Market Scene : No Verve Left in Elan: Yugoslav Firm Bankrupt : The sporting goods company that catered to the jet set prospered under Communist rule. But things have gone downhill fast in the new Europe.


In the days of Communist rule, when Eastern Europe was running to ruin, the Elan sporting goods enterprise seemed as far above the economic abyss as the towering peaks of the Julian Alps in which the factory is cradled.

Elan gained international renown by outfitting the jet set and world-class skiers, capturing an impressive 10% of the global ski market and bestowing a rare source of national pride on the republic of Slovenia.

Today, Elan is in the hands of liquidators, and its top managers are in jail.

The firm once seen as a national flagship is more than $300 million in debt. It has become a case study of greed and misguidance, Yugoslavia’s economic disaster in microcosm.


Elan’s riches-to-rags story is the result of collective ownership, which encouraged an attitude throughout Eastern Europe that industries were “nobody’s property.” Theft and mismanagement went largely unnoticed with no profit-conscious owners to keep an eye on the till.

Clandestine loans to hide embezzlement might have continued for years at Elan if Yugoslavia’s runaway inflation of 1989 hadn’t exposed them.

Igor Trillor, the court-appointed liquidator trying to rebuild Elan through what he calls a “controlled bankruptcy,” says the company failed because it grew and diversified beyond its directors’ ability to manage it.

“The main reason behind Elan’s crisis of management was that the company was not at all transparent,” said Trillor, euphemistically referring to the government’s inability to see that it was being robbed. “There were simply too many opportunities for certain individuals to ignore.”

The manufacturer of skis, boats, light aircraft, sporting goods and active sportswear also got into trouble because it expanded beyond its mission, Trillor said.

When the company, just five miles south of the Austrian border, grew by leaps and bounds in the late 1970s, its inexperienced managers decided to branch out into unrelated fields like banking and property development, requiring huge infusions of cash that even a successful manufacturer couldn’t provide.

Elan’s administrators borrowed heavily on the unofficial “gray market” to build a yacht works in Italy, a shopping center in Sweden and a hotel village in the Slovenian skiing center of Bohinj. They also skimmed vast sums and spent lavishly on management “perks.”

“When the extreme high inflation of 1988 and 1989 occurred, Elan couldn’t control the gray market. They were borrowing money at high interest and lending it out for development at lower rates,” said Trillor.


New loans were repeatedly taken out to cover operating expenses and expanding embezzlement, until federal Prime Minister Ante Markovic’s economic reform program exposed the cooked books to their first critical light.

Under Yugoslavia’s former system of “self-management,” enterprises set their own agendas and measured their own success. The result was an impenetrable accounting system that exaggerated output and obscured losses and theft.

Elan ciphered itself into virtual worthlessness by accelerating depreciation of everything, including its considerable real estate holdings, and omitting from the balance sheet such intangible assets as goodwill and company trademarks.

As a result, at this time of reckoning, the company’s book value is officially estimated at about 100 million deutschemarks, or one-fifth of what it owes to its creditors.


The Markovic economic reforms mandate closure of all enterprises operating in the red for more than 60 days. Elan’s vicious circle of borrowing to cover losses was revealed in a republic-wide review, and the company declared bankruptcy in September.

While Elan typifies the kind of losing operation that federal authorities have been lobbying to close, Slovenian authorities say there are strong arguments for sparing the republic’s parade horse--and reasonable cause to expect that it may one day pull its own weight.

Liquidation would mean that creditors would get no more than 15 cents on their invested dollar. The best-known trademark in Slovenia--perhaps in all of Yugoslavia--would cease to exist. And the 1,300 workers employed by Elan would be banished to the swelling ranks of Yugoslavia’s jobless.

Liquidator Igor Trillor, who passes for new management now that the old Elan bosses have been fired or jailed, has hatched a plan with republic leaders in Ljubljana to revitalize the company through the very reform program that ultimately exposed it.


The work force has been trimmed to 800 and production lines are moving again after a two-month shutdown. The republic’s government has promised a loan of about $20 million through a fund to revitalize Slovenian industry, in return for about 10% ownership in the restructured company.

Another $3 million will be raised by turning workers into shareholders. Yugoslavs who lose their jobs are entitled to draw 24 months’ pay to invest in new business. Elan plans to lay off all its employees by midyear--so they can cash in on their unemployment--then rehire the workers after they invest their windfall in seven new firms under the Elan umbrella.

After building back its book value to equal what it owes, a debt-for-equity swap would transfer 80% of Elan shares to its creditors.

The rescue plan will take about two years, Trillor said , and has the attraction of privatizing Elan in the process.


Officials in Ljubljana roll their eyes skyward at the mention of Elan’s troubles, but most say the option of closing down is more troubling than toughing it out.

“The whole ski industry has problems because of the last three seasons,” when poor snow conditions in the Alps cut sales of equipment across Europe, said Josip Skoberne, a senior official with Slovenia’s Chamber of Economy. “This makes it more difficult for Elan to recover because everyone is fighting for a share in a shrinking market.”

But Elan is worth saving, he said, because of its former prowess on the international market and because it is already geared toward exporting at a time when Slovenia needs all the foreign recognition it can get.

Slovenia, the most prosperous region in Yugoslavia and more similar to Austria than to its sister republics to the south, has declared its intent to secede and form an independent country within six months.


The impending breakup of the Yugoslav federation jeopardizes Slovenian industries that are dependent on markets or materials in rival Serbia. And bad debts and mismanagement already threaten continued operation of factories employing one quarter of Slovenia’s work force.

Prospects are poor for boosting sales amid a worsening U.S. and European recession, but sparing Elan the infamy of liquidation nevertheless has been elevated to a national cause.

Slovenians striving for independence claim they need the cachet of Elan to make the transition and that escape from the Socialist government in Belgrade will hasten recovery of such failing industries.

“We will be able to pull out of this crisis when we have all the levers in our own hands,” said Matjaz Sinkovec, an ardent secessionist in the Slovenian Assembly. “Our best companies are going under. . . . It was a system that made it easy to steal because it was nobody’s property.”


Many Businesses Going Bust in Slovenia

Of Slovenia’s 3,400 industrial enterprises, 78 declared bankruptcy last year, affecting 25,000 workers. A total of 514 Slovenian companies employing 200,000 have “official cash-flow problems,” meaning they run the risk of being declared bankrupt, shut down and their employees laid off. That means nearly 25% of Slovenia’s working population risks unemployment, although not all of the unprofitable enterprises will be shut down. Many, like Elan, will qualify for various government rescue programs.

Comparative figures for 1990 from other republics not available, but Slovenia is reportedly in much better shape than all other republics, where the risk of bankruptcy threatens the jobs of 40% or more of the working population.

Elan workforce: 1,300 a year ago 800 today cut to 650 by midyear back up to 800 by end of year


Slovenia workforce: Per capita GNP: $6,000 Unemployment (Jan. ’91): 6%

SLOVENIA COMPARED WITH THE REST OF YUGOSLAVIA Total Population: 25 million; of which Slovenia is 8% Total Employed: 6.9 million; of which Slovenia is 12.4% Total Area: 101,250 square miles; of which Slovenia is 8% Total 1990 Imports: $18.75 billion; of which Slovenia is 24% Total 1990 Exports: $13.3 billion; of which Slovenia is 30% Total Contribution to Federal Budget: $8 billion; of which Slovenia is 20%