FLUG REVUE June 2002: Fairchild Dornier 728JET stop close

FAIRCHILD DORNIER FACES BANKRUPTCY

By Patrick Hoeveler

The 728 is now real, former Chairman Chuck Pieper had proudly told representatives of the press shortly before the roll-out ceremony. But equally real are the financial problems which have brought the company to its knees. As far as Pieper was concerned, the reason for that was due to an unfortunate combination of factors: termination of the 428JET programme, the delay to the 728 programme, the failure of the Chinese government to grant import licences for the 328JETs ordered by Hainan Airlines, and the aftermath of 11 September. In recent months he had approached possible partners in person and initiated negotiations with "more than four” of them. Although Boeing was the prime candidate, no agreement was reached.

Fairchild Dornier 728, first prototype

As development of the 728 and building up the production infrastructure requires no less than $50 million per month, according to Chief Operating Officer John Wolf, despite the injection of an as yet undisclosed sum by the owners at the end of last year, the company has run out of money. On 2 April the American-German company filed for insolvency, a move that will initially protect the manufacturer against direct claims from creditors and at the same time will determine the best way of rescuing the company or redeeming its debts.

Until the court-appointed insolvency administrator, Eberhard Braun, presents his report on 17 June, the search for investors continues. Braun is currently managing the company together with a reduced management team consisting of John Wolf and Thomas Brandt. Former CEO Lou Harrington and Executive Vice President Business Development Barry Eccleston have resigned.

Only in March Eccleston was extolling the virtues of the 728 as an excellent weapon for the big airlines in their struggle against the low-cost carriers. Like the competition from Canada, he was predicting that the regional market would see the fastest rate of growth in air travel. Between now and 2020 he foresaw a requirement for 9,000 new aircraft of between 25 and 110 seats.

Until recently Fairchild Dornier boasted an orderbook of 125 firm orders for the 728 and a total order value of $11.7 billion. Then came some more bad news. High-volume customer GECAS cancelled its firm order for 50 of the 70-seater plus 100 options due to a contract clause covering the event of insolvency. Although Fairchild Dornier is assuming that the orders will be reinstated once the company is a going concern again, this decision is not making negotiations with possible investors any easier. On the other hand, Lufthansa is still committed to the 728, which essentially was specified to its requirements.

Because of the passanger comfort associated with a cabin width of 3.25m, the airline is eagerly awaiting delivery of its new aircraft. "Lufthansa needs this plane,” said Wolfgang Mayrhuber, deputy chairman of Lufthansa's Executive Board, Passenger Business Division, in his speech.

According to Wolf, the maiden flight of the 728-100 is scheduled for August. The second prototype will be finished in September/October, and the third approximately one month later. At present the static airframe is undergoing load tests at the IABG in Ottobrunn.

Even among the competition, the product is viewed as very advanced. Wolf is particularly proud of the cockpit, with its six 20x28cm liquid crystal displays which are intended to reduce pilot workload. The number of overhead switches has also been reduced, as the designers have integrated some of the functions into the software.

All aircraft from the tenth one onwards will be built to the -200 standard, with an approximately 10% higher take-off weight. The 728-200 has a correspondingly reinforced fuselage and elevator unit, while the outer wing comes from the 928. The General Electric CF34-8D3 engine produces 3% more thrust than the -8D1 of the -100 version. The regional jet is directed primarily at large airlines which attach importance to a two-class configuration, and possesses the same range as the 928-100 (3,300km, 750km more than the 728-100). However, it remains to be seen whether the first delivery can still be achieved at the end of next year, as planned.

According to Fairchild Dornier, work on the 328 programme and the manufacture of Airbus components are continuing. The 728 is being prepared "as far as possible” for its maiden flight, which is still scheduled for this summer. However, development of the 928 and the Envoy 7 corporate jet (728-300) have slipped. Construction of the new assembly hangar for the 728 has also been frozen. The head count at Oberpfaffenhofen remains unchanged for the time being, but in San Antonio the company has suspended the production of wings for the 328JET and made 500 to 600 workers redundant. The administration in Herndon, Virginia, has been completely closed down. A $90 million loan package from a German banking consortium should ensure that the company can keep going for the time being.

If no investor has been found by June, the company could be broken up through the sale of individual divisions. In the meantime, shortly before going to press, some good news came in: the Chinese are finally planning to take delivery of eight 328JETs, worth approximately $100 million, in the near future.

From page 30 of FLUG REVUE 6/2002

Last updated 2 May 2002

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