MD Helicopters secures investment from Boeing

 - February 5, 2007, 8:07 AM

Just two days before submitting its February 7 bid for the U.S. Army’s new armed reconnaissance helicopter (ARH) based on a variant of the MD 500, aerospace giant Boeing signed an agreement to make a multimillion-dollar cash investment in MD Helicopters (MDHI). Although MDHI CEO Henk Schaeken would not disclose the exact value of the investment during an interview at last month’s Heli-Expo, he did indicate that it is not contingent
on Boeing’s actually winning
the ARH bid.
“As we’ve been struggling [financially] for a while, Boeing was obviously concerned about its ability to put in a bid and then follow through,” Schaeken said. “So that is what this transaction does. It ensures that in case something catastrophic were to happen, [Boeing] would be able to meet its obligation to the Army.”
Bouncing back from the February 2004 cancellation of the Comanche, an armed reconnaissance helicopter it was developing jointly with Sikorsky, Boeing proposes upgrading the AH-6J/MH-6J Mission Enhancement Little Bird (MELB) platform currently in use by U.S. Special Operations. A highly modified version of the commercial MD 530 light helicopter, various configurations of the MELB already sport single or dual 7.62-mm miniguns, 2.75-inch folding-fin aerial rockets, Hellfire missiles, .50-caliber machine guns and/or MK 19 automatic grenade launchers.
If the modernized MELB wins the ARH contract, Boeing will be the prime contractor, likely performing all military integration at its AH-64D Longbow Apache plant located next door to MDHI’s Mesa, Ariz. facility. MDHI will continue to manufacture and supply Boeing with “green” ships, with several of the ARH modifications then flowing back to the commercial line of single-engine MD 500- and 600-series helicopters.
“[In addition to] an immediate financial benefit to us, there’s a big benefit in teaming with Boeing,” Schaeken said. “We’ll be able to go back to our vendor base and talk about the program, and there’s a benefit in terms of the product improvements. Boeing’s success will be our success. When they win the program, then we’ll benefit in terms of production.”
MDHI was reportedly on the brink of bankruptcy, having delivered only eight aircraft last year and failing to make payments to key suppliers, including rotor blade and fuselage manufacturer Kaman Aerospace. Kaman issued a press release in September stating that it had written off $21 million, “principally in billed receivables and recoverable costs not billed…in contracts with MDHI.”
Although Schaeken stated that the $21 million figure was “awfully high” and must include “more than just our blades,” he said that the company still maintains a “fairly large” inventory of rotor blades and fuselages and that Kaman’s decision to stop manufacturing these components for MDHI will not affect the company’s ability to produce helicopters.
“Despite the things Kaman has had to do, our relationship with Kaman has always been excellent,” Schaeken said. “We’re actually talking to them about the next steps.”
Those next steps include securing additional investment capital needed to produce the helicopters currently in MDHI’s order backlog.
“With the Boeing deal, we made a very significant step toward recovery, but by itself,
that doesn’t get us there yet,” Schaeken said. “We’re still in discussion with a number of other investors. I believe we’ll be able to make a follow-on step [by the middle of next month]…if we can make that, our order backlog is currently larger than we can build this year.”
Schaeken wouldn’t disclose the potential source of additional investment, but he indicated that it would not involve acquisition by either Sikorsky or Boeing as some industry observers have speculated.

“We were actually in fairly advanced discussions with Sikorsky [regarding acquisition], but unfortunately those fell through,” Schaeken said. “Boeing sold the business [in 1999] and it has no interest in reacquiring the business–that has never been a topic–which is why we set up the arrangement for the ARH.”

International Reach
While MDHI has been strapped for cash in the U.S., it has somehow found enough resources to set up a Chinese subsidiary. Called Hongdu MD Helicopters, the subsidiary is located in Nanchang, China, and is already assembling MD 500s and 600s for the Chinese market.

Schaeken said that these helicopters will continue to be “100-percent U.S.-manufactured.” All parts are produced in the U.S., endure a brief pre-assembly stage at Mesa and then are shipped to Nanchang for assembly under an extension of the company’s FAA production certificate. Hongdu MD booked orders for seven helicopters at the China International Aviation and Aerospace Exhibition in Zhuhai in November. When built, these aircraft will join the MD fleet of two MD Explorers, one MD 600 and several MD 500E helicopters already flying in China.