Several more articles in this morning's news, concerning Adam Aircraft's financial travails, which we discussed at some length in yesterday's article.
First, The New Mexico Business Weekly reports that Adam has laid off 300 employees companywide (40% of Adams' workforce) "...due to lack of financing, forcing the company to seek additional capital to continue producing its carbon composite airplanes. "
And it isn't "chump change" the company is reportedly seeking:
We're looking [for] anywhere from $75 [million] to $100 million," said Shelly Simi, Adam Aircraft spokeswoman, noting that the Centennial-based company is working with Citibank to acquire funds.Incidentally, the same article reports that Adam Aircraft has apparently run through very substantial amounts of investment capital since only August of 2006:
Adam Aircraft President Duncan Koerbel issued a statement that said, "To provide for our future growth, we must be strategic in our focus by managing current cash expenditures to ensure adequate time to secure financing for the long term. We're off to a good start in this effort with assistance from our partner, Citibank, but we need to be able to provide them with sufficient time working with potential investors to secure long term financing."
In August 2006, Adam Aircraft raised $93 million, led by Menlo Park, Calif.-based venture capital firm DMC. Also, Meisrow Financial, W Capital Partners, D.E. Shaw Laminar Portfolios LLC and Acadia Woods Partners helped raise that money.What's more, the Rocky Mountain News reports Adam's cash flow problems aren't confined to Adam alone:
Adam's announcement comes just weeks after another Colorado startup aircraft manufacturer suspended development of its jets and laid off almost all of its workers because it was unable to secure financing.Further, Adam's prospects of raising additional capital reportedly don't appear to be bright, according to aviation industry insiders:
That company, Arapahoe County-based Aviation Technology Group, has kept a skeleton staff aboard as it explores options, which could include selling the business or closing down completely.
A growing credit crunch nationwide likely is affecting both Adam Aircraft and Aviation Technology Group, observers say. Investors and lenders are becoming more cautious in the face of a possible recession, meaning less money is available. Adam Aircraft said it'll likely take longer to secure financing, so it must prepare for that by paring costs.Adding insult to injury, the RMN article also speaks of an additional 2007 cash investment, not mentioned in the NMBW article:
"Very few industries are going to be immune to the credit crunch," said Henry Harteveldt, a travel analyst at Forrester Research. "You can bet that an industry whose foundations are based on transporting people using high-cost oil is likely to get a chilly response in the banking business."
In June it (Adams) announced a $105 million infusion of cash from a group led by Morgan Stanley Senior Funding, coming on top of tens of millions more it landed in recent years.What seems clear is that Adam Aircraft has been borrowing money hand over fist over the past two years, but that the company is once again on the verge of being fully "tapped out." And this is just speculation on our part, but we think that it's likely that most of Adam's earlier investors might be growing a mite worried about recovering their original investments.
Goldman Sachs and Hunt Growth Capital -- previous investors in Adam Aircraft -- participated in that funding.
Simi said none of the Adam Aircraft investors have halted financing.
Meanwhile, back in the "visionary" world of Boss Godfrey and his ever-optimistic henchmen on the ninth floor of the Emerald City Municipal Building, everything is business as usual, according to this morning's Standard-Examiner story, from which we incorporate the following text:
Dave Harmer, community and economic development director for Ogden, said he wasn't surprised to hear of Adam's temporary layoffs.We suppose we'll have to wait until summer to find out whether boundless optimism trumps the reality of the sagging credit market.
"They're going through another round of financing, and credit markets are very tight now," he said.
"I really expect this will be a short-term negative impact, and then they'll [be] back and everything will go forward as planned."
14 comments:
Mr. Adam is a very bright and successful guy. He has assembled a real first rate team of people to build these airplanes, which incidentally were designed by Burt Rutan the modern day airplane wizard.
I'm betting that this is a minor blip on their radar and that they will pull it together and make this deal an Ogden success story.
Damn, does that mean I'm agreeing with Harmer? Yikes!!!
These are going to be tough times for Mayor Godfrey's visionary leadership. Like all pyramid/Ponzi schemes, this one comes a-cropper when the financial markets take a downturn.
Like now.
"In addition, the weak economy will raise credit concerns well beyond residential mortgages (see article). Commercial property looks ever more vulnerable. Corporate default rates, stunningly low in recent years, are sure to rise. One recent estimate expects default rates on high-yield debt to quintuple from 0.9% in 2007 to 4.8% this year. If the downturn endures, even that could prove optimistic. Rapidly rising defaults and losses could yet trigger another financial-market panic." -- The Economist, Jan 10 2008 [Emphasis mine.]
This Adam Aircraft failure (sorry, Oz, don't share your optimism) is merely the tip of the iceberg. Credit is tight worldwide, the price of oil is going up, and mortgages and entire businesses are failing. It's the business cycle, something that was apparently invented after Godfrey and his winged monkeys attended business school.
Dude reminds me of the "day traders" from the late 90s who keep making money while the market goes up and begin to be blinded by their own perceived brilliance. Then the market takes a downturn and they can't understand why the whole day-trader thing won't support the family anymore.
Mark my words, this is not the last major failure for the Brave New Vision of the Godfrey Administration. An ethical newspaper would report the story and fulfill their social contract.
It should crack us all up to consider Dumb Dave's spin on this.
Here comes Adam Aircraft around for it's second, or maybe third multi-millon dollar investor bailout, and Dumb Dave Harmer, one of the most incompempetant dolts ever to appear in local government, labels it merely "another round of financing."
Sheesh!
Welcome to the Land of Oz.
Thanks for the New Mexico Business Weekly and the Rocky Mountain News articles.
It fills in some of the holes in the whole Adams scheme that the local reporters either do not know about or prefer not to talk about.
I would think Mel Kemp is beginning to squirm about some of the news. Could be his man, Bryce Gibby, didn't do his homework either.
There are going to be some "I told you so"s.
I hope the Governor is talking to his people in the Office of Economic Development about taking some classes in due diligence, too..
I liked this quote:
"Very few industries are going to be immune to the credit crunch."
So that's regarding INDUSTRIES. What about cash bleeding startups (Adam Aircraft) that have absolutely no product, much less sales?
A year ago, when there was all the hype, I looked into this company. There were a couple of Jap companies producing planes already for about 1/10 the cost of Adam. Adam was as good as dead already. The recent news is simply the belated funeral.
They may have "talented" people, but what you need are "profits."
I remember back then, Godfrey always called it "AdamS Aircraft"
Throwing tax money at them to make himself look good and he didn't even know their name . . .
With the debacle Godfrey has made, it looks like Ogden will be getting quiet again after all, even if taxes will go up. Perhaps, not a bad deal all in all.
danny
You wrote:
"There were a couple of Jap companies producing planes already for about 1/10 the cost of Adam"
I don't think this is correct. This new small jet market does not have any dominant players, and almost no planes are flying yet. By most projections there is going to be a huge market in this small jet business over the next 20 to 30 years. There are several companies designing, certifying and tooling up for this market. There are a couple of Japanese companies playing in the field, but they certainly do not have anything on the market, especially at 1/10 the cost of the Adam bird.
The Adam bird is priced in the upper end of this new class at $2.5 million per copy. I think the lowest projected sales price in this class is around $1.6 million by the company in Albuquerque that is financed by Paul Allen of the MicroSoft Billions.
I'm afraid you might be right about the coming credit crunch effecting all companies. I do hope that Adam can survive, they are a class outfit and other than taking a few perks from Utah and Ogden, they are not a Godfreyite outfit. Incidentally, the overwhelming majority of that bribe money has never been delivered to Adam yet. Most of it is based on future performance. As previously noted by Bill, Kemp has already raked in a shit load of our tax money however.
Not to worry Danny, if every man, woman and child chipped in $960.38 we could pay off the city debt as it stands now.
Optimism, look for the good! Yea right.
Oz,
I would not wish to differ with you on financial matters. Like I said, my info is a year old, and from memory. But I'd put my money on an aluminum plane over graphite any time, for cost as well as safety reasons.
For another interesting peek at Ogden’s future, Click Here.
The way people like Godfrey have been able to borrow so much money in recent years is loan insurance. Why would a bank loan money to somebody like Mel Kemp and his lackey Matt Godfrey to build an “executive terminal” at Ogden airport. Loan insurance of course!
The bank gets another fleabag company like Ambac to insure the loan, then the bank flips the loan to a pension fund. Since it’s insured, it’s AAA debt! No problem.
Trouble is, who is insuring Ambac and the other “insurers”? Now, these half-baked companies are tanking, meaning their “loan insurance” is worthless. So all of a sudden, Ogden’s RDA loses it’s high credit ranking, because it’s not insured anymore, so the loan must either be refinanced immediately at a higher interest rate, or repaid!
Not that Ogden is alone. Dumb ideas are always popular, especially in government. No, the total insured municipal bond market is $1.2 Trillion! That’s Trillion, with a T!
So as the market cools, and all these dumb municipal loans for sports arenas, conference centers and all that start getting called, right when tax revenues are falling, the fun will really begin! Like I said, interesting times.
Yes, things could be getting quieter, a lot quieter.
citicorp bank and merril lynch both writng off about 10 BILLION dollars each and both have to take on foreign investors for about the same amount as their write off to stay afloat. same story for most of the other major banks and investment houses in the us.
federal reserve loaning the banks and investment companies 40 BILLION dollars at close to zero %interest rate to keep them in business. plus the fed just authorized another 40 BILLION dollars at the same rates because the first infusion was not enough.
foreign governments are having to do the same thing in the far east and europe for like amounts of money to keep their banks afloat.
now if you think we are not in financial trouble world wide youd better wake up. oh by the way adam aircraft is toast.
to put this current situation into perspective the savings and loan debacle of 10 or 15 years back only cost the nation 6 billion dollars and was primarily limited to the us. btw jake garn was a major contributor to that disaster.
today ogden city is owed about 12 million dollars by the rda. ogden city has been providing the initial loans to the rda. if rda goes down we in ogden will pay for it. godfrey is already trying to write off 6 million of these dollars. and he wants to borrow more money from the city.
From the "WTF" dept:
What exactly does DH mean when he says "as planned?"
whose plans?
what plans?
hmmmmmm......
on another note:
Is chivalry really dead & buried?
Today, I slipped on a slippery, freshly mopped floor in a burger joint, right in front of a table full of at least 6 men. NOT A ONE of them offered to help me up. Are there any gentlemen left in the universe?
TLJ
Sad news about Adam Aircraft. Of all the businesses to come to town recently, this one seemed to have gravitas, in a league of its own, way beyond the ski gear/recreation companies.
However, this is far from the first venture capital bust in Ogden. The first dam in Ogden Canyon was done over the signatures of Mormon leaders and underwritten by a Rhode Island rubber magnate, Joseph Banigan, to the tune of $1.5 million. The dam was finished in 1898 and the Pioneer Electric Company's power plant at the canyon's mouth got up and running. But the depression of the 1890s fouled everything up and the contemplated storage reservoir was never completed, so the expectations of culinary and irrigation water fell flat. Finally the Union Pacific's Edward H. Harriman bought a controlling interest in 1906, and eventually Utah Power and Light acquired the whole wad.
It might take a long time but a successor to Adam Aircraft could yet become a pillar of the local economy.
It seems that the administration never rests. Now they're trying to run the YCC out of their new building on 23rd and Adams. Seems to me thats a nice new building. Would be a shame to knock it down for a slip and slide or gondola tower. Oh excuse me, high adventure slip and slide. Could be Neilson's all ready crying about losing money, lying little matty must have promised him the super high adventure slip and slide, inducement to hang in there. Come to think of it, in all lying little matty's high adventure undertakings, Neilson is the only party with anything close to related business experience.
A day late and a dollar short on this post, but AAI just went out of business on monday morning. A bunch of people showed up after lunch and the doors were locked.
It's sad too - they had a killer product.
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