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Mon, Nov 29, 2010

Cirrus Denies Reports of Sale To China

Surprising/Worrisome Details Swirl Around Future of Company

News and Analysis by ANN Editor-In-Chief/CEO Jim Campbell

ANN has been monitoring a number of reports suggesting that a change in Cirrus Aircraft's ownership may soon take place.

Reports from a number of persons with information on the company's potential plans (which have been building for a number of months, with increasing creditability/accuracy) suggest that a sale of all or part of the company may be in the offing ... a process that seems to have attracted an interesting cast of characters including one that casts a pretty strong shadow.

While Cirrus officials have made no bones about the fact that they are looking for investment capital to complete the much-delayed SF50 Jet program, there are growing indications that the company may need a capital infusion just to survive... and that current majority shareholder, Arcapita, seems unwilling to provide. Statements made to ANN over the last few weeks confirm that Cirrus is having a tough time paying its bills, but continues to believe that some sort of investment will take place in the jet, if not the rest of the company, within the next few months.

Recent reports to ANN, however, suggest that an agreement with a Chinese entity is pretty much a done deal and announcements could come as early as next month -- a report refuted, carefully and with specific tenses and verbiage, by Cirrus Co-Founder Dale Klapmeier. These reports also raise the possibility that the company would eventually be moved out of North America, that the jobs in Duluth and Grand Forks would disappear and that an iconic aircraft uniquely identified with the rebirth of a fair part of the GA market (until the economy tanked) would no longer be produced as an American product.

 

Cirrus Co-Founder Dale Klapmeier

"It's way too early to suggest that we have a deal," says Dale Klapmeier. "It's kind of like someone saying that they're going to buy a car next week and others then reporting that its a done deal." Klapmeier does admit that there are a number of parties interested in getting involved with Cirrus but refused to confirm the imminent sale of the company to any entity, 'at this time...' even suggesting that there was at least one other bidder that was "further along' than the Chinese agency currently confirmed as conducting its 'due diligence' on a possible Cirrus acquisition.

Klapmeier also refuted concerns about the company's potential move out of the country, "That makes no sense... and no one we're talking to has indicated that they are looking to move Cirrus away from Duluth. It really makes no sense to take Cirrus out of Duluth." Klapmeier was asked about the nature of any potential sale -- as to whether they were looking for a complete buy-out or an investment, and answered that, "We'd prefer an investment and that's what we're trying to find... but there may come a time when we have to look at the alternatives -- including a sale."

On a somewhat bizarre note, Klapmeier did confirm the presence of former Epic Aircraft CEO, Rick Schrameck, in the due-diligence process and confirmed that he had been at Cirrus recently, in 'an advisory capacity' to an international party...

While refusing to name the nationality of that party, Klapmeier sounded somewhat bewildered over concerns expressed to ANN (by outside parties) about Schrameck's involvement in a potential Cirrus sale, even when reminded that Schrameck has been associated with a great deal of controversial and legal action over his role at Epic as well as his legally contested dealings with companies such as Farnborough Aircraft (among others). Schrameck and his interests have been named in a number of lawsuits accusing him of fraud in the conduct of Epic Aircraft's business activities as well as other issues involving his failed company's attempt to sell high-performance aircraft to both the experimental and certified markets... programs that ultimately have been blamed for millions of dollars of losses by parties who believe they have been misled or defrauded by his business activities. Schrameck's activities in the high-performance experimental aircraft business, via an extensive builder assistance program that was accused of doing most of the work (in alleged violation of FAA guidelines) for persons who purchased kits for the EPIC LT (a high-performance single-engine turboprop) have oft been blamed (even by FAA staffers) for the FAA's decision to pursue a re-write of the '51% Rule.' The resultant and expressed 'distrust' of Schrameck have alarmed those observers privy to his current activities at Cirrus and brought a pallor of suspicion over the proceedings. Dale Klapmeier, however, noted that he is "unaware of any continuing role for (Schrameck), should the party he represents buy into Cirrus."

There is MORE to this story... ANN is following up on other details and will furnish an update on other aspects of this story as soon as details are properly confirmed, analyzed and corroborated.

Aero-Analysis: Beyond all the basic politics are the heavy concerns expressed by the Cirrus community about the potential effect that any new owner or significant shareholder may have on the value and utility of their aircraft. Much of the intense good will that Cirrus developed with its customers, and more specifically the Cirrus Owner's and Pilot's Association, disappeared after Co-Founder and CEO Alan Klapmeier was forced out of the company in a shakeup that resulted in the installation of CFO Brent Wouters as the new CEO--who has not proven to be as charismatic as Klapmeier. While Wouters' reign has not been as well-received as Klapmeier's, much of that lack of popularity and/or support has been blamed on his having had to preside over the difficult process of cutting back so much of Cirrus -- which, as a result, has made him enormously unpopular with some staffers, former employees, suppliers and owners.

Still, a buyout by China is not likely to be viewed positively while the possibility of a move overseas is likely to "Destroy the brand" as one pundit opined, on background. Cirrus, a uniquely American success story, is not likely to find much favor with a market already reeling from announcements that have placed significant numbers of American jobs in China, Mexico and other countries. Mind you, Cirrus is already owned, in large part, by a foreign company... but one that has never indicated any interest in moving the company or its intellectual property outside of the US. While the initial sale to Arcapita met some criticism, Alan Klapmeier's leadership and visibility mollified most of those concerns over time.

Other companies (most notably Cessna) have moved significant parts of their production overseas, and in the case of the decision to produce the Cessna SkyCatcher in China, has had to deal with a fair amount of negative feedback for the decision... despite the acknowledged fact that the aircraft could not be affordably produced within the USA owing to the high costs of labor, domestically. While the aviation industry has been forced to accept such realities, especially in light of current economic issues, a number of industry observers believe that a wholesale move of any company, especially one as heavily identified with GA's most positive aspects out of the USA, would result in a serious (if not insurmountable) marketing dilemma for its new owners.

FMI: www.cirrusaircraft.com

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