Bid for Columbia marks departure for Cessna
Cessna’s intended acquisition of Bend, Ore.-based Columbia Aircraft Manufacturing, announced late in September, will complement Cessna’s latest piston-engine development, the next-generation piston (NGP). Not much is known about the NGP; Cessna showed the all-composite high-wing, which is in flight test, at the 2006 EAA AirVenture show in Oshkosh, Wis., but only by flying it over the airfield, thereby denying attendees a close-up look. At the time, the NGP seemed a logical extension of Cessna’s dedication to high wings on single-engine airplanes.
The idea that Cessna is now trying to buy Columbia, a manufacturer of high-performance, low- wing, composite-construction single-engine airplanes, seems out of character for the conservative manufacturer that has thus far been equally inflexible about designing its own airplanes.
But under the leadership of chairman, president and CEO Jack Pelton, Cessna is loosening its previously unbending attitude about how it adds new technology. For example, in the case of the recently announced Skyhawk TD powered by a Thielert diesel engine (see story on page 66), Cessna is using Thielert’s already FAA-approved supplemental type certificate rather than going through a lengthy certification revision process to develop the diesel-powered Skyhawk in-house. The result is that the company will be able to deliver the first factory Skyhawk TD by the middle of next year.
Cessna also reversed another long-held belief when it announced that a weeping-wing TKS anti-icing system (also already STC’d by an outside company) will be optional on new Caravan turboprop singles starting next year. Given the challenges that the Caravan fleet has had with icing, including a number of icing-related accidents, it will be interesting to see which icing system– boots or TKS–the marketplace chooses. It should be noted that the Caravan’s use in cargo operations and its overall high rate of use probably exposes the fleet to a greater number of icing encounters; the number of icing-related accidents doesn’t by necessity point to a problem with the airplane itself.
Finally, the planned Columbia purchase is significant because Cessna has never purchased another aircraft program and added its products to its own line. In 1952, Cessna did buy Seibel Helicopter, but nothing from the Seibel design was used to develop Cessna’s CH-1 Skyhook helicopter, according to Cessna. The Skyhook program was shut down in 1962.
The NGP, while it might eventually help Cessna compete against Cirrus Design’s SR series, has not been launched and will take years to bring to market, while Cessna’s current piston singles–at least those that most nearly match the performance of modern composite piston singles–are being outsold by Cirrus Design’s SR series. Buying Columbia would give Cessna a quick entrée into that market.
During the first half of this year, Cirrus sold 215 copies of its SR series while Cessna sold 187 comparable airplanes (182 and 206). Last year, Cessna delivered 456 examples of the 182 and 206 compared with 721 Cirruses. The models compared here are roughly equivalent in performance, although the Cessna 206 seats six, while all the Cirrus models seat four. Columbia delivered 185 airplanes in 2006 and 131 in the first nine months of this year.
“Right now, Columbia airplanes are faster than any single-engine aircraft we have to offer,” said a Cessna spokesman. “[The purchase of Columbia] makes us more competitive, because we can offer a more complete product line.”
Columbia Filed Chapter 11
On September 24, the same day that Cessna announced it had signed a letter of intent “to acquire selected assets and certain liabilities of the Bend, Ore.-based aircraft manufacturer,” Columbia filed for a petition for reorganization under Chapter 11 of the U.S. bankruptcy code.
The bankruptcy court has to approve the sale of Columbia to Cessna and the two companies have to sign a purchase agreement for the transaction to go forward.
In its bankruptcy petition, Columbia provided a list of its top 20 creditors holding unsecured claims, which total about $60 million. The largest of these claims include $25.8 million owed to US Bank, St. Louis; $21.9 million owed to avionics manufacturer Garmin International (with which Cessna has a significant relationship); and $6.2 million owed to Export-Import Bank of Malaysia.
The next step in Columbia’s bankruptcy and possible sale to Cessna should be an auction scheduled for November 21, to allow “other interested bidders to submit offers,” according to Columbia. While Columbia has asked the bankruptcy court to approve its sale to Cessna, other bidders have expressed interest in bidding on Columbia in filings with the bankruptcy court. These include private-equity firm and Cirrus financer Arcapita, Versa Capital Management and Park Electrochemical.
Arcapita maintains that the bidding process is favoring Cessna’s offer and that the court should make sure that other bidders have a fair chance. “The bidding procedures approved by the Court should be designed to enhance competitive bidding, rather than to ensure that the Debtor’s assets are sold to a preferred bidder,” Arcapita wrote.
Cessna’s letter of intent, Arcapita noted, grants it the right to negotiate or enter into discussions with creditors, customers, lenders and suppliers, but all bidders should be afforded the same rights. Arcapita also believes that Cessna is already considered the “stalking horse” or likely buyer in the sale of Columbia.
“Until an agreement has been reached,” Arcapita said, “it is impossible to tell if Cessna’s bid will serve as a floor to encourage further bidding or if it has unacceptable conditions, covenants and so on. For example, the Cessna letter of intent contains 20 separate closing conditions, and many of these conditions are within the sole control of Cessna. As a result, it appears that Cessna is proposing to enter into an ‘option’ to buy the Debtor’s assets rather than a binding and enforceable contract,” Arcapita concluded.
An interesting Cessna requirement in its letter of intent is that if it buys Columbia, the assets must be transferred free and clear of future product-liability claims, according to Arcapita. “This requirement conflicts with existing law that is directly on point, which raises serious questions regarding whether this closing condition could ever be satisfied.”
Creditor Garmin also filed its own objection, asking the court to grant a hearing so that Columbia can explain what it is doing with accounts receivable (money that it is bringing in during bankruptcy). Garmin wants to “ensure that it has adequate protection if [Columbia] is using the proceeds of its accounts receivable.”