M7 won't wait for 328 deal to pursue RJ work in San Antonio

 - August 4, 2008, 12:31 PM

M7 Aerospace, the company that took control of the U.S. assets of Fairchild Dornier some four months ago, has seen a steady flow of Fairchild Metroliner repair and overhaul work since the FAA granted its repair station certification for the type on June 3. But, as CEO Harold “Mac” Williams related, the company’s aspirations extend far beyond offering support for the 700 or so Metros flying around the world.

Management expects operators of regional jets will furnish the San Antonio-based company with the kind of support business its investors envisioned when they rescued the four U.S. divisions from bankruptcy earlier this year. To the frustration of M7, the company that holds the type certificate for the Fairchild Dornier 328 line refuses to transfer updates to the technical documentation needed for repair station approval. Fortunately for Williams and company, M7’s business plan considered the possibility of such a scenario.

“There’s enough business for both companies and we sure would like to see a healthy product line, which means a healthy German operation,” said Williams. “Our frustration has been that nothing of any consequence has been going on in Germany.”

In late March Leesburg, Va.-based AvCraft Aviation announced it took control of the Fairchild Dornier assembly facility in Oberpfaffenhofen and, with it, the type certificates for the 328JET and Dornier 328 turboprop. After naming the company’s first factory-authorized service center–Nuremburg, Germany-based Aero-Dienst–and transactions with Augsburg Airways’ Air Omega involving four 328JETs, AvCraft has fallen silent, declining comment on the progress of its financing efforts, the establishment of its own 328 service center in Akron, Ohio, and plans to resume 328JET production in Oberpfaffenhofen.

Whether or not M7 ultimately wins the business on the 328, Williams expressed confidence that the company will secure repair work on other regional jet types, although he preferred to withhold comment on the timing of expected certification or potential customers. Meanwhile, M7 claims to be drawing a steady source of income from the activities associated with three of its four business units.

For example, M7’s parts division, which consists of the parts and support elements of Metro Support Services (MSSI) and Dornier Aviation North America (DANA), carries the largest inventory of Metro parts in the world. Although Williams characterized the company’s inventory of 328JET and turboprop parts as “pretty large,” he admitted “it’s somewhat constrained because we’re having difficulty getting the faster-moving parts out of Germany.”

Although constrained, as he put it, the business is steady and profitable, said Williams. “The parts have all the proper tags and documentation, and we’re selling them.” During the company’s first 90 days of operation, parts and support staff met with all existing customers and “key” vendors to identify obsolete parts, “rightsize” the inventory and improve turnover rates.

Meanwhile, M7’s government programs division, which previously operated under the name Merlin Express, supports 22 C-26 transports flown by the U.S. Army and National Guard and accounts for roughly one-third of the company’s revenue, said Williams. Built by Fairchild Aircraft as military versions of the Metro III and Metro 23, the first C-26s entered service in 1989 and still serve in counter-drug, medevac and cargo roles.

Because of its status as a small business, M7 stands in a position to benefit from the federal government’s small business “set aside” program, established as a means to help such companies win government contracts. “We’re a small-business set-aside with a large-company legacy,” said Williams. “That doesn’t happen very often, so it’s an attractive feature to a number of people.”

A retired Air Force general and CEO of Fairchild Aircraft from 1995 to 1997, Williams emphasized that the company won’t rely on military contracts for growth, however, nor on business related to Fairchild Aircraft’s previous activities. “We’re working on several strategic initiatives to provide customer support for product lines that we didn’t make. We’re also aggressively pursuing a strategic partnership with a large commercial manufacturer,” said the general.

Occupying some 450,000 sq ft of floor space, M7’s San Antonio facilities include a manufacturing plant that, during its peak, built between 10 and 12 Metros per month and, later, four shipsets of wings every month for the Fairchild Dornier 328. “Over the past four years the plant has been enlarged [to accommodate 328 wing production],” said Williams. “They spent close to $20 million putting in that extra capability. So there’s enough capacity here to do a host of things.”

At press time employing 195 full-time staff and between 20 and 25 part-time consultants, compared with 140 full-timers when it assumed control of the assets in April, M7 will wait to land its first new contract before adding more employees or committing further capital, said the CEO. Williams added that a breakthrough deal would likely come in “less than a few months,” but again he wouldn’t offer specifics.

“We think we’re making progress,” stressed Williams. “We’ve got major initiatives in all four of our business areas that will soon allow us to give you a better answer than that. There are several attractive opportunities on which we’re working very aggressively. Life doesn’t tend to give you all of those, but we only have to do one or two, and we’ll continue to hire and grow.”

Of course, the question on the minds of operators flying the 100 or so Dornier 328s in North America continues to center on service and support of their fleets. Williams still hopes M7 and AvCraft can reach an agreement, but much depends on the level of interest on the part of AvCraft CEO Ben Bartel.

“We’re still not sure how much resistance Bartel may have; all we need is the update on the technical publications from Germany,” said Williams. “If we get those, we could be [FAA certified] in a matter of a few days. But to date AvCraft has refused to give them to us.”

“We’re healthy; we’re in good shape financially–a going concern with positive cash flow, and we’re making a profit,” he added. “But we’d also like to see the German operation healthy, be it under AvCraft or anyone else, and we’re very disappointed that there doesn’t seem to be any tangible progress over there.”

Williams said he has held discussions with Bartel since AIN last spoke with M7 executives at the RAA Convention in Phoenix on May 19, but, as Williams related, “Discussions have been reasonable, but nothing has happened.”

With its purchase of the San Antonio manufacturing plant, M7 owns the tooling for 328 wing production. If AvCraft plans to restart production of the 328 in Germany, it will likely need M7’s wing-manufacturing capacity. However, at least 13 new completed 328JETs for sale continue to sit idle at the factory in Germany, as well as some unattached wingsets.

“I think we’ve been genuine and consistent in our desire to see a healthy program in Germany, and we have a lot of work in progress standing here to see if anything happens,” concluded Williams. “We take responsibility for what’s here. We’d like to help things work, but it has been somewhat confusing to this point.”