Fairchild Dornier GmbH

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Fairchild Dornier GmbH

P.O. Box 1103
82230 Wessling
Germany
Telephone: (49) 8153-30 0
Fax: (49) 8153-30 2007
Web site: http://www.fairchilddornier.com

Private Company
Incorporated: 1936 as Fairchild Engine & Airplane Corporation
Employees: 4,400
Sales: $710 million (2001 est.)
NAIC: 336411 Aircraft Manufacturing; 336413 Other Aircraft Parts and Auxiliary Equipment Manufacturing; 541710 Research and Development in the Physical, Engineering, and Life Sciences

In 2001 Fairchild Dornier GmbH was the world’s third-largest manufacturer of regional jets. Its two namesake predecessor companies produced some of aviation’s most unique and effective military aircraft. After merging, both Fairchild and Dornier then set their sights on the hotly contested market for small regional airliners. In 2002, however, Fairchild Dornier filed for bankruptcy protection and shuttered its U.S. operations; the future of the company in Germany also remained uncertain.

Origins

The original Fairchild company was established in 1936 as a holding company for the aircraft interests of Fairchild Camera founder Sherman Fairchild. While its Ranger Aircraft Engine subsidiary produced engines for the navy, Fairchild participated in the aviation market largely as a subcontractor during World War II. After the war, Fairchild sought new opportunities in the growing aircraft industry but was hampered by a lack of capital and engineering talent. Nonetheless, the company turned out a successful cargo design called the C-82. It sought to extend its work in this area by developing a second, larger design, the C-119 “Flying Boxcar,” but lost the manufacturing competition to the Kaiser-Frazier company. While Fairchild was awarded a subcontract for the C-119 and a subsequent design called the C-123, its employees’ resentment for Kaiser was reflected in their work. Furious with Fairchild’s performance, the air force virtually shunned the company.

Fairchild turned instead to commercial designs. It established an arrangement with the Dutch airplane builder Fokker to build versions of its popular F-27 airliner. The company also began development of its Goose guided missile system. Unable to sell either design, Fairchild fell into a deep crisis that lasted from 1958 through 1960. Sherman Fairchild returned from retirement to head the company briefly and was successful in repairing damaged relations with the government and returning financial discipline. He was replaced in 1961 by Edward G. Uhl, an engineer.

Acquisitions in the Mid-1960s

Uhl’s first actions as head of Fairchild were to fire several executives, slash costs, and switch the company from product diversification to technology diversification. Uhl was convinced that Fairchild’s greatest weakness was its lack of engineering talent. Rather than spend years building a capable staff, Uhl began an acquisition campaign that included the Hiller Aircraft Company in 1964. The following year, Uhl found an opportunity to buy a financially distressed manufacturer with an army of good engineers. On September 30, Fairchild took control of the Republic Aviation Corporation, a military aircraft manufacturer based in Farmingdale, on New York’s Long Island.

Republic Aviation was founded in 1931 by a Russian immigrant named Alexander P. Seversky. A graduate of the Russian naval academy and military aeronautics school, Seversky learned to fly and during World War I was Russia’s leading fighter ace. In 1917, while Seversky was in Washington, D.C., to procure aircraft, the Bolsheviks seized power in Russia. Seversky and several in his delegation elected to stay in America.

Seversky worked as a consulting engineer and test pilot and developed a solid-fuel shore bombardment rocket for the navy. In 1922, he perfected a bomb sight device, which he sold to the U.S. government for $50,000, using the payment to establish the Seversky Aero Corporation. Rather than building aircraft, Seversky concentrated on improved structures, landing gear, and air-to-air refueling systems.

The Great Depression took a heavier toll on the aviation industry than on others. Seversky’s was one of hundreds of aeronautics firms that were forced into bankruptcy in 1931. The company was rescued by the financier Paul Moore, who reorganized the enterprise as Seversky Aircraft Corporation. Moore retained Seversky as president, and took on Alexander Kartveli—an associate of Seversky’s and also a Soviet immigrant—as an engineer.

Seversky and Kartveli worked feverishly to perfect the concept of a single-skin all-metal aircraft. The result of their work was the SEV-3, a floatplane fitted with retractable wheels. This design failed to win a volume order but served as a necessary step in developing additional all-metal aircraft. Seversky succeeded in selling a subsequent trainer model, the BT-8, to the government. Lacking a factory, Seversky Aircraft was forced to subcontract its manufacturing business to the Kirkham Engineering Company in Farmingdale, New York.

In 1935, Seversky Aircraft was forced to terminate its manufacturing agreement with Kirkham Engineering when the Colombian government failed to pay an installment. Seversky collected his half-finished aircraft and completed assembling them at an abandoned warehouse nearby. At this site, Seversky began work on the P-35, another derivative of his original design. The P-35 won a government design competition against the Curtiss P-36 Hawk, bringing in a badly needed order for 77 aircraft. Seversky had difficulty overcoming several shortcomings in the P-35, including a jam-prone starter, leaky fuel tanks, and faulty landing gear. The company lost $70,000 on the order and the following year lost an order to Curtiss for 210 additional aircraft.

Seversky’s overly enthusiastic drive to sell aircraft, his disdain for Curtiss, and his difficult personality caused his company to become increasingly alienated from the American military establishment. As Seversky’s reputation grew, his company’s business declined. He was forced to turn to a greater number of export customers, including the Soviet Union and Japan, which held tenuous regard for human rights and even proprietary aircraft designs.

Seversky converted the P-35 to a racer and struck up a relationship with the aviatrix Jacqueline Cochrane in an attempt to win recognition for the aircraft’s performance. The design won several races but failed to win more sales. Most of the government’s P-35s were stationed in the Philippines and were later destroyed during the Japanese invasion of that country.

Hoping to reduce his company’s reliance on military sales, Seversky spent tremendous sums on the development of a large five-propeller passenger craft. By 1939, however, Paul Moore had had enough of Seversky. That year, while the founder was on a sales mission to England, the company’s beleaguered board of directors voted to oust Seversky and install its own candidate, W. Wallace Kellett, as president of the firm. Seversky was given $80,000 and retired into a more distinguished career as a columnist.

Kellett slashed the payroll from 500 to 185 employees and later won a lucrative Swedish export order. With a $10 million backlog, the company was profitable for the first time. Hoping to rid the company of its bad name, the board voted to change the company’s name to Republic Aviation.

Famous Fighters in World War II and the Cold War

Alexander Kartveli remained with the firm and was instrumental in designing its next fighter, the P-47 Thunderbolt. A clear improvement over the lightly armed P-35, the P-47 was the first fighter capable of providing uninterrupted air cover for American bombers between Britain and Germany. As a result, the P-47 secured a leading role for Republic during World War II. Republic Aviation, still located in Farmingdale, grew to employ more than 32,000 workers, a great many of whom were women. By 1944, Republic was turning out 20 P-47s a day.

With the end of the war drawing near, the company began planning for much leaner times. Fearing the loss of its military contracts, Republic hoped to convert a new high-altitude reconnaissance craft it had developed into a civilian airliner. The four-engine RC-2 Rainbow was as sleek as a missile, and its speed was unrivaled, but the two launch customers, Pan American and American Airlines, lost interest after learning the airliner’s cost. A second project for the civilian market was the RC-3 Seabee. Conceived of as a family sedan floatplane, the Seabee suffered from a collapse in public interest in private aviation. After only about 1,000 Seabees were built, Republic abandoned the civil aviation market.

British and American manufacturers quickly began development of jet aircraft after Germany’s Me-262 fighter jet appeared during the final months of the war. Under Karveli’s direction, Republic began work on its own jet design, the F-84 Thunderjet. Fitted with an Allison J-35 engine, the F-84 first flew in 1946. The Thunderjet was capable of air-to-air refueling and carrying nuclear bomb payloads. The design saw heavy action during the Korean War, and by 1953 more than 7,000 were turned out for the Air Force and several foreign air services.

Company Perspectives:

Customers Come First. Fairchild Dornier is a company that values action. We believe in listening to our customers and following through by delivering products that meet their needs. The 328JET, for example, was developed in recognition of the growing demand for jets to replace turboprops. The 728JET Family will provide a series of state-of-the-art, 55- to 110-seat aircraft that will give airline operators the flexibility they need to match their fleets to changing market needs. At Fairchild Dornier, we believe that we are in business for one reason: to serve our customers. If our customers succeed, then we will succeed. We embrace the concept of customer satisfaction—before, during, and after the sale.

While the F-84 proved to be a formidable fighter bomber, its development took a heavy toll on Republic. Costs were so high that the company only narrowly avoided bankruptcy. Nevertheless, having demonstrated its ability to build a great jet, Republic won further government funding for an experimental rocket powered version, the XF-91, and a successor to the F-84, the F-105 Thunderchief. The Thunderchief matched or outperformed all competing designs during the mid-1950s, including the North American F-86 and Lockheed F-104. The multi-role F-105 was the U.S. Air Force’s standard fighter bomber throughout the 1950s, and more than 800 were built. During the late 1950s, the company began development of a ramjet-powered fighter called the XF-103. Capable of speeds in excess of 3,000 miles per hour, the titanium fighter was deemed too expensive by the Air Force and was canceled.

When President Kennedy took office, Defense Secretary Robert McNamara attempted to rein in aircraft development costs by ordering development of a fighter bomber suitable for use by both the Air Force and Navy. This strategy caught Republic by surprise. As Boeing Co., General Dynamics Corp., and Grumman Corp. scrambled to meet the call, Republic found itself simply unprepared to develop such a design. Like Martin Aircraft some years before, Republic elected to concentrate its resources on space projects. The company was chosen to make space suits and build satellites and rocket engines, but despite these efforts, Republic was unable to secure a lasting position in the space industry.

By the time production of the F-105 ended in 1965, Republic was left only with a few subcontracting arrangements, including building aft sections of McDonnell’s F-4 Phantom. With all but 3,700 employees laid off and in dire need of financial backing, Republic was acquired by the new Fairchild-Hiller company. As a division of Fairchild-Hiller, Republic afforded its parent company a better relationship with the military. By 1966, Fairchild-Hiller’s finances had become strong enough that it was able to bid for the acquisition of another distressed airplane builder, the Douglas Aircraft Co.

While Fairchild-Hiller lost out to McDonnell Aircraft on that bid, it retained a strong interest in commercial aircraft. As a result of its close relationship with Fokker, the company began negotiations to manufacture the Dutch company’s new F-28 jetliner in the United States under license. However, the partnership was later terminated with a $30 million write-off when sales of the Fokker-Fairchild F-228 failed to materialize.

The Republic Aviation Division won valuable subcontracts to manufacture parts for Boeing Co.’s 747 and supersonic transport, or SST. Republic also won a design competition to develop a vertical take-off and landing fighter jet with the German company Entwicklundring Sud. Unfortunately, both the SST and the fighter were later canceled.

In a 1969 design competition with McDonnell-Douglas Corporation, Republic lost a highly profitable contract for the F-15. Many considered Republic’s design to be vastly superior, but McDonnell-Douglas maintained an extremely competent lobbying organization. In addition, the Pentagon had just awarded the F-14 Tomcat to Grumman, located in Bethpage, a scant nine miles from Republic. In the world of political “horse trading,” two major contract awards for the same congressional district would never be tolerated.

Swearingen Aircraft Acquired 1971

In 1971, the company had changed its name to Fairchild Industries and was looking to acquire another aircraft manufacturer with excess capacity—and located away from the east coast. In November of that year the search ended with the Swearingen Aircraft Company. At the time it was acquired by Fairchild, Swearingen was little more than a design shop with a small manufacturing facility located in San Antonio, Texas. The company was founded in 1959 by a talented aircraft designer named Ed Swearingen, Jr. Originally a one-man operation, the Swearingen Aircraft Company was established solely for the purpose of modifying twin-engine Queen Air business craft, built in Wichita by Beech Aircraft. Unlike other aircraft modifiers, Swearingen did not merely add new fixtures and controls. Instead, the company replaced the Queen Air’s original fuselage with one of its own design. Swearingen marketed the rebuilt aircraft under the name Merlin.

During the 1960s, Swearingen incorporated further enhancements on the Queen Air, which were sold as the Merlin II and Merlin IIB. Swearingen sold a total of 115 Merlins. By 1970, the company had so radically altered the original Beech design that Ed Swearingen decided to build the craft from scratch. He called the new business craft the Merlin III but also developed a commuter airline version called the Metro.

While Swearingen went deeply into debt to finance production of the new craft, the project gained the attention of Fairchild. Seeing the opportunity to buy into a promising civilian craft at the earliest stage, Fairchild negotiated a deal to buy out Swearingen. The San Antonio facility remained in operation for several more years as Fairchild Swearingen until the founder’s name was eventually dropped.

Key Dates:

1931:: Republic Aviation is founded as Seversky Aircraft Corporation.
1936:: Fairchild Aircraft is founded.
1946:: After building thousands of P-47 fighters in WWII, Republic unveils its F-84 Thunderjet.
1964:: Fairchild acquires Hiller Aircraft Company.
1965:: Fairchild Hiller acquires Republic Aviation.
1971:: Fairchild acquires Swearingen Aircraft Company.
1972:: Fairchild wins bid to build A-10 Thunderbolt tank-killer aircraft.
1990:: Former Wings West managers purchase Fairchild.
1996:: Fairchild Aircraft acquires Dornier Luftfahrt, forming Fairchild Dornier.
2002:: Fairchild Dornier files for bankruptcy and seeks a strategic partner.

In 1972, Fairchild Republic won a competition to produce a new ground attack aircraft, the A-10 Thunderbolt. This unusual craft, called Warthog by the pilots who flew it, was designed not to fly against other aircraft but against tanks and artillery. Heavily armored, the A-10 carried a powerful 30mm rapid fire cannon that could destroy a tank in half a second. The A-10 was extremely maneuverable, able to snoop around trees and loiter at low altitudes for hours. The U.S. Air Force, addicted to flashy supersonic fighters, wanted no part of the project, but with no other anti-tank alternative, production of the A-10 began. The air force was obligated to maintain the craft. In battle, the A-10 would be under the direction of the army.

Hoping to remain a step ahead of cancellation, Fairchild immediately began searching for another civilian project in which to invest profits from the A-10. The company studied a number of designs with Sweden’s Saab-Scania, settling on a 34-passenger twin-prop called the SF-340. Fairchild and Saab agreed to develop and manufacture the airliner jointly and to coordinate sales efforts.

In 1982, with A-10 production nearing the end of its cycle, Fairchild won a second contract to produce the T-46 jet trainer for the air force, but air force officials were so incensed by the presentation of a mock-up when a finished version was due that they requested a full review of the company. They found Fairchild unable to control costs or affect engineering discipline because the company’s senior executives were waging a pitched battle for control of the company and driving it into complete disarray.

After Fairchild delivered the last of 700 A-lOs in 1984, the company was unable to cover rising costs on the T-46. No longer able to support the SF-340 project, Fairchild bailed out after building only 96—half what was needed to break even. The divided management attempted to steer the company into the communications and space industries (the company built numerous space components, including the Space Shuttle’s tail fins), but when the air force canceled the T-46 in 1987, it sounded the death knell for the Republic division. Republic’s Farmingdale site was sold to a shopping mall developer in 1988, and many of its employees moved to Grumman.

1987 Restructuring

In July 1987, Fairchild restructured its operations and sold its San Antonio operations to Los Angeles-based GMF Investments, headed by renegade board director Gene Morgan. Fairchild continued to collect small contracts for updated versions of the Metro from the air national guard and a handful of commuter airlines. After a while, its president and two other executives were fired for “philosophical differences” with Morgan. After a boardroom showdown in January of 1990, Fairchild declared bankruptcy. It remained under Chapter 11 supervision until August 15, when a former Fairchild customer named Carl Albert bid for the company.

Albert had purchased many Fairchild Metros during his career as head of the Wings West commuter airline. As a onetime customer, he knew how to sell them. When the AMR Corporation bought out Wings West, Albert had $42 million to spend. Later that year, Albert and a group of investors organized Fairchild Aircraft Incorporated and acquired the airplane builder for $66.4 million. They immediately laid plans to rebuild the company, riding their bets on a newer, more versatile Metro III.

Months later, the A-10 proved itself in battle in Kuwait, destroying 1,000 tanks, 1,200 artillery pieces, and 2,000 military vehicles. Some Warthogs returned from battle with as much as 20 feet of wing missing, tails shot off, and gaping holes in the fuselage. The effectiveness and incredible resilience of the craft forced many in the Pentagon to rethink their earlier treatment of Fairchild. The company sold its rights to the aircraft to Grumman before closing its Farmingdale plant.

Under Carl Albeit, Fairchild emerged as a financially sound company—and the only consistently profitable small aircraft manufacturer. The company manufactured derivatives of its low-cost, successful new Metro 23, including passenger, cargo, military, and aerial surveillance versions. Fairchild had 1,000 employees and annual sales of $580 million at the beginning of the 1990s.

Several new contracts from the U.S. government and Aeromexico, among others, prompted Fairchild to double production and hire more employees for its San Antonio plant in 1991. The company was also looking abroad for low-cost manufacturing capability and design expertise.

Fairchild Aircraft Aircraft and LET Narodni Podnik, a Czech aircraft manufacturer, discussed producing a westernized version of the Let L610 40-seat turboprop airliner. However, talks stalled in early 1993 due to Let’s inability to restructure its debt and raise financing to build a second prototype for U.S. certification. Nevertheless, in June of the year Fairchild announced plans to acquire a majority stake in Let via its quasi-governmental holding company, Aero. The Czech manufacturer employed between two and three thousand workers at its site in Kunovice.

Fairchild planned to invest $100 million in the company. Besides Let’s L610, Fairchild would be marketing its un-pressurized 19-seat L420 airliner and planned to subcontract Let some work on its own Metro 23 airliner. Fairchild was ultimately unsuccessful in its attempt to acquire Let, however.

Around the same time, a secret plot to acquire Fairchild emerged. Two years earlier, during Fairchild’s bankruptcy proceedings, Israeli Aircraft Industries (IAI) had been contacted by company-restructuring specialist Quadrant Management about joining its bid for the company. In a 1993 lawsuit, IAI claimed Sanwa Bank, a Fairchild creditor, called off the talks due to an Arab boycott of Israel.

Fairchild Dornier Created in 1996

Daimler-Benz Aerospace AG (DASA) sold Fairchild its financially troubled Dornier Luftfahrt GmbH regional aircraft unit in June 1996, thus creating Fairchild Dornier GmbH. Dornier had roots going back to 1914 and was a pioneer in all-metal aircraft construction. DASA acquired the company in 1985 but came to rue its involvement in the fiercely competitive regional airline business. Although its new Dornier 328 was faster and quieter than other turboprops, the marketplace was crowded and steering towards new regional jets. Dornier Lufthahrt lost $337 million (DM499 million) in 1995.

The 328JET, a 30-seat, jet-powered version of the 328 turboprop inherited from Dornier, began flight testing in January 1998. This type spawned a number of derivatives, including the 428JET, a 44-seat stretched version scheduled to begin deliveries in 2003. A freighter version was also under development.

Planned derivatives of another model, the 70-seat 728JET, included a shortened version, the 528JET, and a stretched version, the 928JET. Fairchild Aerospace was launching business aircraft versions of both the 328 JET and its 728JET, dubbed the Envoy 3 and the Envoy 7.

The 728JET claimed to offer regional airlines the first true 50/90-seat family of jets, noted Flight International. The project had the backing of the German government, which guaranteed $350 million worth of loans to help protect jobs at the Dornier factory near Munich. Lufthansa signed up as an early customer.

The 728JET family had projected development costs of $1 billion, making Fairchild scramble for additional capital. The company entered discussions with a number of North American aircraft manufacturers (including Boeing and Bombardier) as well as with the French-Italian ATR regional aircraft consortium. DASA still owned a fifth of Dornier but declined to invest any more money in it.

The search for a strategic partner in the 728JET program dragged on for years. U.S. venture capital group Clayton Dubilier & Rice took a 71 percent share in the company in April 2000. Chuck Pieper, one of its partners, became chairman of Fairchild Dornier. Allianz Capital Partners owned another 15 percent of the company. In October 2000, former McDonnell Douglas executive Louis F. Harrington was named CEO.

Though the pricey $29.5 million 728JET had landed 125 firm orders, several customers failed to complete purchases of nearly a dozen of the company’s main product, the 328JET, after the September 11 terrorist attacks on the United States. In addition, the Chinese government did not grant an import license for the plane in time for a scheduled delivery to Hainan Airlines.

Fairchild Dornier filed for bankruptcy protection in Germany on April 3,2002. The U.S. operations were shut down and more than 300 employees at San Antonio and a marketing office in Herndon, Virginia, were laid off without severance. The firm still employed 3,700 in Germany, whose salaries were secured by the government. The government-appointed administrator gave Fairchild Dornier three months to devise a rescue plan.