Analysis and Opinion by Rich Belzer (Former VP Sales, Columbia
Aircraft)
The excitement, such as
it was, of the Columbia Aircraft bankruptcy auction is over. Now
it's time to take a look at who were the winners and losers in the
Columbia saga.
The Winners (in order from the BIGGEST to the smallest)
Cessna Dealers - Over the past 6 years (ending
in 2007'Q3), the SR22 from Cirrus Design has outsold the 182 and
T182 combined by 146%, 2,554 aircraft versus 1,751. How many of
these purchasers completed their training in 172's before switching
gears and buying an SR22? How many of these pilots discussed the
possible purchase of a Skylane with the sales rep at their local
Cessna Dealer before placing an order for an SR22? Of course there
is no way to quantify those numbers but I think you get the
picture. Nothing hurts a sales rep like losing an order to a
competitor so you can imagine how the Cessna Dealers were feeling
about not having an aircraft to sell that would consistently cruise
at 180 to 190 kts. Fast, safe, well built and fun to fly, the
Cessna 350 and Cessna 400 are just what the doctor ordered for the
Cessna Dealer network.
Cessna Aircraft
- If you look at this from the viewpoint of a Textron
shareholder, this acquisition is a virtual non-event. In 2006,
Textron reported Cessna revenue of $4.16 billion and strong
earnings of $645 million (15.5%). Were the "Columbia Aircraft
Division" of Cessna to produce $120 million in 2008 revenue, a good
possibility, and a 5% profit (not such a good possibility), this
would represent an increase of 2.9% in revenue and just 0.9% in
earnings over Cessna's 2006 numbers. For Textron as a whole, that's
only a 1% increase in revenue and a 0.6% increase in earnings over
their 2006 results. So what's the big deal? This acquisition will
not only begin to give Cessna some valuable experience in the
manufacture of composite aircraft, ahead of the NGP, but energize
their dealer network as well (see above). For Cessna and Textron,
this is not about the numbers but about a strategic move into the
world of high-performance, composite piston-singles and they were
able to arrive at this point at a cost far less than it would have
taken to certify such aircraft.
Owners of Columbia 350's and Columbia 400's -
During my three years with the company, roughly 430 owners took
delivery of these aircraft and I was fortunate to get to know many
of them. These were truly committed purchasers as, for most of
those three years, Columbia Aircraft was operating on a shoestring
and it showed. In my experience, Columbia owners love to fly and
truly love their aircraft and that's been a must, given the
cash-induced support issues they have had to deal with. Don't think
it isn't discouraging when you bring your aircraft in to a service
center for some warranty work and are told: "We won't perform
warranty service on Columbia's any more because we never get paid."
Last Tuesday morning, all of those Columbia owners realized a
dream; they now own Cessna's and will soon be able to get their
aircraft serviced at Cessna service centers. Talk about falling
into some good luck; it doesn't get any better than this.
ING Capital and Bridge Associates - A great
deal has already been written in motions to the U.S. Bankruptcy
Court from the attorneys for the unsecured creditors about these
companies - about how much they had been paid and how little they
produced. What the Malaysian Government was after (see Losers,
below) when they began this process with ING was to sell Columbia
Aircraft for roughly the $100 million they had invested.
Irrespective of how well they performed against that objective, ING
and Bridge made millions in fees - money, as things turned out,
that came out of the pockets of the many creditors of Columbia
Aircraft. But the ultimate goal of consulting companies is to
obtain fees and, to that end, the Columbia Aircraft engagement has
been highly successful for both ING Capital and Bridge
Associates.
The Losers (also in order from the BIGGEST to the
smallest)
The Malaysian Government, Ministry of Finance
- Yes, they invested roughly $100 million and guaranteed
loans by Export Import Bank of over $30 million. How much will they
reap out of the roughly $16 million coming from Cessna and,
potentially, another $5 to $10 million that the lawsuit against
Affiliated FM Insurance Company might produce? If the attorneys for
the unsecured creditors have anything to say about it, they'll get
next to nothing. Do they deserve to lose roughly $130 million?
Given their track record as the owners of Columbia Aircraft, they
are truly deserving of their position at the top of this
list.
Unsecured Creditors of Columbia Aircraft -
This group is as diverse as can be, from parts vendors who
continued selling (COD) to Columbia Aircraft even though they had
not been paid for 120 days (or longer) to service centers that
performed warranty work for Columbia owners, submitted their
invoices for payment and received nothing in return. There's also
an ad agency that continued to diligently perform work for the
company month after month even though they weren't getting paid.
The common frustration among all of these creditors is that clearly
the owners of Columbia Aircraft (see Malaysian Government above)
had plenty of money to bring all of the creditors current but chose
instead to escape from their obligations through bankruptcy.
Naturally, the creditors will be shedding no tears over the losses
the Malaysians are taking.
Arcapita - This is an investment company that
has regularly produced a 25%-plus return on equity and their
ownership of Cirrus Design has been a textbook case of how to
invest in and help develop a company. Having finally reached the
point where it was time for an exit strategy, certainly in excess
of $200 million, they get hit by a truck. It's bad enough that
losses in the sub-prime mortgage fiasco have hit potential
investors in general aviation, now Arcapita must face the fact that
nobody is likely to make an offer for Cirrus until they have seen
at least a year of their head-to-head competition against the
Cessna 350 and Cessna 400. What will a realistic valuation be of
Cirrus at the end of 2008? It's anyone's guess and that must be
causing considerable nervousness at Arcapita.
Cirrus Design - I have placed Cirrus below
Arcapita on this list because they face a much different task -
competing with the Cessna 350 and Cessna 400 in the marketplace.
Cirrus is a well-run company with an outstanding management team so
don't think that they aren't up to the task. On the other hand,
they have led a somewhat sheltered life as the company with the
aircraft most likely to pose difficult competition for them,
Columbia Aircraft, was always facing one sort of financial crisis
or another. So what happens now? I expect the Cirrus sales force to
find many more of their prospects giving serious consideration to
350's and 400's than in the past; this will certainly cause some
delay in obtaining new orders and, in my estimation, will reduce
the total number of annual orders each of their sales reps will be
able to obtain. This problem will be exacerbated by the fact that
Cessna has dealers who are generally willing to take trade-ins
while Cirrus (in the US) has a direct sales organization that only
deals in new aircraft sales. The trick for Cirrus management will
be to adjust to this new competitive environment without suffering
an increase in sales/marketing expense that might adversely impact
their bottom line.
Columbia Aircraft's
Domestic and International Sales Centers (DSC's & ISC's)
- Having worked with Columbia Aircraft's DSC's for three
years and having established all of the company's ISC's during the
year-and-a-half I focused on International markets, I still feel a
sense of responsibility to these people, none of whom have a place
in the new order. Many of these companies invested heavily in
getting Columbia's sold during some very tough times and it looked
like they were finally going to see a solid return on their
investment in 2006 as orders were strong following the announcement
of the G1000 in late 2005. Then Garmin had their well-documented
certification delays which ultimately left 67 aircraft on Columbia
Aircraft's ramp when the June, 2006 hailstorm hit. This proved to
be the perfect storm for the DSC's and ISC's which had plenty of
orders booked for aircraft which the company could not deliver
until repairs were completed (commissions paid on delivery, of
course). Think it couldn't get worse? The company delivered a bunch
of these aircraft late in the year but, due to lack of cash,
stopped paying commissions from November, 2006, through March,
2007. So these folks just received their "Thanks for all you've
contributed and, by the way, you're fired" e-mail from Cessna and,
to me, it's a sad ending for some great people and companies. The
reality is that Cessna already has its own dealers, a company
strength, so this result was a foregone conclusion.
Final Commentary: As I expect this to be my
last article on the topic of Columbia Aircraft's bankruptcy, I'd
like to thank Jim Campbell and Aero-News Network for providing me
with the opportunity to shed some light on the events that led to
last week's final resolution. As you can see, although the Cessna
acquisition of Columbia Aircraft's assets has provided a happy
ending for some, there are a few big losers who deserved a better
fate. One group I left off the winner's list is the manufacturing
workers of Columbia Aircraft who have been jerked back and forth
like puppets over the past eight months. Not only will almost all
of these workers obtain jobs (and job security) with Cessna but
their ownership promises more jobs to come in Central Oregon.
That's a real Christmas present for some dedicated people who
can really use it.
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