1-Feb-2022 Source: HeliHub.com
Under two weeks ago, the Michigan based manufacturer Enstrom Helicopter Corporation closed its doors and went into Chapter 7 bankruptcy proceedings. There is no scope for a financial rearrangement (ie the US “Chapter 11” rules) and the company will be liquidated, and its assets sold off.
Why did the company fail?
What is now becoming clear is there was quite a combination of circumstances which led to this situation. The significant lack of civil sales in recent years was part of the picture, and data from Parapex Media finds just 15 piston helicopters (4 F28F and 11 280FX) delivered to civilian customers in the last ten years, alongside 29 military examples (4 F28F and 25 280FX) in the same period. The 480 was more successful with around 115 built in those years, 30% for the civilian market and the majority of those in China.
Development of the two seat trainer TH-180 was also parked a few years back, having been originally launched as an attempt to steal back a bit of market share from Robinson. However, the sales price needed to make it commercially viable did not set it apart sufficiently from the Robinson R44 Cadet that it was aiming at, perhaps ironically given the latter has hardly been a sparkling success with less than 90 built in the last six years.
Enstrom has survived for many years on military contracts and parts sales. Military contracts are not easy to come by, and take a very long time to reach the point of putting pen to paper. Despite the success of such sales, it was one of these contracts that contributed to pushing the company over the edge according to sources close to the situation that we have spoken with. HeliHub.com understands that a poorly worded document meant that an agent involved in a military sale to a Latin American country (likely Peru, but our source would not confirm) was due their commission payment before the last aircraft was delivered, and thus ahead of final monies being received from the customer. Once a legal process was launched to force payment, the combined total figure of commission and legal fees of around $1 Million became due, a figure the the company did not have available.
We also understand that the company was supported on finances “as required” from its Chinese owner Chongqing Group, but they had reached a point where that was no longer an option, despite Enstrom apparently representing a very small proportion of the group.
Where next?
A number of bidders have reportedly expressed strong interest in buying the company, with most/all keen to restart production in the same facility in Menominee. While we assume they are aware of the sales numbers above, the situation is in the hands of the bankruptcy trustee, and will move at the speed of bureaucracy. This process is run by Michigan state legislature, and there may be a state-level political willingness to see something in place sooner rather than later. Assuming so, the chances of the company being split up (eg selling on the buildings it occupied) would be less likely.
One twist is that Chongqing could still be interested in acquiring the tooling through the bankruptcy process, move it to China and restart production purely for the local market there. The potential for new helicopters with the Enstrom name being produced in China for the US market would be very low indeed as the FAA would need to reissue a production certificate, and it could take 7-10 years at least for that to come to fruition, if ever. However, the potential of production solely for the local Chinese market could be significant and the cost of acquiring the tooling and shipping it would be a much lower investment than setting up a new OEM from scratch.
Another option – with much less finance required – would be open for third-party parts suppliers to produce key components under the STC or PMA rules. Despite the potential upside, this appears unlikely as Enstrom produced most of what it needed in-house and did not rely on external suppliers that much. Parts suppliers who see a potential for supporting existing fleets could purchase the required tooling from the bankruptcy trustee, but that would be depend on whether they take the view that breaking it up is better than a job-lot sale. Very few parts were outsourced by Enstrom, although in recent days we have seen one such supplier Airwolf Aerospace recently promoting their TT straps for Enstrom models on an STC.
The opportunity for companies to take current Enstrom parts and reverse-engineer them to STC/PMA standard is another route, and if one organisation made a range of parts, they could corner the support business, particularly for the military and paramilitary fleets in Peru, Thailand, Japan, Czech Republic, Indonesia, Venezuela etc. Parapex Media quotes 140 active military and paramilitary Enstroms around the globe, made up of 99 Enstrom 480s, 29 280FXs and 12 F28Fs, with each airframe no doubt having more hours flown on it than almost every civilian example. Supplying parts to military operators is a key factor in the future of the company.
Do the fleet numbers help a financial recipe for success?
Around half of the total production of 1341 helicopters in 62 years have already been withdrawn from use. Further analysis by Parapex Media shows
Our current view is that “New Enstrom Helicopter Corp” could appear through the bureaucracy tunnel in 9-18 months, perhaps more given the backlog of companies that have failed during the pandemic. We expect any buyer to close the F28 and 280 production lines, and move those types to profit-making “parts support only” with almost all the required tooling is in-house and thus no minimum batch requirements. The 480 provides sufficient sales promise, but would leave the company with the risks of a single product to sell and the need to invest in new models.
The vacuum between now and Enstrom being re-born is already leading to a significant drop in Enstrom airframe values, and as time goes by, marginal airframes will reach a point where they are no longer viable to maintain. The unavailability of particular parts could exacerbate this.
Jeremy Parkin – HeliHub.com
Enstrom 280FX F-HPUX was displayed at the ULM Salon at Blois on 31st August 2019 by French dealer Rotor & Aircraft SA (Robert Swan)
