A Breakdown Of The PSA Suggests That Columbia Aircraft Is Being
'Sold' For $1.5 Million
Analysis and Opinion By ANN Contributor Rich Belzer
If you have been
following the story of the Columbia Aircraft bankruptcy, you
probably have seen numbers ranging from $14 to $24 million reported
in the press. But let's take a look at the actual Purchase and Sale
Agreement (PSA), recently executed by Cessna and Columbia Aircraft
with an eye toward understanding what Cessna has offered to pay for
the most important assets, the FAA Type Certificates for both the
Columbia 350 and Columbia 400 and the tooling needed to manufacture
these aircraft.
Here are the numbers:
- The PSA states an approximate aggregate purchase price of $24.5
million.
- $12.5 million to be paid for inventory. This includes raw
materials, work-in-process, finished goods, demonstration
materials, etc… This amount would be reduced
dollar-for-dollar should a pre-closing inventory reveal a lower
actual value.
- $2 million to be paid to Garmin, a portion of their
pre-petition claims.
- $4.3 million to cover aggregate claims for E-Vade (anti-ice)
installations for which customers have already paid.
- $4.2 million to cover aggregate potential warranty claims for
existing customers.
Add it all up and you
get $23 million leaving only $1.5 million for Columbia Aircraft's
crown jewels: its Type Certificates and tooling.
In his interview with ANN last Thursday, Granger Whitelaw stated
that ING Capital and Bridge Associates did an "abysmal" job in
attempting to both turn Columbia Aircraft around and sell it. You
can judge for yourselves if accolades should be awarded for
obtaining $1.5 million for the company's most valuable assets or
whether this amounts to a giveaway. But a judgment of "abysmal"
deserves further analysis.
When Bridge Associates personnel, at the recommendation of ING
Capital, arrived at Columbia Aircraft in mid-February, they were
acting as consultants. Their initial contribution was to recommend
that the company virtually cease manufacturing while it sold off
the inventory which had accumulated in late 2006 as fallout from
the June, 2006 hailstorm. The March reduction-in-force of roughly
350 people, a combination of lay-offs and furloughs, clearly
improved the company's cash flow while, at the same time, causing
consternation within the pilot community. In late March, Bridge
asked Columbia Aircraft's board to convince Bing Lantis to "resign"
and took operational control of the company; Carl Young assumed the
position of Chief Reorganization Officer and Michael Culver reigned
as Chief Operating Officer. Almost 6 months to the day after Bridge
took control, bankruptcy was filed along with the Letter of Intent
from Cessna to purchase assets.
Why was Mr. Lantis, the highly respected and
industry-knowledgeable CEO, ejected from the company? It was clear
that Bridge felt that their "turnaround plan" could not be executed
with Mr. Lantis at the helm. So was the goal all along to arrive at
a bankruptcy or did something go wrong during the 6 months of
Bridge control?
By late May, Columbia Aircraft had gone through most of their
aircraft inventory and began recalling manufacturing employees.
From this point on, the company had to stand on its own two feet
and, according to a July interview with a company executive, the
breakeven point had now been lowered from 5 aircraft per week to
only 3 ½ per week. This translates to roughly 15 aircraft
per month, not just a manufacturing rate but a necessary goal for
obtaining orders as well. For the company's sales organization,
this required roughly a 10% increase over 2006 order
production.
So what actions did the Bridge executive team take to obtain the
increase in orders:
- In late spring, Columbia Aircraft ceased its nearly-complete
efforts to certify its aircraft in Europe (with EASA).
- In early July, the company withdrew its support for the E-Vade
anti-ice system, encouraging its customers and prospects to move to
TKS for which AS&T had recently obtained an STC. With the
Columbia 400 SLX (fully loaded) priced $60,000 above the
equivalently-equipped Cirrus SR22 Turbo GTS, this action removed a
principal differentiator between the two aircraft.
- The actions above caused Columbia Aircraft's European
representatives to terminate their efforts to obtain orders. This
occurred at a time when most GA companies were heavily pursuing
European business due to the low value of the dollar versus the
Euro and Pound Sterling.
- Pricing for the Columbia 400 was never adjusted downward to
keep it competitive with the SR22 Turbo. In 2006, the Columbia 400
generated 80% of the company's orders, 20% going to the Columbia
350 which had been under competitive pressure from the SR22 for its
entire history.
Given the above issues, industry observers were predicting by
July that order production would be below 2006 levels and, absent
cash from Malaysia or a sale of the company, Columbia Aircraft
would fail by fall, 2007. But did the Bridge Associates executives
understand this and what were they telling ING Capital, the company
responsible for selling the company?
Phil Comerford, Managing Director of ING Capital, testified
under oath at the bankruptcy hearing on October 22, that he had
never provided a valuation number to any prospective buyer. Yet
somehow, multiple companies believe they were told in June and July
that Columbia Aircraft was worth in the range of $80 to $100
million. Whatever Mr. Comerford was saying to prospective buyers,
ING's results speak for themselves: 16 companies signed
non-disclosure agreements (NDA's) and 5 visited the company's
factory. None chose to pursue due diligence or made an offer to
purchase.
Only Granger Whitelaw (pictured below) came forward with an
offer that would keep the company out of bankruptcy but his
approach to fund the company and pursue due diligence over a period
of months was rejected. This, finally, brings us back to Mr.
Whitelaw's characterization of the efforts of Bridge Associates and
ING Capital as abysmal. Off the mark? I suspect that Columbia
Aircraft's many creditors might choose a more colorful
adjective.
But don't discount the abilities of Bridge Associates
completely; their 60-day initial agreement was extended to more
than 7 months and they have, and continue to be, nicely compensated
for their efforts. To my knowledge, Bridge is not among the
creditors who are suffering from the end result of their
efforts.
The only good news for the creditors is that the $1.5 million
bid for Columbia Aircraft's Type Certificates and tooling is likely
to go significantly higher. Cessna (Textron), Cirrus Design
(Arcapita) and Park Electrochemical are likely to spur a lively
auction on November 27. And don't discount Granger Whitelaw's
ability to hang in there as well.