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Aircraft - Thursday, February 21, 2008

Adam Aircraft = The New Spruce Goose

Some New York bankers just had the worst flight of their lives at the hands of Adam Aircraft. Englewood, CO-based Adam Aircraft has raised a $105M credit facility placed by Morgan Stanley, plus it had raised $182M in venture capital funding from Goldman Sachs and others. Today it has filed for Chapter 7 bankruptcy protection.

We have covered Adam extensively, including its claims that it had about 400 back-orders for its aircraft which cost about $2.2M each, about half what a typical, comparable jet costs. It accomplished this thanks to new light-weight composite technology.

Adam is bringing down a lot of people. The company employed 500 in Colorado and 300 at a manufacturing plant in Ogden, UT. All of its 800 employees will be or have been laid off, and the company's chairman and CEO resigned. Adam Aircraft also lists assets of just $1M - $10M and liabilities of $50M to $10M. Its bankruptcy filing lists more than 800 creditors.

What went wrong? It seems that Adam was too aggressive in its burn rate, counting on more access to capital. Given that it relied on an incomplete certification process with the Federal Aviation Administration that company clearly should not have gassed its growth process without more clear visibility.

Among those who lost their shirt on Adam as its founder Rick Adam. He made his money as founder of New Era of Networks, a database software developer that he took public and saw its market value peak at $3.5B in 2000. He had to settle for a sale to Sybase for about $233M. Adam was the first investor in his name-sake aircraft company, investing $26M of his own cash.

Rocky Mountain News quotes one devastated employee: "Everything was growing
gangbusters. It took everybody by surprise. We all thought the funding absolutely would come
through."

The lesson here seems to be to it can be foolhardy to try to compete with the big airline makers who can afford to wait out unexpected bumps. The founders and management of Adam Aircraft may have developed a terrific plane and they may even be better at keeping costs down and managing quality but with no real revenue coming in the door they never should have scaled up. It would be great to see someone come in and salvage this thing.

First Flight (kind of dull unless you're an airplane nut)
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