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Sun, Oct 14, 2007

Cirrus Bids For Columbia: Sale/Bankruptcy Now 'Likely To Be Long-Term Event'

Cirrus Design Now Confirmed To Be In The Bidding

Over the last few weeks since ANN first broke the story of the impending Columbia Shake-Up/Bankruptcy and Cessna's interest in purchasing most of the assets of the foundering high-performance A/C manufacturer, what was once touted as a "fairly simple" bankruptcy sale is now taking on overtones of a soap opera.

A number of bidders are coming to the fore in an effort to fight off the takeover of the principal Columbia assets by Cessna/Textron. As a result of that, a number of legal papers (by four parties, to date) have been filed rejecting the deal that Cessna signed with Columbia officials as "overly favorable" to Cessna.

Just as interesting, ANN has confirmed that industry leading high-performance composite aircraft builder (and aggressive Columbia competitor), Cirrus Design, is now actively involved in the bidding process. Little is known about the intent of the company at this point, but one can safely assume that the Cirrus Design's principal interest is in seeing Columbia (the company that could be credited as one of CD's main competitors) kept from falling into the hands of Cessna... an undeniably massive and very competitively oriented company that would get a HUGE step-up in finally leveraging a truly competitive airframe (next-gen, high-performance, composite, etc) against the Duluth (MN) company.

ANN is in the process of consulting with CD officials to get a statement and background info as to their intent for any potential offer for Columbia's assets.

A number of other parties, as noted above, are protesting the alleged "sweetheart deal" that they claim Cessna has set up for themselves via prior negotiations with Columbia officials. In a recent filing obtained by ANN, one of those protestors, Versa Capital Management, Inc., claimed that "Based on the procedures proposed in the Bid Motion and the LOI, the bidding process is fundamentally unfair, hinders or chills competitive bidding activity, and inappropriately favors Cessna to the detriment of the estate and other bidders."

An 11 point, 15 page pleading asserts that: 

  1. Letter of Intent is Illusory and Cessna is Under no Contractual Obligation to Purchase the Debtor’s Assets.
  2. Cessna is not Entitled to Stalking Horse Status or a “Break Up” Fee.
  3. Cessna’s Purchase Price Cannot be Determined Prior to the Date Competing Bids are Due.
  4. Cessna Must Disclose Adjustments it Made to the Debtor’s August 2007 Balance Sheet and its Effect on the Actual Cash Component to be Paid on the Closing Date.
  5. Cessna is not a “Qualified Bidder” and has not Submitted a “Qualified Bid.”
  6. The Break Up Fee is Unreasonably Large and the Overbid Minimum Chills Bidding.
  7. The Bid Motion Seeks Approval of a Bidding Process That the Debtor can Change.
  8. Debtor’s Discretion is Arbitrary.
  9. The Auction Process Does not Provide for Court Supervision or Notice of Changes in Cessna’s Offer.
  10. Key Employee Agreements Must be Disclosed.
  11. The LOI Impermissibly Includes a Request for Extraordinary Relief.

The pleading concludes that "The Debtor represents that it wants a fair bidding process designed to maximize benefit to the estate, yet the LOI and the Bid Motion appear designed to discourage competitive bidding. All bidders are entitled to have a fair opportunity to bid on the Debtor’s assets. The Bid Motion impermissibly favors Cessna to the detriment of other bidders. The playing field is not level; it is tilted in favor of Cessna. For the reasons set forth above, the Court should deny the Bid Motion."

In other pleadings filed late last week, 'The Official Unsecured Creditors Committee of Columbia Aircraft Manufacturing Corporation' filed a 'Response to Debtor's Motion for Approval of Bidding Procedures, Overbid Protection and Break-Up Fee and Form and Manner and Notice of Bidding Procedure.'

The Committee asserted that it "has no objection to the sale of substantially all of Debtor's assets, but has objections to certain particulars of the bidding procedures and the break-up fee. The Committee's response... will set forth alternate terms which it would find acceptable to replace those terms which it believes would hinder bidding and depress the ultimate sale price of Debtor's assets, and request certain information which the Committee believes will aid in promotion of bidding. The Courts have recognized that the sale of substantially all of the Debtor's assets is essentially a reorganization without the protections given to creditors under the Code with regards to a reorganization plan.

Thus, in a sale of substantially all of the assets of a Chapter 11 debtor the courts have recognized that creditors should be provided the same rights and receive the same protections they would if the proposals were in a reorganization plan. In re Continental Air Lines, Inc., 780 F.2d 1223, 1228 (5th Cis. 1986). The Committee is seeking the same protections here to ensure that unsecured creditors will recover as much as possible."

Also heavily involved in the various legal actions that are flying about, are the Columbia owners themselves (via the Columbia Aircraft Owners Association, known as Club Columbia). The group, when you figure in unpaid warranty claims as well as other items like undelivered options and equipment (Evade, A/C, etc...), turnjs out to be one of the biggest creditors in the mix. On the face it of it, the owner's 'hit' seems no competition for Garmin... who is holding the bag for well over $20 million dollars in secured and unsecured claims (makes the $$tens$$ of thousands that ANN got nailed for seem tame by comparison... still -- OUCH).

Depending on how you look at it, though, the Columbia owners may ultimately be the biggest creditors of the bunch.

According to docs filed on behalf of Columbia owners, "Collectively, the aircraft owners have arguably the largest economic stake at risk in Columbia Aircraft Manufacturing Corporation’s (the “Debtor”) bankruptcy proceeding. The 600-plus Columbia aircraft purchased by these owners since 2003 have an aggregate value of over $250,000,000. Any interruption to the production of the Columbia aircraft, the sale of replacement aircraft parts, and the rendering of after-market technical support would cause the resale value of existing Columbia aircraft to plummet by 20-40%, corresponding to a loss of $50,000,000-$100,000,000 in asset value. Consequently, the aircraft owners face potential losses in the outcome of this bankruptcy that dwarf the claims of any single creditor."

In the meantime, a major meeting in this process takes place this Monday... originally targeted to be the date for the Court's approval of a potential 'Purchase Agreement and Terms of the Bid/Auction Process' (which seems unlikely now, due to the added actions noted above). Also, November 15th was originally scheduled to be the Bid Deadline and November 30th was expected to be the date for a possible closing of the sale. If you'll excuse the pun... that all seems to be "up in the air" for the foreseeable future. 

More info to follow... (and for probably quite a while -- sigh...)

FMI: www.flycolumbia.com, www.cirrusdesign.com, www.cessna.com, www.lancairpilots.org

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