Unable to pay its 100 or so employees, Safire Aircraft “temporarily suspended operations” early last month, expecting to resume operations after an influx of new financing, according to CEO and president Camilo Salomon.
Negotiations with the company’s potential new European-based investors for a fresh round of financing that was expected to close by May 31 were rescheduled to close before the end of last month, Salomon said. The company failed to obtain a bridge loan for interim funding.
The Miami-based firm is attempting to develop a very light twinjet, and in May declared it would fly the Safire Jet by the end of September (AIN, June page 3). That hope is now problematical.
Salomon told AIN at press time: “We are still assessing the damage to the schedule, but I don’t expect a major delay.” He said several suppliers were continuing to work “at their own risk” to meet the schedule.
In a June 9 letter to customers, Salomon acknowledged that there was “insufficient cash to continue” operations. “We expect this to be only a temporary setback. There is no doubt that there will be some impact on the project. We will know more and be in a better position to assess that impact when we secure the new round of financing,” he told customers. “This action should have no effect on your sales contract or your position.”
Salomon said that two customers cancelled their orders within a couple of days of receiving the June 9 letter. Safire claims to hold binding orders for about 400 aircraft.
“The amount of money is enough to result in the investors gradually taking financial control of the company,” Salomon said. “We have agreed on a dollar amount and an investment schedule according to our cash-flow needs,” he explained. Safire is a privately held company, and Salomon declined to disclose dollar amounts other than to say, “It’s enough to take us through first flight. We do have some funds to go through certification, but we will need to do one more round of financing to get the airplane into production.”
Safire, like many startup airplane manufacturers, had at various times over the last few years reported it had the funding necessary for the first flight. But a combination of unanticipated and costly requirements–such as this airplane’s redesign, which extended project development by two years–and possibly an unclear understanding from the start of just how much money must be committed to designing, engineering, testing, certifying and producing an entirely new airplane might have contributed to the financial woes.
The shutdown of operations also delayed the company’s decision on where to manufacture the Safire Jet. The company had been looking at a number of areas, including Wichita. Earlier, the company said it would announce a training partner, an
insurance program, a financing program and a customer-support program later this year.
Restructuring Preceded Suspension
About a month before the suspension, Safire had come off a “restructuring” effort to “focus on the completion and development of the Safire Jet prototype and to resume aircraft sales,” said Salomon. Several top executives were let go because of the reorganization. But a new sales team was named and placed under the leadership of Michael Margaritoff, Safire’s founder.
According to a source close to the situation, the group that Salomon said he is working with had a representative in the office even before the restructuring. “I wonder why the new investors would let the company get to this point before infusing cash,” said the source. “It seems to me the damage to the company will be much deeper now.”
This person also confirmed that there was supposed to be a bridge loan to carry the company through to the closing of this financial deal funded by the new investors. “We were told before that the bridge loan was going to be in place this last Monday [two days before the shutdown] and that it was a sign that the finance group was interested in the deal, but then the loan did not come through.”
The person familiar with the situation believed the company knew of its cash crunch for weeks, but it wasn’t until about the first week in June that employees were told the company had run out of cash and could not make payroll. Every day after that, employees were called to an “all hands” meeting to get an update, “but the only information given was that there was no further information, and Salomon was working diligently to secure funding. Employees were not obligated to be at the office [until funding was secured]. However, many continued to come to the office and attend the meetings in hopes of hearing some solid news.”
No Bridge Loan
It was Tuesday, June 8, one day before operations were suspended, that employees were told that the company had failed to secure the bridge loan and would have to be temporarily shut down, according to the source. “All computer systems were shut down and everyone was locked out,” the source said. “Employees were invited to wait until the end of the month [June] and return to employment.”
Salomon said he expected the majority of the workforce to return.
In addition to the investor funding, Safire expects to start generating cash after the first flight. “Our position holders will have to make up their minds within 30 to 60 days after the aircraft has flown a minimum of 10 hours to convert their non-binding purchase order [secured by an $8,000 non-refundable deposit] by making a 15-percent down payment.” The price of the six-place twin-turbofan aircraft will increase to $1.495 million for orders placed after the prototype flies. The current price is $1.395 million.
Safire Aircraft and its intended business jet have gone through many changes since the company was founded by Michael Margaritoff in 1998. It’s not unusual for a startup to go through growing pains as it adjusts to the financial and time-consuming realities of developing a certifiable business jet from scratch, and Safire is no exception. When the company announced its all-composite S-26, it expected to fly the airplane in 2002 and receive certification this year.
Two years after founding the company, then chairman and CEO Margaritoff scrapped plans for an initial public offering in favor of independent financing, believing that the offering might have been somewhat premature and the value of the company underestimated. Safire claimed refundable deposits for 717 airplanes at that time.
In June 2001, Dimitri Margaritoff, who had taken over running the company from his brother Michael, handed over the positions of CEO and president to Robert Kuhn.
Dimitri remained chairman and Michael continued as assistant to the chairman. Salomon has been CEO and president since January last year.
Safire in March 2000 selected West Palm Beach, Fla.-based Agilis Engines to supply the 800-pound-thrust turbofan for the S-26. In a manner of speaking, Agilis was also a startup since it had never manufactured an engine of its own design. The company was a supplier of engineering services to OEMs, a role that included building prototype turbofans for engine makers. Certification of the Agilis TF800 was scheduled for last year, but that never happened. Talk of an engine change surfaced in August 2002, and in February last year Safire, needing more power for its twinjet, switched to the 1,100-pound-thrust Williams International FJ33-4.
When Safire didn’t fly the airplane in 2002 and it didn’t look as if it would fly in 2003 either, the speculation was that the airplane needed major design changes as well as different engines. It was well into last year when this speculation was confirmed.
Safire announced in May last year that the original, all-composite S-26 would not be produced. Instead, the company introduced the Safire Jet, an all-aluminum design that the company promised would be 50 knots faster (380 knots), larger and have an NBAA IFR range of 1,150 nm (250 nm more than the S-26), while still having comparable operating costs.
While the design of the Safire Jet appears finished, it’s too soon to predict how unfinished financial business will affect the substance and the schedule of the work