Adam Aircraft Update

Boundless optimism faces off with a tight credit market

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.

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."

Incidentally, the same article reports that Adam Aircraft has apparently run through very substantial amounts of investment capital since only August of 2006:

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.

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.

Further, Adam's prospects of raising additional capital reportedly don't appear to be bright, according to aviation industry insiders:

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.

"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."

Adding insult to injury, the RMN article also speaks of an additional 2007 cash investment, not mentioned in the NMBW article:

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.

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.

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.

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.

"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."

We suppose we'll have to wait until summer to find out whether boundless optimism trumps the reality of the sagging credit market.