When Foreign Takeovers Fail

I have written quite a lot about the middle and far eastern buyout of North American and European aerospace manufacturers recently, but then there has been lots to report! Back in 2011 it was announced that Diamond Aircraft Canada had been purchased by the Medrar Financial Group of Dubai. Things went bad, though and the repercussions are just being felt this week.

In the 2010-11 period Diamond had embarked on a program of developing new aircraft designs, like the DA50 Super Star, the twin-engined DA52 and especially the D-Jet, its single-engined jet program. This all required capital and the company was running short of money. During the May 2011 Canadian federal election campaign Diamond threatened to close its London, Ontario plant if government help was not forthcoming. The Conservative government didn't bite, said no and the company finally settled on the buyout by Medrar instead in November 2011.

But it was just today that it was officially revealed by Diamond that the deal with Medrar was never completed and no cash changed hands. Diamond had not previously announced that, just quietly taken down the original press release on the deal, although the announcement can still be seen on Archive.org. There was a rumour on 19 February 2013 that the deal with Medrar had failed so I wasn't totally surprised when the lay off announcement quickly followed.

It seems that the company has been surviving on its own shareholder funding for the last 16 months, while it looked for alternatives. That money seems to have run out this past week and Diamond has now laid off the majority of its workers, leaving only those building ordered aircraft and the parts department, to keep the existing fleet flying. The company has indicated that it needs to restructure and then hopes to bring back the majority of its workers. I guess we will see how that pans out over time.

In general I have stated that these sorts of foreign buyouts are good for the aerospace industry, because investment from North American and European sources seems to be totally absent these days. Without these middle eastern and far eastern buyouts companies like Cirrus and Continental would probably not be in business today. Diamond obviously needs some investment and right away, or it may not be in a position to reopen its doors and carry on its development projects.

In a way it is too bad that Diamond's management took such a secretive approach to the Medrar buyout, not announcing that it had failed, because a potential buyer may have seen that and come forward on their own. With this secretive approach I think most people reading the aviation press would have thought that everything was rosy and no help was needed, until the announcement of the lay-offs this week. Perhaps there is a lesson there for other companies?

Hopefully Diamond will find a buyer quickly and get their employees back to work soon.

Here is my revised current list of western aerospace firms bought out so far:

• Cirrus Aircraft - Government of the Peoples Republic of China
• Continental Engines - Government of the Peoples Republic of China
• Enstrom Helicopter Corporation - Chongqing Helicopter Investment Co, China
• Epic Aircraft - Engineering LLC, Russia
• Flightstar Sportplanes - rights, tooling and parts inventory purchased by Yuneec International, China
• Glasair Aircraft - Jilin Hanxing Group, China
• International Lease Finance Corp - 90% New China Trust Co Ltd, New China Life Insurance Co Ltd, P3 Investments Ltd and China Aviation Industrial Fund
• Liberty Aerospace - 75% owned by the Kuwait Finance House, a wholly owned subsidiary of Kuwait Finance House of Bahrain
• LISA Airplanes - 75% owned by Heima Mining Company, China
• Piper Aircraft - Government of Brunei
• Superior Air Parts - Weifang Tianxiang Technology Group, China

Further reading

• AVweb
• Wikipedia

Canadian Light Aircraft Equip Ecuadorian Air Force

The Fuerza Aerea Ecuatoriana has taken delivery of the first six of twelve Diamond Aircraft DA20-C1s that will be used as military pilot trainers in the equatorial South American nation.

Diamond built the military trainers at their Canadian plant in London, Ontario, showing that the company is quickly bouncing back from its financial woes in early 2011 under its new ownership by Medrar Financial Group of Dubai.

The twelve aircraft sale includes maintenance training, as well as operational training and a technical support package.

(Diamond Aircraft press release photo)

* Diamond Aircraft Press Release

Things Are Looking Up At Diamond Aircraft

Since Diamond's buyout by Medrar Financial Group of Dubai the company has been on a more even financial footing. This has has all kinds of benefits, like inspiring customers to buy planes. Diamond just put out this press release on a big order for up to 26 DA40s.

Diamond Aircraft and Flight Training Adelaide announce DA40 fleet order

Diamond Aircraft and Flight Training Adelaide announce DA40 fleet order Flight Training Adelaide (FTA) has contracted with Diamond Aircraft, in conjunction with their Australian distributor Hawker Pacific, for the purchase of up to 26 DA40 aircraft, to be based at Parafield, Australia. The first four of eight 2012 deliveries will be made midyear, with options for 18 additional aircraft scheduled for 2013 and 2014 delivery. The single engine Garmin G1000 equipped DA40s replace FTA's aging single engine Socata TB10s and Grob 115s and will complement their seven DA42 L360 aircraft.

"We chose the DA40 because it was the best fit for our strategic acquisition and upgrade program. It offers the technology we desire, simplicity of operation and maintenance and is underpinned by a strong aircraft manufacturer in Diamond Aircraft Industries Canada, who are ably supported by their partner Hawker Pacific in Australia," said Pine Pienaar, CEO of FTA. "We train cadets to become professional pilots for our partner airlines, including Cathay Pacific, Dragonair, Qantas, QantasLink, JAL Express and J-Air. Our airline partners demand competent and technology savvy pilots, regardless of whether we are training to a conventional training syllabus or for the Multi-Crew Pilots licence. The modern low-drag DA40 with its full glass cockpit provides the perfect introduction for cadets and is an easy transition to our DA42 twins. We have been very satisfied with Diamond's after sales support and this is an important element of our decision."

"We're delighted that FTA has selected the DA40 to modernize their substantial single engine fleet," said Peter Maurer, CEO of Diamond Aircraft Industries Inc. "With its modern glass cockpit, superb handling, fuel efficient airframe, demonstrated reliability in high utilization flight training and proven best safety record, the DA40 is ideal for professional flight training and best complements the fleet of DA42 twins that FTA has been operating since 2007. The local parts and service support offered by Hawker Pacific, our distributor for Australia and New Zealand, undoubtedly enhanced our bid and we are grateful to Hawker Pacific for their great work in securing this significant order."

Diamond Solves Financial Woes With Buy Out

As previously reported earlier in 2011 Diamond Aircraft of London Ontario indicated it was in dire trouble and needed a federal government loan or it might not survive.

Company President Peter Maurer said in March 2011 "If we don’t get the funding from the federal government, it puts us in a difficult situation. If the D-JET, for example, in a worse case scenario, were not to continue it would have a negative impact on the rest of the company’s operations...[The debts are] at a level that would be very difficult to satisfy out of piston sales. I’ll let you do the extrapolation."

Of course as we now know the government said "no" and the company went away looking for other options, Maurer oddly saying that he had considered a government bailout a "long shot".

On 13 November the company announced its solution to the crisis. It is now majority owned by Medrar Financial Group, an investment company based in Dubai. The buy-out was for an undisclosed amount.

Stories:
*Diamond press release
*AVweb
*London Free Press

It is hard not to note the trend here, as I have written before many aviation manufacturers have recently been bought out by middle eastern or far eastern countries. A short list:

* Diamond Aircraft - majority owned by Medrar Financial Group, Dubai
* Cirrus Aircraft - Government of the Peoples Republic of China
* Continental Engines - Government of the Peoples Republic of China
* Liberty Aerospace - 75% owned by the Kuwait Finance House, a wholly owned subsidiary of Kuwait Finance House of Bahrain
* Piper Aircraft - Government of Brunei.
* Epic Aircraft - partly owned by the Government of the Peoples Republic of China

Once again, though I will make the point that in almost all of these cases investment from North America, Europe and other western countries was not to be found. That means that while many people from North America will shake their heads and say "this is too bad", that is all they will do. They didn't pony up and put money on the table to keep these companies going. The case is the same with Diamond. It is pretty obvious that the choice was simply between selling it to interests from Dubai or shutting it down.

If westerners want to retain ownership of our aerospace industry, then we need to stop the "tut-tutting" and start buying companies out ourselves.

*Complete rundown on the Diamond story

Diamond lining up for handouts

Diamond Aircraft, with a large plant located in London Ontario, is lining up for money from the federal and provincial goverments and has indicated that the company's future will be very uncertain without the bailout loans. The Financial Post described the company as "in rough shape".

It seems that piston sales have been pretty slow though the ongoing recession and the company has been unable to move its D-Jet single engined jet development project forward, due to lack of investment money, despite a firm 230 orders for the $1.89M per copy aircraft.

To get the D-Jet into production the company has located $20M in private investment, plus a committment of an additional $35M from the Government of Ontario. The Ontario government investment is contingent on Diamond also getting an additional $35M from the federal government. A decision by Industry Canada on that was still pending in late March, due to the government conducting "due diligence on the loan".

If both the federal and provincial loans are provided then, combined with funds already provided, the total provincial and federal government investment would be $100M.

Diamond Presdent and CEO, Peter Mauer indicated "If we don’t get the funding from the federal government, it puts us in a difficult situation. If the D-JET, for example, in a worse case scenario, were not to continue it would have a negative impact on the rest of the company’s operations. [The company debts are] at a level that would be very difficult to satisfy out of piston sales,” he said. “I’ll let you do the extrapolation."

Further reading:

* Financial Post - Planemaker Diamond in rough shape
* AvWeb - Diamond's Future Contingent On Loan?