FLUG REVUE August 2002: Fairchild Dornier goes under

HOPE FADES FOR 728 REGIONAL JET

By Patrick Hoeveler

Fairchild Dornier in its present form as a single company will soon be a thing of the past. Insolvency proceedings were due to commence at the beginning of July, as required under German law. Shortly before this issue of FLUG REVUE went to press, administrator Dr. Eberhard Braun told an employee meeting in Oberpfaffenhofen that he was planning to break the company up into individual business units since no investor could be found to purchase Fairchild Dornier as a complete company.

The key issue here is the future of the 728 regional jet, in which Bombardier had expressed an interest. Yet, to everyone's surprise, the Canadians broke off the negotiations. According to a press release issued by Braun, "we were hoping that production and development of the 728 could be continued with a view to this business being transferred to Bombardier. Now that Bombardier has decided not to continue with the discussions, we are pursuing this avenue with another interested party.” However, the identity of this other party has not yet been officially disclosed. Unofficially it is said that Alenia is looking at the 728/928 programme, but industry observers see little chance for a deal.

At the request of the German government, the state of Bavaria and Lufthansa, Bombardier had in May begun a technical review of the 70-seater, which turned out to be favourable. Bombardier then extended its assessment to all the remaining areas, focussing particularly on the financial situation. The Canadians estimated that it would cost $400 million to complete development of the 728, while the 90-seat 928 would require a further billion dollars. Given the size of the potential investment, Bombardier CEO Robert Brown wanted to delay a final decision until the late summer.

The 728 would have been an ideal addition to the portfolio of the third largest aircraft manufacturer in the world. As Brown indicated in Montreal, the engineers even looked into the possibility of another stretch of the 928. Besides, the strategists from North America could hardly leave the field to their competitor Embraer.

The Federal and the Bavarian governments had already indicated that financial support would be forthcoming if the programme were to be continued. Thus the prospects of a reasonably priced takeover appeared reasonable. Work on the programme was to continue, Fairchild Dornier announced, until a final decision was made. But now a new investor must be found by July, otherwise the programme will have to be terminated.

Meanwhile things are looking more hopeful for the other divisions of this long-established company. At the meeting, the workforce was informed that the company was negotiating over the 328JET with an American venture capital group which a few years earlier had rescued aircraft manufacturer Piper. Here the time pressure is a little more relaxed, as production of the 32-seater is secure up to 30 September.

Nevertheless, the company has had to accept the bitter setback that Atlantic Coast Airlines (ACA) has pulled out of a deal to purchase thirty 328JETs, which had almost been concluded. The carrier which operates on United Express's behalf out of Washingtons Dulles airport has instead decided to buy 25 CRJ200's from Bombardier, worth $571.5 million, because of the uncertainty resulting from the insolvency proceedings.

On the other hand, the future of the Airbus components manufacture, maintenance and customer service divisions, for which a new company is to be founded, is secure, according to Braun. Nevertheless he conceded that from July between 800 and 1,200 staff would probably be surplus to requirements.

From page 27 of FLUG REVUE 8/2002

Last updated 11 July 2002

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