Awaiting cash infusion, Adam prioritizes projects

 - February 5, 2008, 11:37 AM

Very light jet developer Adam Aircraft has laid off 300 employees and temporarily suspended operations at its satellite facility in Ogden, Utah. “To provide for our future growth,” said Adam Aircraft president Duncan Koerbel, “we must be strategic in our focus by managing current cash expenditures to ensure adequate time to secure financing for the long term. We’re off to a good start in this effort with assistance from our partner, Citibank, but we need to be able to provide them with sufficient time working with potential investors to secure long-term financing.”

The company is seeking be-tween $35 million and $150 million for its next round of financing. The first critical financing round needed to raise $30.5 million by the end of last month. As of late December it had secured $5.5 million, but if it didn’t reach the goal by that time, some company assets might be liquidated to satisfy obligations to “senior lenders,” according to CEO John Wolf.

The current state of the financial markets is making raising money more difficult, explained Koerbel, and “we want to make sure we have what we deem the appropriate amount of time.”

Adam Aircraft should be an attractive investment, Koerbel said, as it has achieved certification of the A500, earned an FAA production certificate, built four test A700s and is close to certifying that airplane. “It’s really remarkable what an innovative approach at Adam has accomplished,” he said. And Adam Aircraft did this with an investment thus far of less than $200 million, not including previous funds from the launch of the company, according to Koerbel.

All opportunities for financing will be considered, Koerbel said. “Partnering or acquisition is something [we] certainly would not ignore,” he added. “We’re not closed-minded to any of those opportunities. We think we have an attractive investment piece in Adam. We’ve got interest both domestically and internationally, and we’ll construct the best deal for all parties.”

Production Process Improvements
Englewood, Colo.-based Adam Aircraft has an order backlog of nearly 400 airplanes, for both the A500 piston twin and A700 very light jet. The company doesn’t break out individual sales numbers for the two models or the total dollar value of the backlog. The A500 piston twin is FAA certified and still being delivered, while the A700 is due for FAA certification in this year’s fourth quarter. Before the layoffs, Adam employed 800 people at Englewood, Ogden and at another satellite plant in Pueblo, Colo.

The Ogden facility eventually will be the primary manufacturing location for Adam airplanes, allowing the Englewood headquarters to focus on engineering and development. The shutdown at Ogden is planned to last through this summer. Before the recent changes, Adam employees at Pueblo built the composite booms for the twin-boom airplane and installed the landing gear in the booms. That facility will now do some machine work, and its composite lay-up and bonding operations are moving to Englewood. The layoffs resulted in the loss of 50 jobs in Ogden, 80 in Pueblo and 170 in Englewood.

Adam Aircraft needs time to accomplish two major goals while waiting for further financing. The company wants to achieve full certification of the A700 this year, Koerbel said, and transition to an improved production process that will allow it to build the A500 and A700 at high rates. “The employees we retained are focused on those two efforts,” he said.

The new production process is called “Make Production Fly” and is something that Koerbel and Adam chairman and CEO John Wolf have been working on since they arrived at the company and eventually took over the leadership reins from founder Rick Adam. “As we finish Make Production Fly,” Koerbel said, “to get the production process to where we want, we will begin full-rate production of the A500.” That should occur this summer and will include reopening the Ogden facility. Adam Aircraft will likely need to add or rehire former employees to achieve full-rate production on the A500. As of the middle of last month there were 18 A500s on the U.S. registry, including seven in private hands, he said, adding, “We’ll deliver about 10 this year.”

A700 On Track  for Certification
The first airplane undergoing the Make Production Fly process is A500 S/N15, which was in final assembly last month. The process improvement will continue with S/Ns 16 and 17, he said, “then when we get that right, we’ll start full-scale production with number 18. We’ve gone from a development company and what we’re trying to do is get the production process in place so we can deliver three times a month. We’re making good progress on that; it’s irrefutable.” Full-rate production for the two airplanes will be three per month for the A500 and 12 to 15 per month for the A700. “We’ll adjust the model mix as required,” Koerbel said.

Having cut costs with the layoffs and facility changes, Adam Aircraft still has enough money to achieve certification of the A700, according to Koerbel. Cutbacks at the company have not curtailed A700 FAA certification work and flight testing. “A700 certification is in pretty good shape,” Koerbel said. “We have done a lot of work on ice-shape testing and stall characteristics with ice shapes. Those were done on purpose early in the program. We wanted to get them behind us so in the winter months we’ll go get natural icing. Now we just need to work through the remaining testing with the FAA.” Adam Aircraft has also demonstrated that the A700 has met all handling qualities and performance objectives, including tests of all systems to the 41,000-foot maximum altitude.

At FAA certification, Adam Aircraft plans for full certification of the A700, with no equipment or performance issues needing to be fixed later, including all necessary requirements to fly Part 135 charter operations and flight into known icing approval. We’ve got to get production right,” Koerbel said. “We won’t build 100 airplanes then rework them.”