or financial
     position.  Delayed deliveries caused by the strike resulted in reduced cash
     flow  in the  third  quarter  of 1996  and  are  expected  to  continue  to
     negatively  impact cash flow in the fourth  quarter of 1996 and early 1997.
     Deliveries,  and the  associated  cash  flow,  are  expected  to be largely
     recovered in the second half of 1997.

<PAGE> 16

     Operating  earnings  were $339 million for the third  quarter of 1996,  and
     $1.014  billion for the first nine months of 1996.  That compares with $295
     million  and $888  million,  respectively,  for the same  periods  in 1995.
     Improvement in the military  aircraft and commercial  aircraft segments led
     the increase in the 1996 third quarter.  The operating earnings improvement
     for the nine months was primarily in the military  aircraft segment and, to
     a lesser extent, in the commercial aircraft segment.

     Interest expense and the tax provision were reduced in the third quarter of
     1995 as a  result  of  resolution  of  certain  tax  issues,  resulting  in
     after-tax  earnings of $25  million.  Interest  expense  for the  aerospace
     segments  in the  third  quarter  of 1996 was $31  million,  down  from $37
     million in the 1995 same period,  after excluding from 1995 the reversal of
     $23 million in interest  associated  with the resolution of the tax issues.
     Interest expense for the aerospace segment in the first nine months of 1996
     was $93  million,  down from $109  million in the 1995  first nine  months,
     after  excluding  the  reversal  of interest  associated  with the 1995 tax
     issues. The lower interest reflects reduced aerospace debt.

     Pension  income totaled $33 million in the third quarter and $98 million in
     the 1996 first nine  months,  compared  with $38 million and $131  million,
     respectively,  in the same periods of 1995.  Increases in pension  benefits
     announced  in the  second  quarter  of 1995 and a change  in the  actuarial
     interest   assumption  for  the  discount  rate  contributed  to  the  1996
     reduction.  In connection  with the  settlement of a union  negotiation  in
     September  1996,  McDonnell  Douglas agreed to changes in its pension plans
     covering  certain of its future  union  retirees.  The changes  provide for
     increased  pension  benefits  and an early  retirement  option for  certain
     employees.  As a result of the changes,  pension  income in the 1996 fourth
     quarter will decrease by approximately $6 million.


<PAGE> 17



                                     Three Months Ended    Nine Months Ended
                                        September 30         September 30
                                       1996      1995       1996      1995
                                      ------    ------     ------    -----

                                               (Millions of Dollars)
     Revenues
       Military aircraft             $ 1,902   $ 2,102    $ 5,864   $ 6,000
       Commercial aircraft               773       663      1,923     2,965
       Missiles, space and
         electronic systems              533       488      1,670     1,366
       Financial services and other       99        81        273       242
                                     --------   -------   --------  -------

         Operating revenues            3,307     3,334      9,730    10,573

       Non-operating income                1        12         13        28
                                     --------  --------   --------  -------

       Total Revenues                $ 3,308   $ 3,346    $ 9,743   $10,601
                                     ========  ========   ========  =======

     Earnings (Losses)
       Military aircraft             $   253   $   237    $   746   $   652
       Commercial aircraft                23        (7)        60        26
       Missiles, space and
         electronic systems               43        52        154       168
       Financial services and other       20        13         54        42
                                     --------  --------   --------  -------

         Operating earnings              339       295      1,014       888

       Corporate and other                (6)        6        (10)        4
       Interest expense                  (31)      (14)       (93)      (86)
       Income taxes                     (107)      (95)      (330)     (286)
                                     --------  --------    -------  --------

       Net Earnings                  $   195   $   192    $   581   $   520
                                     ========  ========   ========  =======

     Military Aircraft

     Revenues for the military  aircraft segment were $1.9 billion for the third
     quarter and $5.9 billion for the first nine months of 1996.  That  compares
     with $2.1 billion and $6.0 billion,  respectively,  for the same periods in
     1995. The third quarter 1996 revenue decrease was largely associated with a
     99-day  strike  at  the  St.  Louis,   Mo.,   facilities,   which  ended  
     in mid-September.

     Operating  earnings  in this  segment in the 1996 third  quarter  were $253
     million, compared with $237 million in the third quarter of 1995. Increased
     volume and improved margins on the C-17 and Longbow Apache programs led the
     improvement  in 1996.  Third quarter 1996 results  included an award fee on
     the  C-17  program,  partially  offset  by a  $14  million  pre-tax  charge
     associated  with the  settlement  of the T-45  claims.  Third  quarter 1995
     results  included  award  fees on both  the C-17  and  F/A-18E/F  programs.
     Operating  earnings in this  segment for the first nine months of 1996 were
     $746  million,  compared  with $652 million in the 1995 same  period,  a 14
     percent  improvement over 1995.  Improved  earnings in the C-17, F/A-18 and
     military helicopter programs accounted for most of the improvement. The

<PAGE> 18

     1996  nine   month   results   included  a  charge   associated   with  the
     aforementioned T-45 claims settlement, and the 1995 same period included an
     $18 million write-off on a modified KDC-10 Dutch Tanker contract  involving
     a new product design.

     Commercial Aircraft

     Revenues in the commercial  aircraft segment were $.8 billion for the third
     quarter and $1.9 billion for the first nine months of 1996,  compared  with
     $.7 billion in the third  quarter and $3.0 billion in the first nine months
     of 1995.  McDonnell  Douglas  delivered four MD-80 and four MD-90 twin jets
     and three MD-11  trijets in 1996's third  quarter.  This compared with four
     MD-80  and four  MD-90  twin  jets and two MD-11  trijets  in 1995's  third
     quarter.  For the first nine months of 1996, twin jet deliveries totaled 19
     (11 MD-80s and eight MD-90s) and trijet deliveries  totaled ten, a decrease
     of six twin jets and three  trijets from the same period in 1995.  Three of
     the twin jet and two of the trijet 1996  deliveries  were  accounted for as
     operating leases with minimal revenue recorded on such  transactions at the
     time of delivery.

     Operating  earnings in the commercial  aircraft segment were $23 million in
     the 1996  third  quarter,  compared  with a loss of $7  million in the 1995
     third quarter.  Earnings from the sale of spare parts and related  services
     continued their contribution to earnings in the 1996 third quarter and were
     partially  offset  by  losses  incurred  on the  MD-95  program,  which  is
     presently in the development  phase.  Loss provisions on several MD-90 twin
     jets contributed to the loss in the 1995 third quarter.

     Operating  earnings in the commercial  aircraft  segment for the first nine
     months of 1996 were $60 million, compared with $26 million in the 1995 same
     period.  Earnings in the 1996 second quarter  included  recoveries  from an
     insurance carrier of charges previously  expensed related to a 1987 airline
     accident,  and in the first quarter  included  recoveries  associated  with
     environmental  insurance  coverage.  Development  costs associated with the
     MD-95,  which were higher in the 1996 first nine months  compared  with the
     1995 same period, have more than offset these insurance recoveries.

     Effective October 1, 1995,  McDonnell Douglas began recording cost of sales
     on MD-11 trijet sales on the specific-unit  cost basis. Prior to October 1,
     1995,  MD-11 trijet  production  and tooling  costs were charged to cost of
     sales using the  program-average  cost  basis.  See Note 2,  "Contracts  in
     Process and Inventories," page 9, for a further discussion of this change.

     McDonnell  Douglas  received orders for seven MD-80 twin jets and one MD-11
     passenger  trijet  in the  third  quarter  of 1996.  The  MD-11  trijet  is
     scheduled  for  delivery  in 1996.  The MD-80 twin jets are  scheduled  for
     delivery in 1997.  Recently announced orders for five MD-11s and ten MD-80s
     will be included in backlog when contracts are completed.  On September 30,
     1996,  McDonnell  Douglas had firm orders for 20 MD-80 twin jets, 121 MD-90
     twin jets, 50 MD-95 twin jets, and 17 MD-11 trijets.


<PAGE> 19

     Missiles, Space and Electronic Systems

     Revenues for the missiles,  space and electronic  systems segment were $533
     million for the third quarter and $1.7 billion for the first nine months of
     1996. That compares with $488 million and $1.4 billion for the same periods
     in 1995.  Higher  revenue  in the  Delta  II and  Space  Station  programs,
     partially offset by lower revenue in the missiles programs,  contributed to
     the increase in the 1996 periods.

     Operating earnings in the missiles, space and electronic systems segment in
     the 1996 third  quarter  and first nine  months  were $43  million and $154
     million, respectively, compared to $52 million and $168 million in the 1995
     same periods.  Expenditures  on the Delta III, a launch  vehicle  currently
     under development,  were partially offset by improved earnings in the Delta
     II program during each of the first three quarters of 1996.

     Financial Services

     Operating  earnings in the  financial  services and other  segment were $20
     million  for the third  quarter  and $54  million  in the 1996  first  nine
     months,  compared  with $13 million and $42 million,  respectively,  in the
     1995 same periods.  Revenues in this segment were up $18 million during the
     quarter to $99 million  and were $273  million for the first nine months of
     1996,  $31  million  higher  than in the first  nine  months  of 1995.  The
     earnings  improvement and revenues increase reflect the Company's continued
     focus on growing this segment of its business.

     Liquidity

     As  detailed  in  this  section,  McDonnell  Douglas  believes  that it has
     sufficient sources of capital to meet existing commitments and plans.

     Debt and Credit Arrangements. MDC Aerospace has in place a number of credit
     facilities  with banks and other  institutions.  At September 30, 1996, MDC
     Aerospace had a revolving  credit agreement (RCA) under which it can borrow
     up to $1.75 billion  through June 2000.  There were no amounts  outstanding
     under the RCA at September 30, 1996.

     In August 1996, MDC Aerospace filed a shelf  registration  with the SEC, to
     register an additional $1 billion in debt  securities.  As of September 30,
     1996,  MDC  Aerospace  had  $1.198  billion  of  unissued  debt  securities
     registered  with the SEC. In the 1996 fourth  quarter,  the Company  issued
     $250 million of 6.875% notes due in 2006 under this shelf registration.

     Amounts available under the RCA and the shelf  registration may be accessed
     to meet cash requirements.

     McDonnell  Douglas has an agreement with a financial  institution to sell a
     participation interest in a designated pool of government and

<PAGE> 20


     commercial  receivables in amounts up to $300 million.  As of September 30,
     1996, no current receivable interests have been sold.

     In September 1996, Moody's Investor Service raised its ratings of McDonnell
     Douglas existing senior debt to Baa1 from Baa2. The investment-grade rating
     also applies to $1.198 billion of available securities  registered with the
     SEC through a shelf registration in August 1996.

     Shareholder  Initiatives.  On October  28,  1994,  the  Company's  Board of
     Directors  authorized a stock  repurchase  plan that  authorizes  McDonnell
     Douglas to  purchase  up to 36 million  shares,  or about 15 percent of its
     then-outstanding  common stock. Although funds are available under existing
     debt  agreements,  the Company intends to continue to use cash flow to fund
     the stock  repurchase  program  and does not expect  the  program to affect
     negatively  the Company's  ability to fund capital  spending,  research and
     development,  or acquisitions.  Through September 30, 1996, the Company had
     acquired  25.6  million  shares,  or about  71  percent  of the  authorized
     repurchase amount, at a cost of $962 million.

     Aerospace Cash & Cash Equivalents. Aerospace cash and cash equivalents were
     $550 million at September 30, 1996,  compared with $784 million at December
     31, 1995.  Aerospace  debt decreased by $54 million during the same period.
     Cash provided by aerospace  operations  was $362 million for the first nine
     months of 1996,  prior to  reductions  of $541  million  for  common  stock
     repurchases.  Cash flow included $209 million  received from  settlement of
     long-standing T-45 claims with the U.S. Government.  See Note 2, "Contracts
     in  Process  and  Inventories,"  page 9, for a  further  discussion  of the
     agreement.

     Development  Programs.  In October  1995,  McDonnell  Douglas  launched the
     MD-95, a 100-seat  medium-range  airliner.  Initial deliveries of the MD-95
     are scheduled in 1999. In addition, in May 1995 McDonnell Douglas announced
     the development of the Delta III, its newest expendable launch vehicle. The
     MD-95  twin  jet and  the  Delta  III  launch  vehicle  will  require  cash
     expenditures in development, inventory, and tooling during the next several
     years,  which the Company  intends to fund with cash flow,  from  resources
     available  under its existing  credit  agreements,  or from the issuance of
     additional debt securities.

     Commercial Aircraft Financing. Airlines may decline deliveries of aircraft,
     request  changes in delivery  schedules,  or default on contracts  for firm
     orders.  Aircraft  delivery  delays  or  defaults  by  commercial  aircraft
     customers not  anticipated by the Company could have a negative  short-term
     impact on cash  flow.  During  recent  years,  several  airlines  filed for
     protection under the Federal  Bankruptcy Code or became delinquent on their
     obligations for commercial  aircraft.  As indicated in Note 6, "Commitments
     and Contingencies," page 13, the Company also has outstanding guarantees of
     $741 million related to the marketing of commercial  aircraft.  The Company
     does not believe that the existence of such guarantees,  after  considering
     residual values of the aircraft, or delays or defaults by commercial

<PAGE> 21

     aircraft customers,  will have a material adverse effect upon its earnings,
     cash flow, or financial position.

     McDonnell  Douglas has made lease,  loan principal,  and interest  payments
     totaling  $65  million  and has  agreed  to make  certain  additional  loan
     principal   payments  through  January  1998  on  behalf  of  Viacao  Aerea
     Rio-Grandense S.A. (VARIG). Payments on behalf of VARIG are not expected to
     have a  material  adverse  effect on  earnings,  cash  flow,  or  financial
     position of the Company.  See Note 6, "Commitments and Contingencies," page
     13, for a further discussion of VARIG.

     The Company,  including  MDFC, has also made offers totaling $2.801 billion
     to arrange or provide financing for ordered but undelivered  aircraft.  The
     Company does not  anticipate  that the existence of such  financing  offers
     will  have a  material  adverse  effect  on its  earnings,  cash  flow,  or
     financial position. See Note 6, "Commitments and Contingencies," page 13.

     Financial  Services.  Financial  Services debt at September  30, 1996,  was
     approximately $1.8 billion,  up from approximately $1.5 billion at December
     31, 1995.  The increase in debt is consistent  with the  increased  finance
     receivables and property on lease portfolio of MDFC.

     In  August  1996,  MDFS and  MDFC  amended  their  joint  revolving  credit
     agreement to, among other things,  provide for increased borrowing capacity
     and extend the maturity date. Under the amended agreement,  MDFC may borrow
     a maximum  of $240  million,  reduced  by MDFS  borrowings  under this same
     agreement.  By terms of this agreement,  which expires in August 2001, MDFS
     can borrow no more than $16 million.  There were no outstanding  borrowings
     under this agreement at September 30, 1996. Commercial paper issued by MDFC
     in the amount of $74 million was  outstanding  at September  30, 1996.  The
     joint  revolving  credit  agreement  could therefore be used to support the
     full amount of commercial paper.

     During  1995,  MDFC  filed  a shelf  registration  statement  with  the SEC
     providing  for up to  $750  million  aggregate  principal  amount  of  debt
     securities.  MDFC established a $500 million medium-term note program under
     this registration statement,  and as of September 30, 1996, had issued $290
     million of debt securities under this program.

     During 1995, MDFS also initiated a medium-term note program under a private
     placement of up to $100 million aggregate  principal  amount.  This program
     was increased to $200 million in April 1996. As of September 30, 1996, MDFS
     had issued $135 million of securities under this program.

     MDFC has also used, and in the future  anticipates  using, cash provided by
     operations,  commercial  paper  borrowings,  borrowings  under bank  credit
     lines,  and term  borrowings as its primary  sources of funding.  MDFC also
     anticipates  using  proceeds  from the  issuance of  additional  public and
     private debt to fund future growth.


<PAGE> 22


     Business and Market Considerations

     General

     McDonnell   Douglas   Corporation  is  one  of  the  largest  U.S.  defense
     contractors and NASA prime contractors.  McDonnell Douglas has a wide range
     of programs  in  production  and  development,  and is the world's  leading
     producer of military  aircraft.McDonnell  Douglas is also a manufacturer of
     large commercial transport aircraft.

     Discussion under the captions "Military  Aerospace  Business",  "Commercial
     Aircraft   Business",   and  "Government   Business  Audits,   Reviews  and
     Investigations" reflect developments since June 30, 1996 and should be read
     in conjunction with the "Business and Market Considerations"  discussion in
     Management's  Discussion and Analysis of Financial Condition and Results of
     Operations  in  McDonnell  Douglas  Corporation's  1995  Annual  Report  to
     Shareholders  and in its  quarterly  report on Form 10-Q for the  quarterly
     periods ended March 31, 1996 and June 30, 1996.

     Military Aerospace Business

     F/A-18  Hornet.  In August  1996,  the  government  of  Thailand  signed an
     agreement with the U.S. Navy to purchase eight McDonnell  Douglas F/A-18C/D
     aircraft with an estimated value of $245 million.

     C-17  Globemaster III. In July 1996, the C-17 Globemaster III surpassed the
     equivalent of three design lifetimes,  90,000 hours, of simulated flight in
     durability testing.  The 90,000 hours represents more than 25,000 simulated
     flights and 36,000  landings,  the equivalent of  approximately 90 years of
     actual flying time. The Air Force originally  contracted for two lifetimes,
     60,000 hours, of testing.

     AH-64D Longbow Apache.  In August 1996, the U.S. Army and McDonnell Douglas
     signed a multi-year  agreement for the  remanufacture of 232 AH-64D Longbow
     Apache helicopters.  The contract value is $1.9 billion, over the next five
     years. First deliveries are scheduled for March 1997.

     Commercial Aircraft Business

     In October 1996,  McDonnell  Douglas decided not to proceed with a new high
     capacity,  long-range three-engine jetliner,  designated the MD-XX. Several
     factors influenced the decision. Key among those were the amount of product
     and internal infrastructure investment required to bring the Company to the
     level of the other  major  players in the  commercial  aerospace  industry,
     level of risk and marketplace price expectations.


<PAGE> 23



     The Company intends to redeploy its people resources  involved in the MD-XX
     study to existing programs or to new business opportunities,  to the extent
     possible.   In  addition,   McDonnell  Douglas  intends  to  study  synergy
     opportunities  within the Company for the commercial  aircraft  operations.
     Work force reductions may occur as a result of redeployment decisions.

     McDonnell  Douglas has a substantial  presence in the commercial  aerospace
     industry  although  its market  share has  declined in recent  years.  As a
     significant  niche player,  the Company's  attention will be focused on its
     existing  product  line of MD-80  and  MD-90  twin  jets and  MD-11  trijet
     commercial aircraft, its MD-95 twin jet in development,  and its commercial
     aircraft  modification,  support,  spare  parts and related  services.  The
     Company has emphasized  cost reduction  efforts during the recent years and
     those efforts will continue.  Significant  price competition also currently
     exists in the  marketplace  and the  Company's  competitors  offer  broader
     product lines. These factors cause downward pressure on profit margins.

     Estimated  costs for  development  and initial  production of new aircraft,
     such as the MD-95, include assumptions,  analyses,  and forecasts which are
     subject to  continuous  reassessment  during the  development  and  initial
     production period. Technological risks, as well as risks with suppliers and
     customers, are inherent in development programs.

     Estimated  development  and initial  production  costs on new  aircraft and
     production costs on existing aircraft may fluctuate from current estimates.
     Fluctuations  on  development  programs  generally  diminish as the project
     approaches initial deliveries.

     Government Business Audits, Reviews and Investigations

     McDonnell  Douglas,  as a large  defense  contractor,  is  subject  to many
     audits,   reviews,  and  investigations  by  the  U.S.  Government  of  its
     negotiation  and  performance  of,  accounting  for, and general  practices
     relating to Government contracts.  An indictment of a contractor may result
     in suspension from  eligibility  for award of any new Government  contract,
     and a guilty plea or conviction  may result in debarment  from  eligibility
     for awards.  The Government may, in certain cases, also terminate  existing
     contracts, recover damages, and impose other sanctions and penalties. Based
     on presently known facts,  the Company  believes that it has not engaged in
     any criminal  misconduct with respect to any matters  currently known to be
     under   investigation   and  that   the   ultimate   resolution   of  these
     investigations  will not have a material  adverse  effect on the  Company's
     earnings, cash flow, or financial position.


<PAGE> 24



     Backlog

     McDonnell  Douglas had firm  backlog of $22.271  billion on  September  30,
     1996, compared with $19.640 billion on December 31, 1995. Total backlog was
     $45.962  billion on September 30, 1996,  compared  with $28.353  billion on
     December  31, 1995.  The  increase in firm  backlog  related to the Longbow
     Apache  program and to finalizing  terms for the next eight C-17  aircraft.
     The 62 percent  increase in total backlog  related  largely to a multi-year
     contracts on the C-17 and Longbow Apache  programs,  and to a lesser extent
     increases in the Space Station and F/A-18 programs.


<PAGE> 25


     PART II OTHER INFORMATION


     ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

          (a) Exhibits

              3(a)  Articles of Amendment and Restatement of the Company's
                    charter, as filed May 8, 1996

              3(b)  Bylaws of the Company, as amended October 25, 1996

              12  Computation of Ratio of Earnings to Fixed Charges

              27  Financial Data Schedule

          (b) Reports on Form 8-K

              Form 8-K filed on July 8, 1996,  in  response  to Item 5. Form 8-K
              filed on August 2, 1996,  in response to Item 5. Form 8-K filed on
              November 1, 1996, in response to Item 5.



     SIGNATURE

           Pursuant to the requirements of the Securities  Exchange Act of 1934,
     the  registrant  has duly  caused this report to be signed on its behalf by
     the  undersigned,   its  principal   accounting  officer,   thereunto  duly
     authorized.


                                                 MCDONNELL DOUGLAS CORPORATION
                                                          (Registrant)



     Date:     November 13 , 1996                /s/ R. L. Brand
           --------------------------            ---------------
                                                 R. L. Brand
                                                 Vice President and Controller
                                                 and Registrant's Authorized
                                                 Officer