Fairchild Dornier Discloses Insolvency
Fairchild Dornier, the world’s No. 3 manufacturer of short-haul jets, sought protection from creditors Tuesday after airlines, rocked by the turbulent slipstream of Sept. 11, canceled new plane orders, undoing forecasts of soaring sales.
The U.S.-German company racked up debts of $670 million in pursuit of a market it had expected would expand rapidly until the terrorist strikes hit the air travel industry.
Although Fairchild Dornier Managing Director Thomas Brandt told journalists the company is continuing to look for a well-heeled partner to deliver its new 70-seat 728JET next year, the warning appeared to herald the company’s eventual retreat from the troubled ranks of regional jet producers.
Analysts had been predicting further consolidation of what is now only a $5-billion annual sales market dominated by Brazil’s Empresa Brasileira de Aeronautica, which commands 50% of the sector, and Canada’s Bombardier, with 40%.
German law requires companies to disclose their insolvency when income fails to match expectations and debt payments could be defaulted. Although the company’s prospects for the 728JET were favorable before Sept. 11, advance sales for the short-haul jet have slowed dramatically, as have those of competitors and producers of long-haul aircraft.
Fairchild Dornier was founded in 1914 and is based in the Bavarian town of Oberpfaffenhofen. It has manufactured corporate and private jets for years, though it has only the 32-seat 328JET in production.
The company is a joint venture of New York investment firm Clayton Dubilier & Rice Inc. and German insurance giant Allianz. The owners acquired the plane manufacturer two years ago and predicted that sales would soar from $635 million in fiscal 2000 to $5 billion by 2008 as regional U.S. carriers replaced their old turboprop planes with more modern jetliners.
“We are continuing to pursue a strategic partner and continuing our discussions with financial institutions to pursue a recapitalization,” Chief Executive Lou Harrington said.
The company had been in talks with Boeing Co. about collaborating on the $1-billion 728JET development, for which Fairchild Dornier has 125 firm orders and more than 160 options. But the takeover negotiations were broken off without success before the Easter holiday, Germany’s Handelsblatt daily reported Tuesday, ahead of the insolvency declaration.
Fairchild Dornier’s three main creditors are German banks--HVB Group, Bayerische Landesbank Girozentrale and an Allianz subsidiary--but Brandt said the company also was considering whether to file for Chapter 11 protection from U.S. creditors. About 700 of the company’s 4,300 employees are assigned to a wing assembly plant in San Antonio.
The legally mandated notification of insolvency prompted German media to declare the company’s fate a major blow to the electoral chances of Bavarian Gov. Edmund Stoiber, who is challenging Chancellor Gerhard Schroeder for the nation’s top post in Sept. 22 federal elections.
