AvCraft guardian angles for quick sale

 - November 1, 2006, 10:32 AM

Regional jet manufacturer AvCraft Aerospace GmbH could end up in the hands of a new owner next month following the second bankruptcy involving the Dornier 328Jet. Dr. Martin Prager, the preliminary administrator charged with finding a solution to the German company’s financial problems, characterized opening discussions with potential investors as “very encouraging.”

AvCraft Aerospace, a subsidiary of U.S. parent group AvCraft Aviation, filed for insolvency in March due to liquidity problems. AvCraft acquired the 30-seat 328Jet project–including 18 finished aircraft without customer-specified equipment installed–from the bankrupt Fairchild Dornier in February 2003, but the new owner did not enjoy sufficiently strong financial standing in the U.S., according to Prager.

The administrator attributes the latest insolvency to a series of “unfortunate circumstances [including] enormous operating expenses” and cash-flow problems.

AvCraft holds a letter of intent from Hainan Airlines–the largest 328Jet customer, with 29 already in service–covering an additional 15 aircraft due for delivery up to 2007.

AvCraft’s acquisition of the program included parts for a further five 328Jets, two of which it has completed. It delivered the first to Aero Dienst in Germany as an air ambulance, while the second went to Club Airways. Walter said the company couldn’t finish the remaining three airframes without buying more equipment it cannot now afford.

Three Jets on Ice

The three delayed 328Jets account for AvCraft’s total firm order backlog, although the company holds options on a further 21. However, Prager acknowledged that development costs could deter many prospective investors.

In early April Wolfgang Walter, managing director of AvCraft’s German facility, said he hoped one or more buyers could be found within “two or three” months, possibly by June 1. He said he’d like to sell the company intact, with continued production as the main objective, although he admitted that a break-up might become inevitable: “We know most of the people who would be interested in the customer support business,” he said.

Walter wouldn’t identify any potential U.S. investors, citing the “very delicate” nature of any such talks. “It would not help for me to confirm discussions with anyone in the San Antonio area,” he said.

Two years ago M7 Aerospace bought Fairchild Dornier’s San Antonio assets in the same bankruptcy liquidation that saw AvCraft take the German factory.

Prager gave AvCraft “better than a 50 percent” chance of survival. “There is always a minority that are not realistic [but] I would not be doing my job if I didn’t look everywhere,” he said. He urged all the company’s stakeholders to support his mission. “It is important and in everyone’s interest to cooperate.”

According to Walter, no issues surrounding the company’s status as an approved design organization have arisen. He said the German certification authority would become involved only if AvCraft couldn’t resolve its financial problems.