January 1, 2011
By Alton K. Marsh
Owners of Emivest Aerospace hope a new investor will be found by the time you read this, and that the SJ30 business jet company can emerge from bankruptcy stronger than ever. The question now is, how did the troubled jet company get in trouble in the first place?
A fast answer is that Emivest owners, based in Dubai, did everything right but had their money tied up in banks in Dubai and investment firms in New York that failed after 2008 in the current recession. Emivest, a contraction of the first two words of parent company Emirates Investment and Development, invests in more than a dozen companies and nurtures them to greater profitability. It has been a successful business incubator.
The truth is that the SJ30, struggling to complete a takeoff into the market that began 20 years ago, has never been completely out of trouble. Most of the difficulty and nearly all the overrun came from the period when the company was under control of the Taiwanese government.
The company was once known as Swearingen Engineering and Technology, based in San Antonio—as it is today—when Ed Swearingen was designing the SA30 Gulfjet (later the SJ30) for Gulfstream. It was his thirtieth project, thus the “30” in the model name. Development was slow, and while investors were attracted to the project, bigger bucks apparently were needed. Gulfstream left the project in 1989 and was replaced by The Jaffe Group, which left in 1990. The aircraft designation retains the “J” for Jaffe, the Swearingen Jaffe 30 or SJ30. San Antonio businessman Doug Jaffe of Jetran International, an airline fleet management company, operated the first SJ30 from 2006 until he sold it in 2008.
Sen. Jay Rockefeller (D-W.Va.) wanted to provide jobs for West Virginia, and he has maintained contacts in Taiwan since he graduated from college. Rockefeller linked the idea of a West Virginia factory to the SJ30 jet. Taiwan would benefit from the jet’s success, Swearingen would speed development with the new funding, and West Virginia would put people to work in Martinsburg, West Virginia.
Great idea, except that it didn’t go smoothly. Well-meaning Taiwanese government officials with zero knowledge of aircraft manufacturing gained a majority on the board of the newly named Sino Swearingen Aircraft Corporation and began a series of bad decisions. That included a decision to kill a budding partnership with Lockheed.
Lockheed had sold aircraft to Taiwan with the promise made by most aerospace manufacturers—a promise of offsets. That is, if Taiwan buys aircraft from Lockheed, what will Lockheed buy from Taiwan? It is a common practice throughout the world with all aerospace manufacturers. Lockheed decided it could invest $100 million and engineering expertise in the SJ30, and maybe one day buy the company. To guide the development of the aircraft, Lockheed sent engineers to San Antonio when asked. Those engineers were fired by Taiwanese government officials 60 days after they gained control of the company.
To make a long story short, subsequent decisions in the following decade involved redesigning nearly every part of the airplane, resulting in a $600 million overrun. The actual cost is noted in a subtle way in the October 2010 court filing of Chapter 11 bankruptcy in a Delaware federal court: “SSAC spent over 12 years, and in excess of $700 million in total investment, in the development of the SJ30 aircraft.”
More money was now needed, but the political climate in Taiwan no longer favored the Sino Swearingen investment. That is where Emirates Investment and Development entered the picture with an 80-percent purchase of the company, but with the Taiwanese still attached with a 20-percent ownership stake. Declaring bankruptcy serves to untangle the company from Taiwan, making it a more attractive investment for the future.
Emirates Investment and Development makes a wide range of investments across unrelated industry sectors. In addition to Emivest Aerospace (business jets), they include Prisma (windows, doors, and space frames for buildings), DP Duplas Al Sharo (plastic bottles), Desert Group (landscaping), Exclusive Acrylic (domes, signs, floors, architectural features), KMBC (medical center), Prometal (doors and windows), Targa (consumer electronics), Corpo (investments), CBS Technology Berhad (electronic management systems for security, parts, cargo, and other uses), Canadian University of Dubai, and Ghadeer (mineral water).
Emirates Investment and Development is owned by the government of Dubai, top business entrepreneurs in Dubai, and founding families of Dubai. Following the bankruptcy, the company is now more attractive to those wanting to buy Emivest Aerospace and has a better chance to survive.
All the world’s banks were hit hard by the recession, but Dubai banks were hit harder than most. Emivest families found they no longer had access to their money, although it is unclear whether the money is waiting in some form to make a return—or is just lost. The new owners had promised to invest $1 billion, create a second Swearingen aircraft model, and produce 100 aircraft per year.
There is justification for their optimism. Even 20 years after work on the design began, the aircraft remains a top performer. The seven-passenger, $7.2 million SJ30 maintains sea-level cabin pressure to 41,000 feet and can cruise at 49,000 feet. Most important, it has a range of 2,500 nm and can fly at Mach 0.83, or Mach 0.76 when power is set for long-range cruise. Company officials said in their bankruptcy filing that there are 200 orders backed by nonrefundable deposits.
There are considered to be a few investors who are eager to gain control of the company. (There reportedly is interest from China.) Under court proceedings, any new deal must happen by mid-January 2011, and be completed in early February. The long saga of the SJ30 is either starting a new chapter, or putting the finishing touches on the last chapter in the book.
While bankruptcy proceedings continue, the aircraft already in service—there are three—continue to prove the aircraft’s promises in flight. Debbie Balsley, chief pilot for a Las Vegas entertainment company, said she has been very happy with the aircraft since it entered service in September 2009. It had only 26 hours on it then, but has 400 on it now.
“We routinely take it up to 49,000 feet, fly for 5.5 hours, and fly 2,500 nm. It’s a testament to the quality of the airplane,” she said. She usually cruises at 43,000 feet, and at that altitude the cabin is just 500 feet above sea level. It is economical, going 2,500 nm on 700 gallons of fuel.
Early problems were those any new aircraft might experience. The company flew a team to her location once and replaced a starter-generator in 45 minutes. Early in the aircraft’s service she saw false warning lights that were easily corrected.
There remains strong interest in the jet. Balsley has conducted demonstration flights at the factory’s request for a fractional jet company owner. Her boss has orders for two additional SJ30 jets. He gave up a position on the manufacturing line for one of the jets so that actor Morgan Freeman could take delivery of his SJ30. With more than 200 aircraft on order, all that’s needed is the same thing the company has sought for 20 years: working capital.
E-mail the author at firstname.lastname@example.org.
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