Advanced Aerodynamics and Structures Inc. (AASI) of Long Beach, Calif., last month took the first step in changing itself from a struggling startup airplane manufacturer toward becoming, in the words of Roy Norris, AASI’s new chairman, CEO and president, “the biggest lower-end general aviation company in the world.”
Norris and his new management team expect that step–the acquisition in late January of the secured creditor position of bankrupt Mooney Aircraft Corp. of Kerrville, Texas–to lead to AASI’s acquisition of Mooney, which has been operating under Chapter 11 bankruptcy protection since last July. This, the team believes, is virtually a “done deal,” as the U.S. Bankruptcy Court in San Antonio has already approved the basic elements of AASI’s plan. This includes putting up Mooney’s assets for sale, which AASI then plans to purchase. Others may conceivably bid on these assets, too, but the extent of Mooney’s debt to its primary creditor–now AASI–makes it unlikely that anyone else would try to outbid AASI. So sure is AASI management that this will happen that the company held a press conference at New York City’s fabled Wings Club in early February to make known its general intentions.
With AASI in full control of Mooney, possibly by the end of this month, Norris said the new public company, to be renamed Mooney Performance Aircraft Co. (MPAC), would begin its plan to revitalize the old Mooney production line while revamping the Jetcruzer 500, the single-engine turboprop pusher that has been in development–if youinclude its precursor, the Jetcruzer 450–since the 1980s.
The major aspects of the plan announced last month are:
• All manufacturing, of both Mooney airplanes and eventually the Jetcruzer, will be done at Mooney’s facility in Kerrville. Interviewing of laid-off Mooney employees was expected to start last month. The goal is to begin rolling out by the end of this year the first of the 21 Mooney airplanes that have languished uncompleted since Mooney declared Chapter 11 bankruptcy. Norris also said he expects improvements in manufacturing efficiency could shave $70,000 off the price of the Mooney piston models, which typically equipped ranged in price from about $350,000 for the 244-hp Eagle 2 to about $500,000 for the Bravo. Mooney delivered 27 airplanes in the first half of last year (before the bankruptcy stopped production) and 100 airplanes in 2000.
• The existing AASI workforce will be halved from 120 to 60, including a reduction of the engineering staff.
• Top management, marketing and general administrative functions of the companies will be combined under the leadership of AASI’s new management team. Current Mooney chairman Paul Dopp will not be involved, although Norris said he plans to take on Dopp’s son, Chris, as his assistant for about a year.
• AASI’s 200,000-sq-ft facility in Long Beach, which it completed in 1998, sold in 1999 for $9.8 million and is now leasing back, will be turned into a marketing, customer delivery, research and development and spare parts and service center, with excess floor space possibly subleased.
• A complete assessment and redesign of the Jetcruzer 500, to “Mooneyize” the airplane as Norris put it, will be done by the new AASI v-p of engineering, Dale Ruhmel, and his staff. Probable changes will include a circular fuselage (to better handle the stress of pressurization), weight reductions, newer avionics and as-yet-undefined changes to improve aerodynamic efficiency. The team will even consider dropping the composite fuselage for one made of aluminum, Ruhmel told AIN, because that’s the way Mooney has built all its airplanes. Ruhmel estimates it will take 18 months for the redesign and another 12 months for certification. He said the company would submit a new type certificate application for the airplane, tentatively called the Mooney XP, instead of trying to grandfather it onto the Jetcruzer 450’s TC, which is what AASI was attempting to do with the 500. Norris said he has spoken with all Jetcruzer customers and expects most to stick with their $10,000 refundable deposits, despite expected changes to the design and a probable price increase. The airplane’s current list price is $1.495 million.
• The company will continue to investigate other light general aviation companies as acquisition opportunities and plans to develop new aircraft models. Norris specifically mentioned the twin-engine Century Jet CA-100 project as a possibility, a program he became familiar with as a paid consultant a few years ago.
All this will cost money. AASI floated an initial public offering in December 1996, raising $32.4 million. And the company was still at least a year away from certifying the Jetcruzer 500 when Norris and the new management team took over. Not until it could begin delivering airplanes would the “old” AASI have begun generating income from the 193 aircraft it claims have been ordered.
According to one analyst, the company’s expenses were running about $1 million a month before the management takeover in January, and the company’s accumulated deficit is about $100 million. This, however, has not dissuaded BAWAG (Bank für Arbeit und Wirtschatt), an Austrian bank operating through LH Financial Services of New York, from continuing its backing of AASI and funding of the acquisition of Mooney.
Principals of LH Financial Services believe the deal makes sense for a number of reasons. First, AASI’s purchase of the secured creditor position from Congress Financial Corp. cost only about $18 million, a price considered very good. Second, the reorganization of Mooney will cut the long liability tail of the more than 10,000 airplanes Mooney built between its founding in 1947 and its bankruptcy, eliminating a volatile source of future expense. Third, the company’s immediate priority to restore Mooney spare-parts manufacturing and customer support is expected to bring in a positive cash flow. Finally, AASI’s losses over the past years can be applied to net revenue, making it possible to avoid paying corporate income tax for several years.
AASI’s share price spiked briefly at 42 cents per share on February 8, the day of the press conference at the Wings Club, but dropped to the 32- to 34-cent level the following week. Still, this level represented an increase of about 10 cents over the price of the stock at the end of last year. AASI stock has traded on the Over-the-Counter Bulletin Board since last May after the stock was delisted by the Nasdaq exchange.
Norris justified AASI’s plan by citing a confluence of circumstances that he said will reinvigorate the light end of the general aviation market the same way that the 1990s economic boom invigorated business jet sales and operations. These circumstances include general aviation tort reform (the General Aviation Revitalization Act, which was passed in 1994), the availability of several quality general aviation lines for possible acquisition and the continued degradation of airline travel following September 11. “We believe that we are on the doorstep of a major growth phase in small piston engine, turboprop and microjet aircraft as the only practical alternative travel for companies with $10- to $100 million in sales,” he said.