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FAIRCHILD AEROSPACE GETS CASH INJECTION

"The financial transaction in the amount of US $1,2b crowns the break-trough year of Fairchild Aerospace." That is what the reader discovers upon reading recent news bulletins of this company.

To talk of a break-through is correct, yet the alleged direction is not that accurate.

More to the point is that the commitments of US investment company Clayton, Dubilier & Rice (US $300m) and the Allianz daughter corporation Allianz Capital Partners ACP (US $100m) as well as the taking-over of liabilities summing up US $800m by a German bank consortium have saved Fairchild Dornier from insolvencency.

Not the least this is why the new owners paid a comparably moderate price of only US $20m despite a highly publicised order backlog of US $8bn by the company which ranks itself under the leading aircraft manufacturers of the world.

Cost reduction programs, lay-offs, reduction of production times, usage of synergy effects in the whole Fairchild group, reduction of double capacities, process optimising as well as a new innovative product family, all these measures with which Fairchild boss Carl Albert promised to stabilise the highly lossmaking company when he took over Dornier Luftfahrt GmbH from, at that time, Daimler-Benz Aerospace in 1996, all these measures failed.

But why? They failed because a product strategy in a clouddancing manner does not work and because exorbitant foreign capital rates simply are not the universal remedy for a bad state of business.

On the contrary, a high rate of foreign capital leads to large interest and reimbursement obligations and in the case of careless planning, as it appears to have been with Fairchild Dornier, solvency problems often follow. Furthermore an extensive indebtedness severely decreases a company's reliability. In this situation, banks and other capital lenders are willing to offer credits or to take-over obligations only at highest interets rates, as it has been and actually is the case with Fairchild.

A strong rate of company capital on the other hand does have the disadvantage that profits have to be spread on a much wider basis. Fairchild's former owner Carl Albert did not want to suffer from this too much, did he. Just to mention it, for a limited period of time the substitution of company capital by foreign capital allows to disclose a great profitability. And with admirable yields brilliant plans are to be made.

Well, wasn't it a highly remarkable event when Fairchild sales manager Peter Klonk announced the product initiative of the new star in the sky of regional aircraft manufacturers at the Dubai Airshow 1997: "... and after the 328JET we will build the 428JET and then the 528JET and of course the 728JET. And if one has advanced so far, the entry in the 90 to 100 seater market only is a logical conclusion. And of course there will be business jet versions of all the planes designated Envoy 3 to Envoy 9."

The journalists present were dumbfounded.

Pretty sure there would be a business jet version of the Space Shuttle by Fairchild, designated "Envoy 2010". Really!

Well, this did not quite work out. But still one has "collected" deficiency guarantees to the amount of US $350m from the German federal government and the state of Bavaria for the development of the 728JET which is estimated to cost a total of US $1,2bn. Another 400 millions are to come from several risk-sharing partners. And where shall the rest come from? Well, the rest will now be paid by CD&R and ACP.

These institutions have set a time limit up to the year 2008 for their engagement which offers a small glimpse of hope to the more than 1000 workers of Dornier Luftfahrt GmbH in Oberpfaffenhofen.

If the 728JET is to be ready for take-off one day for launch-customer Lufthansa, and if the aircraft will prove its qualities, it may be possible to carefully build the future of Fairchild Aerospace/Dornier Luftfahrt and even that of German aircraft manufacturing as a whole upon this success. But it has to be done very carefully with a sure eye and certainly not by false pretences.

From page 4 of FLUG REVUE 3/2000