Dornier

Dornier Flugzeugwerke was a German aircraft manufacturer with its founding origins in Friedrichshafen in 1914 by Claudius Dornier. Over the course of its lifespan, the company produced many notable designs for both the civil and military markets from all-metal flying boats to land planes such as the Komet (Comet) and Merkur (Mercury) that were used by Lufthansa and other European carriers. During WWII, Dornier produced many of the mainstream German Light and Medium bombers such as the Do 17 and the Do 217. Toward the end of the war, it designed and built the highly innovative Do 335 “Phiel.”

Post-war, Dornier quickly re-established itself with highly successful small short take off and landing (STOL) transports such as the Do 27 and Do 28. Additionally, in 1974, it developed the Alpha Jet as part of a joint venture with French aircraft manufacturers Dassault-Breguet. The plane was well received and established itself as the new standard NATO trainer during the 1970s and ‘80s. In 1985, Dornier became a member of the Daimler-Benz group, integrating its aeronautic assets with the parent company.

In 1996, the majority of Dornier Aircraft was acquired by Fairchild Aircraft, forming Fairchild-Dornier. This company became insolvent in early 2002 and production of its D328 was acquired by the U.S. company Avcraft. This company continued to build out the remaining stock and traded until 2005 when 328 purchased its assets and invested additional capital to continue successful operations with the 328 aircraft.

Dornier was founded in 1914 by Prof Dr Claude Dornier. The company was established in 1934 as a GmbH, named at that time Leichtkonstruktion München GmbH. Its headquarters were in Munich, the original share capital was RM 20,000.00. Shareholders were Dr Claudius Dornier and Dornier/Metallbauten GmbH.

No discussion of the evolution of the monoplane flying boat would be complete without mention of the pioneering work of Dr. Claude Dornier, the German designer. He envisioned large, all-metal flying boats before the end of World War I, and such an aircraft was designed, but not built, before the end of that conflict. The first Dornier aircraft, the RS II seaplane, saw its maiden flight in 1916.

As with most other European countries, civil air transport in Germany was a logical outcome of the military use of aircraft during World War I. As the war neared its end, German aircraft manufacturers were keen to convert their production to civilian use. They did not, however, anticipate the terms of the Treaty of Versailles, signed by all the major powers in June 1919, which severely restricted German weapons development. As a consequence, civil aviation also suffered from the lack of available aircraft. Many important German airplane manufacturers simply collapsed, but some survived. Other companies that continued to build civilian aircraft in the 1920s included Heinkel and Dornier.

By the mid-1920s, there were a number of small civilian passenger services in Germany, although only a few survived the massive inflation and poor economic conditions of the time. In January 1926, the German government combined two of these, Deutsche Aero Lloyd (DAL) and Junkers, into a new company named Deutsche Luft Hansa (DLH). The government gave the company, which effectively had a monopoly on German air transport, an annual subsidy of the modest sum of 18 million marks to ensure that it had a stable future. DLH was quite large for the time. On the day of its first regularly scheduled service, April 6, 1926, it owned as many as 162 aircraft consisting of 18 different models. Most of these aircraft were the single-engine Merkur built by the Dornier company, owned by Claudius Dornier, a veteran of the Zeppelin airship design teams.

In 1922, a twin-engine monoplane flying boat known as the Dornier Wal (whale), very similar to the earlier 1918 design, was first flown. This aircraft featured a single wing located a short distance above the hull with the two engines mounted in a single nacelle, tractor-pusher fashion, on top of the wing. This arrangement reduced the number and length of struts inherent in the Consolidated Commodore-type of arrangement in which the wing was high above the hull with the engines mounted below. So successful was the Dornier Wal that variants of the basic design remained in production until 1936, and Dornier flying boats of the same general configuration were used by the German Luftwaffe throughout the years of World War II.

Dornier's most famous aircraft was the DO X seaplane, a flying machine with gigantic dimensions and twelve engines mounted on the wing. In 1931 the DO X cruised first to Rio de Janeiro and then to New York. Flights across the South Atlantic began in the mid-1930s, using Dornier sea planes to carry high-priority mail bound for destinations in Latin America. They refueled in mid-ocean after landing near a special vessel that carried aviation gas.

The company operated in aircraft construction, making 30-seater medium-range aircraft (model DO 328). It was developing a larger aircraft, the DO 728 seating about 70 passengers. The company also made components for Airbus and engaged in aircraft maintenance at the Oberpfaffenhofen airport near Munich. The focus of the maintenance and service work was on military aircraft and helicopters.

Commissioned by Deutsche Airbus GmbH, Dornier built technically sophisticated fuselage and wing components. Dornier's maintenance and service operations in civil aviation included aircraft by manufacturers such as Cessna, Piper and Challenger. The late eighties saw the development of the Dornier 328.

By 1988 the Daimler-Benz management probably regreted the takeover of Dornier in 1985, which had drawn the prosperous automobile maker into the turbulence and pitfalls of the highly political and unpredictable international aerospace scene. By early 1988 pressure was building regarding Governmental support for the Dornier Do.328 commuter aircraft. Modest DM220 million R&D funds were requested from the Government in early 1987. These had not been granted, even though repayment on schedule was virtually assured by Dornier's excellent position in the commuter aircraft market. It was implied that the funds may be forthcoming as soon as Daimler-Benz decided favorably on the MBB takeover. All of this hurt the Mercedes producer badly, and was viewed by many as coarse Governmental prodding. "Mercedes should not become the milking cow of the Federal Government". Daimler-Benz chairman Edzard Reuter reportedly said: "If the Government is not willing to support the Do.328, then Mercedes will finance the venture out of its own resources".

In 1988, the aircraft division of Dornier GmbH, a wholly owned subsidiary of Dornier GmbH [later named Dornier Luftfahrt GmbH], came under the management of the Daimler Benz space and aeronautics group initially known as Deutsche Aerospace (DASA). In 1996 Daimler Benz sold its interests to the aircraft makers Fairchild based in San Antonio, Texas.

Beginning in 1998, the company started development of the 728 aircraft family. In 1998, Lufthansa was the first customer to order 60 of these aircraft. The development of the new aircraft also meant increasing human resources, the number of engineers alone rose from 300 to 1,000 (at the end of 2001). Partners taking their share in the development costs and competent vendors and suppliers were integrated into the program. Investors prepared to fund the programme were eventually found in late 1999/early 2000. In April 2000, Clayton, Dubilier and Rice (CD&R) in partnership with Allianz Capital Partners provided capital resources of US$400m for Dornier Luftfahrt GmbH, now renamed Fairchild Dornier GmbH. CD&R is a private investment firm managing equity capital funds valued at over US$3.5bn.

By the end of 2001, ultra-modern production facilities for the 728 fuselage and final assembly had been completed at the Oberpfaffenhofen site, and the construction of a new final assembly plant was begun. The first prototype rollout of the 728 took place in March 2002.

On 2 April 2002 the Amtsgericht (local court) of Weilheim (Oberbayern) received an application to open insolvency proceedings over the assets of Fairchild Dornier GmbH. Dr Eberhard Braun, attorney, was appointed provisional insolvency administrator. Insolvency proceedings were then instituted on 1 July 2002. At the time the insolvency application was made, Fairchild Dornier GmbH employed 3,654 people with sales totalling about E528 million in 2001. After many changes in the firm and the shareholders, the debtor had the following shareholder structure at the time insolvency proceedings were instituted: Fairchild Dornier Luftfahrt Beteiligungs GmbH with 100 per cent. CD&R and Allianz Capital indirectly hold the interests.

The operations of maintenance, customer support and Airbus components, as well as ILS and TSA had to cover costs. The production of the 328-Jet and the development of the 728-Jet, which did not proceed as planned, turned out to be problematic.

With the 328-Jet the company failed to reach the scheduled sales figures, the reason being that it had to be sold as an isolated aircraft, whereas the competitors (Bombardier and Embraer) were able to offer whole aircraft families, which is more attractive for larger operators. Competitors were often capable of offering more favourable finance terms too.

The 728-Jet was another substantial reason for the insolvency, in that, in spite of an immense capital backing of as much as one billion US dollars, resources were no longer sufficient to complete and launch the new jet. Another two or so years would have been needed for certification and market launch because the development had turned out to be a great deal more expensive than planned. Time was also needed because of the use of outsourced engineering work as part of so-called work packages. Also, technical development had taken much longer than originally scheduled.

During the provisional administration, business operations were continued in agreement with the provisional creditors' committee and the banks. Continuing the business operations required substantial financial resources. Intensive negotiations with the banks, the Free State of Bavaria and the Federal Republic of Germany eventually resulted in the insolvent operator receiving a loan of US$90m. To continue the business, agreements had to be made with vendors and suppliers to keep up supplies. There were three distinct types of suppliers, who provide the production of Airbus component manufacture, maintenance, and the production of the 328-Jets.

Agreements with these suppliers came about relatively quickly, with settlements achieved on continuing deliveries in spite of a regular backlog of payments. One of the major problems was the fact that all parts in aircraft manufacture are usually licensed, ie the vendor/supplier has a virtual monopoly. Re-sourcing from another supplier is not possible. Naturally, this makes it very hard to enter into negotiations with them if they are owed money. They will often try to make further deliveries contingent upon the payment of outstanding debts. Since this is not possible under the law, these suppliers ultimately accepted the administrator's constraints and continued their deliveries which allowed production to be kept up.

Dornier obtained engineering services of so-called work packages to the tune of several million dollars per month. There were also large sums owed. To be able to continue the 728 programme, negotiations had to be held with these creditors to persuade them to keep at least the most important experts on the project and to continue to provide the appropriate data. A major portion of the components required for the 728 development was supplied by so-called risk sharing partners free of charge. These deliveries were discontinued once insolvency had been filed.

The continued supplies of engineering services from among the vendors of the individual components was also severely cut back. This meant that advanced developments had to be made essentially by Dornier's own staff and, of course, only in those areas where they had the appropriate competence and skills. The validity of the licences and approvals by the Luftfahrtbundesamt (German Federal Aviation Authority) had to be ensured. To make sure that contracts were not cancelled, agreements needed to be made with public clients in the military sector.

Approximately 1,700 employees were employed in development work for the 728. As the transfer to a prospective buyer could not be accomplished by the end of June 2002, this development work had to be discontinued apart from a number of smaller capacities employed to keep the project ticking over. A shortage of orders also meant that some employees in the 328 production had to be laid off.

From a total of 3,654 people employed on 2 April 2002 only 3,550 employees were left on 1 July 2002. 1,789 employees were kept on and 1,761 employees had to be put on passive hold. Such a high number of unemployed registering with the Munich Labour Office would have meant a great deal of trouble for the office. This is why negotiations were begun with the labor management from May 2002 onwards to find ways of avoiding the employees being laid off by 1 July 2002. The ultimate outcome of these negotiations was a so-called internal social plan. It meant that the insolvent assets had to provide about one third of the funds for the social plan, with the remainder funded by the Bundesanstalt für Arbeit (Federal Ministry of Labour). The total finance volume of the social plan was approximately E30m. Under this social plan the employees received 80 per cent of their last income and, of course, they were no longer allowed to work productively.

Although there were (often rather dubious) initial prospects interested in taking over the debtor's entire business operations, it emerged, relatively quickly, that respectable and solidly funded offers had been received only for individual business divisions. Dornier's most important project for the future was the 728 product range. There was initially only one prospective buyer, Bombardier of Canada. Bombardier conducted very intensive due diligence investigations and also entered into intensive negotiations, but eventually withdrew. There were also prospective buyers of the 728 range from Russia, but they eventually also lost interest.

The second problem area was the aircraft production of the 328-Jets. This was an area where Dornier had already experienced major sales problems. Prospective buyers for this business division, failed to provide sufficient evidence of sound finance. It was not until December 2002 that a contract for the sale of this division was concluded. The buyer also purchased the related customer support.

The operations of the maintenance and the Airbus components divisions cover costs, which meant that it was easier to find prospective buyers. The Airbus components division, in particular, attracted a number of respectable prospects who would also have been capable of raising the necessary funds. Ultimately, both divisions were sold to a Swiss consortium, the take-over took place on 1 January 2003. In total 940 jobs have been saved during the take-over.