SJ30 - To Be or Not To Be?

Prologue

S omething is rotten in the state of Denmark. The famous quote from Marcellus to Hamlet could equally apply to the fiasco that wasted more than $90m of investment money from government and private individuals, countless man-hours and stunted the development of a $7.25 million business jet that had been set to revolutionise the light jet market.

There is plenty of drama in this modern tale, too.

Back in April, when the last company producing the SJ30 business jet programme, Dubai-based Emivest Aerospace Corporation, was on the brink of ruin, stalking horse creditors Utah-based Metalcraft Technologies (MT), paid the relatively paltry sum of $3.5 million to acquire the company’s sizeable assets. This included $40 million worth of SJ30 parts inventory, but not the real estate assets, which were sold separately.

The acquisition saved the beleaguered aircraft at the 11th hour.

During the bankruptcy court proceedings to determine whether to accept the Metalcraft bid or liquidate the company, the judge deemed the bid of $3.5m to be too small to satisfy basic bankruptcy liabilities and UAE-based Hamish Harding, owner of the largest SJ30 distributor, Action Aviation, had to step in at the last minute to provide an additional $1.2 million of emergency funding to prevent liquidation and allow the bid to be approved.

Harding’s lawyer asked the judge to stave off the judgement on the final day of the hearing, while the distributor worked overnight to raise and wire the necessary cash over to the court.

Since the acquisition, Metalcraft has moved the Martinsburg, West Virginia, assembly line to Utah and is continuing limited operations in San Antonio, Texas. This is good news for the programme but it is salutary to look at what went wrong.

Act  1

The SJ30 has been sorely knocked about since its inception in 1986, from which it had a long journey to market.

The first proof of concept aircraft, designed by Ed Swearingen, flew at the Paris Air Show in 1991, and the first conforming prototype flew in November 1996. The plane received its type certificate in 2005. In 1997, Senator Jay Rockefeller of West Virginia arranged a major investment deal between Swearingen’s company and the government of Taiwan, creating the Sino Swearingen Aircraft Company (SSAC). The partnership was successful in completing the design and fully certifying the SJ30 but, due to Taiwanese party political issues, new investors were required for production ramp-up and, in 2008, new majority shareholders from Dubai came on board.

Act 2

The rot can be traced back to this point. Howard Leedham MBE, chief executive of Dubai’s Burj Holdings, was approached to find a buyer when SSAC’s previous takeover negotiations had started to founder.

He said that the Taiwanese had already pumped in $600 million in design, development and certification, but failed to create the aircraft production line. He was asked to find a buyer for the company. He said: “There were three potentially interested groups; Dubai Aerospace Enterprise (DAE), Istithmar, and Emirates Investment & Development Company (EIDC – also known as Emivest).”

At the time DAE had just acquired the Landmark FBO chain for the second highest multiple ever paid in aviation. The SSAC deal proved to be too capital intensive for it.

It was also too time critical for Istithmar, so Emivest, in which there was an interest by the Dubai government, agreed to take on the entire company.

Leedham said: “I even asked Emivest at the time, ‘are you sure you want to do this?’”  He then worked closely with Emivest’s then chief investment officer, Anthony Power, to structure a deal for it to acquire 70 per cent of SSAC for a $150m investment. By June 2008 it had actually taken on 80 per cent of the company. Leedham said he was never paid any commission for this work and records show he has filed an ongoing petition for such with the Dubai court.

When Emivest bought SSAC, the backlog was said to be more than 300 orders. The Dubai investment house put $90 million into the programme as part of a $150 million contractual commitment and said that it intended to build between 40 and 50 aircraft per year by the end of 2010 on the back of a workforce of 300 employees.

There have only ever been four SJ30s delivered, two by Sino-Swearingen and two by Emivest; the last in December 2009 to actor Morgan Freeman.

Emivest Aerospace’s new chief executive, Anthony Power, said in 2009: “Our entry into the aviation sector is a further demonstration of the ambition and vision of the chairman of the board, Mr Buti Saeed Al Ghandi, and the board of directors for the next phase of our ambitious growth plans in different markets where attractive dynamics exist.”

Two years later the programme was in tatters.

Leedham said: “The turn of events is very sad. I explained the obvious very early on to Anthony Power that the only way for an aircraft manufacturer to make money is to make aircraft.” According to Leedham, Emivest responded with a plan to invest sufficient capital to double projected production. However, this simply never happened.

Leedham added that, shortly after Emivest’s purchase, Power had asked him if he would sell off 25 per cent of the company at a premium of the purchase price. Leedham declined on the basis that no fees had been paid for the initial transaction. Then, that September (2008), world affairs played a part in the tragedy as investment bank Lehman Brothers collapsed, starting the chain of events that savaged world markets. 

Leedham said he advised Emivest to sell off 25 per cent of the company.

One source close to the company, who asked not to be named, said there was “a massive problem getting parts. Suppliers were not sure they would get paid. There was a cash burn in the region of $5 million per month.”

The source said: “Emivest failed for a couple of reasons. It did not honour its commitment to put in $150 million; it could not pay its suppliers and ramp up production, so the problems snowballed. It could not give the end user confidence that it would produce aircraft. The CEO was based in Dubai, heading a company run out of San Antonio.”

To outsiders it appeared that the board did not properly monitor what was happening in the Texas facility and there was often a concern among industry commentators that Power had never before managed an aviation company, or even a manufacturing company. “The fact that he was based in Dubai rather than the US added to Emivest’s problems,” one source said: “It’s a shame nobody spoke out at board level.”

Arabian Aerospace talked with Mr Power, who chose not to comment.

It did not take long for financial problems to accrue. By November 2009, an arbitration award of $4.2 million was entered against Emivest in favour of Wells Fargo Securities. Emivest owed Wells Fargo an unpaid equity transaction fee. In June 2010, the companies entered into a forbearance agreement whereby Wells Fargo would not collect on the award so long as Emivest agreed to pay $700,000 monthly. As of the date of filing for bankruptcy, Emivest had only paid Wells Fargo $225,000.

As its debts spiralled, Emivest sought outside investors. In late 2010, Chinese investors offered it $20 million to buy the company but the Emivest board turned that offer down and chose instead to file for bankruptcy, despite the fact the Chinese were reportedly offering an investment of a further $100 million-plus to re-establish and improve the SJ30 production line.

The final curtain

Finally, with three jets in production and orders for an additional 200 aircraft, on October 20, 2010, Emivest filed a petition for bankruptcy in the United States Bankruptcy Court for the District of Delaware. Court papers state that the company suffered from “inherent production inefficiencies and low initial production volumes typically associated with transitioning a complex product from development to commercial production”.

Harding was involved in the whole process and believes that the Chinese then withdrew their offer because of the bankruptcy proceedings. He said: “Chapter 11 is so fast moving that you need to grab what you can when you can still get it.”

The company’s problems did not stop with Chapter 11. On November 19, 2010, lawyers Outten & Golden filed suit against Emivest seeking to recover 60 days’ wages and benefits for several of its former employees under the Worker Adjustment and Retraining Notification Act. According to the lawsuit, Emivest ordered mass lay-offs in June 2010 without providing the employees with advance written notice. The case is pending in the Delaware District Bankruptcy Court.

On January 17 this year an auction resolved the Chapter 11. At the time, Emivest’s assets were valued at between $50 and $100 million with total liabilities of the same amount. The active order book had dwindled to 50 and serial numbers 9, 11 and 12 were in various stages of completion. There was also an FAA Part 145 repair station in San Antonio, and a mobile repair network. Many investors lost money.

Onlooker Leedham said: “What appears to have started as a stalking horse bid somehow turned into a real bid and MT did a fantastic job picking up the company for $3.5 million.”

MT actually paid $3.5 million in cash for manufacturing equipment and facilities in West Virginia and Texas, and $1.69 million in assumed liabilities. MT itself was owed $468,848.54 by SSAC.

According to court papers Emivest spent its $90 million investment over three years and ended up receiving nothing back from the bankruptcy. The source said: “With hindsight, the Emivest board must regret rejecting the $20 million purchase offer from the Chinese, just before it filed for bankruptcy.”

The sequel

Former Emivest employee Mark Fairchild has stayed with the programme for 15 years and now works as general manager for the new owner. He said that the company would work at a “slow and steady” rate and gradually ramp up production.

This June MT announced it would operate as SyberJet Aircraft. Fairchild said: “I am excited to be part of the future success of SyberJet. As a pilot, the SJ30 is an exhilarating jet to fly. SyberJet has a solid operating plan to deliver new SJ30s to the world marketplace. I look forward to providing more people the unique opportunity to experience the high performance capability that SJ30 affords its owners and operators.”

By the end of Hamlet nine people have died and the tragedy stops on a note of hope with Hamlet, himself, ordering the killing to stop and the tale to be told. The SJ30 has suffered enough and SyberJet may well just stage a happier story.