Corporate Jet Based on WWII Design Hits Turbulence
John E. Morgan’s vision of a new business jet has put him in peril twice. Once, while piloting one of the fighter planes his dream jet is based on, the aircraft’s engines flamed out high over Texas and he had to glide the plane to the ground with no power.
A second flameout occurred about 20 years ago, after the Securities and Exchange Commission objected to the way Morgan was raising money for his project of converting a World War II-vintage British “Vampire” jet into a six-seat business jet. Morgan still maintains that he did nothing wrong, but there was no soft landing that time: Morgan served about nine months in federal prison for contempt of court.
Now, Morgan’s Las Vegas-based Jet Craft U.S.A., Inc. is trying to raise $25 million from a proposed public stock offering to build a modern version of the Vampire and sell it to businesses. But even if he raises the money--a big if given today’s sagging stock market, which has been unfriendly to start-up companies--winning Federal Aviation Administration approval for such a plane will be tough, and finding buyers for Morgan’s unusual plane might not be a breeze either given the crowd of established jet makers.
Morgan plans to use a Van Nuys company--Aircraft Technical Service--to redesign the old Vampire into a new plane, called the Jet Craft Mark I, and get approval to sell the plane from the FAA.
“It’s a tremendous business jet priced below $1 million,” Morgan boasts.
According to Jet Craft’s stock registration statement--filed with the SEC in August--the company hopes to sell 5 million shares of stock for $5 each. Jet Craft hopes to use about $6 million to develop the Mark I--and another $4 million to develop the Mark II, a turboprop plane similar to the Mark I. Both planes would be small, six-seat passenger planes. Jet Craft would spend about $6 million to build manufacturing facilities, while another $1.3 million would go toward salaries and other company overhead. Finally, Jet Craft would put aside $6.5 million to cover potential cost overruns and to actually begin producing the planes.
But whether his idea ever flies could well depend on selling his vision to the stock market. Morgan, however, has already had to put off the stock offering until early next year. He contends that if he can’t raise the $25 million on the stock market, he can raise it from five private investors in England and Germany, whom he declined to name.
Morgan’s plans are ambitious, to say the least. First, Jet Craft, which has never sold a plane, is supposed to finish developing its jet in two years or less. But five to six years is the usual amount of time for the process, said Mike Potts, a spokesman for Beech Aircraft Corp., an established business jet maker.
Getting government approval of a new plane is a notoriously difficult business. Avtek, a Camarillo company that is seeking approval for a business plane made of plastic composites, has been developing its aircraft since 1980, spending $32 million to date, and will probably need to spend a total of $62 million before it’s over, said Robert Adickes, president of the company. From its founding, Avtek has had to scramble for investors and a place to locate its planned manufacturing plant.
Floyd Snow, who runs Aircraft Technical and is vice president of Jet Craft, counters that it will take less time to get approval for the Jet Craft Mark I because it’s based on an established plane that was flown for 20 years.
Another big claim is that Jet Craft can sell the Mark I for only $895,000. That would make it very competitive even with used business jets selling for a few million dollars. But that $895,000 price would not include the engine, which buyers would have to lease. Beech is testing the waters with a similar engine-leasing plan, but Potts said it’s too soon to know whether jet buyers like the idea.
And there are other potential problems leading Jet Craft to warn--in it’s registration statement--that purchasing the stock “involves a high degree of risk.” For instance, the company has no income, and has no orders for the planes.
Plus, its would-be competitors are much bigger companies with years of experience. One example is Beech, a subsidiary of Raytheon Corp., which recently introduced the eight- to 10-seat Starship business plane. Cessna, which makes the popular eight-seat Citation II, is owned by General Dynamics. Even struggling Learjet is owned by Bombardier Corp. of Canada.
Morgan said he bought the plans to the Vampire in late 1968 and began preparing to manufacture a business version on his own. But in 1969, a federal grand jury issued a 14-count indictment against Morgan and three associates, charging that they had sold unregistered stock to investors in Morgan’s first jet company, Jet Craft Ltd.
Those charges were dropped in 1971, when Morgan pleaded guilty to contempt of court. Morgan said the contempt charges stemmed from government claims that he had violated a 1968 agreement with the SEC under which he had agreed not to sell securities. But Morgan said that he hadn’t violated the order--he had merely sent out a newsletter to existing shareholders asking them to chip in more money for the financially strapped company. The judge, however, sentenced Morgan to the nine-month prison term.
