08 April 2008

Here Come The Russians

Colorado based Adam Aircraft was purchased by a shell company controlled by Industrial Investors, a Russian private equity firm that looks likely to return the general aviation manufacturer to normal operations as soon as next week. Adam Aircraft had filed for bankruptcy under Chapter 7 because it was unable to secure financing. One of it small aircraft models, the A500 propeller driven plane, was in production when it discontinued operatations at the end of last year, while its A700 very light jet model is awaiting FAA approval.

According to an October 4, 2006 press release from Industrial Investors, in connection with its completion of a facility to transfer bulk cargo and shipping containers to rail lines on Russia's Pacific Coast, it described itself as follows:

Industrial Investors Group was established in 1999 and now unites direct investments fund, management companies and enterprises in key fields of Russian economic system, managed by them. Industrial Investors strategy includes not only long term investments in enterprises, but also active participation in owned companies management and development.

“Russkiy alcogol” company (the Russian leader of production of alcoholic beverages), “Dexter” company (operator of the first Russian air taxi) and other companies are parts of Industrial Investors Group besides of FESCO [the Far Eastern Shipping Company involved in the facility announced]. The total income of the group was more than 1 milliard of USD in the year 2005.

FESCO is Russia's only shipping company, a fact attributed to high taxes on shipping in Russia in a 2004 interview. "Chairman of the Board at the Industrial Investors Group Sergei Generalov stated that it means $20 million fewer earnings a year for his companies."

In September of 2005 the private equity firm made headlines by selling Russian Defense Contractor Volgograd Machine Building Company VgTZ (VMK) to one of its competitors, the Most Group, a move which gave the buyer a monopoly in the armored personnel carrier market and an edge in a competition to build Russia's next generation light armored tank, a contract in which only one other company was in a position to compete after the sale.

The Adam Aircraft purchase is likely intended to compliment is holdings in Dexter and Velvet Skyways, which offer domestic and international air taxi services, respectively, from Russian airports.

Industrial Investors may be interested in other Colorado investments as well. Two of its other current investment interests are solar energy and alcoholic beverage production, both of which are fields in which Colorado excels.

Given Industrial Investors prior links to the Russian Defense industry, it is also possible that it may be trying to secure the technical expertise needed to muscle into the defense aerospace business. Very light jets, like the proposed A700 are also suitable for use as military training aircraft, and conversion to military verions with light attack, light air intercept and reconnaisance missions.


Robbie Isbell said...

Where are you getting your info from? Adam Aircraft was purchased from some other company. Here's the link to it. http://jets.ru/news/2008/04/08/adam_aircraft

Anonymous said...

The other article is incorrect, or rather confused. Textron does own a company called AAI, but it is not the one that bought Adam. The company that won the auction is indeed a Russian owned company.

Andrew Oh-Willeke said...

The Denver Post in the link above says that AAI Acquisitions was a Delaware shell corporation buyer which is affiliated with this Russian firm.

Your link says that:

"AAI Acquisitions . . . [is in] the same corporate family as Bell Helicopter and Cessna. Despite "significant interest", the sole bid in a two-day auction came from unmanned air vehicle developer and service provider AAI. . . . Maryland-based AAI and its parent company United Industrial were acquired by Textron in October 2007 in a $ 1.1 billion deal.

"The addition of AAI broadens our leadership into unmanned vehicles. This combination of capabilities represents a powerful growth platform, both in the near and long term," said Textron chief executive Lewis Campbell at the time."

AAI earned $ 689 million from sales in 2007, drawing on multiple US divisions of unmanned air systems, development and aircraft service and testing. Its Shadow line of fixed-wing UAVs and ducted fan models contributed $ 386 million in sales last year.

AAI has more than 2,500 employees and facilities in Charleston, South Carolina Choctaw, Mississippi Sierra Vista, Arizona Huntsville, Alabama and Orlando, Florida."

It certainly wouldn't be beyond imagining that the Denver Post reporter, whose previous coverage of this saga hasn't been great, could have it wrong.

It is also possible that both stories have significant flaws. The notion that AAI Acquisitions itself is more than a Delaware shell corporation seems dubious and is probably a misunderstanding from your source.

I wouldn't be surprised if Industrial Investors was a financing partner with Textron on this particular deal, perhaps in exchange for a favorable deal on air taxi purchases in addition to a financial return.

Andrew Oh-Willeke said...

After looking into the AAI owned by Textron (AAI Corporation not AAI acquisitions), I concur that the story Robbie links is probably wrong in material respects.

Andrew Oh-Willeke said...

This document corroborates the Denver Post account.

Robbie Isbell said...

I'm not saying I'm right. I just think the term, "AAI," is confusing to some of us. I used to work for Adam Aircraft and was part of the A700 Engineering team that got laid off. I do know that a Russian Investor was looking into buying the company and getting it restarted. I was also told that I have a good chance of coming back, hence the reason why I'm trying to keep up with the news to determine my future. I've just moved to Wichita, KS to work for Spirit AeroSystem, and a big part of me wants to come back to Colorado. So, not trying to say who's right, just trying to get accurate information.

Andrew Oh-Willeke said...

Dmitry Shokin who signed the purchase agreement is the name of the director of the Legal Department for Industrial Investors, which is probably why the pleading cited above came to its conclusion that Industrial Investors was affiliated with AAI Acquisitions. (The name is fairly common, it is also the name of Russia's Chief Federal Prosecutor).

By the way, I always appreciate any hint that I may be wrong and welcome factual criticism such as that provided in this post, even if it turns out that the critic in the end is incorrect. I know what you are in good faith.

Andrew Oh-Willeke said...

Flight Global cited in the original comment has corrected its story and affirmed that there is no connection to Textron and AAI Corp.