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General Aviation, Regional Aircraft

SUMMARY: It is rare for any Eastern European or Russian aircraft manufacturer to come out with anything that the market needs and that is competitive with what is out in the market already. The Czech Republic’s Evektor has an opportunity with its EV-55 Outback, a 10-14 seat twin PT6 powered STOL utility aircraft that was forecast to sell 800+ units over 20 years, as it was designed to replace the large number of out of production cabin class piston twins still in commercial service today, as well as offering a twin engine alternative to the very successful Cessna Caravan, but with two engines instead of one, better airfield performance, more speed, more payload and volume at a very competitive price. The EV-55 program was stalled for several years due to a lack of funding to finish certification and last year they found their “white knight” in Malaysia and it looked like the EV-55 was finally on its way to a bright future with a promised EIS (entry into service) in 2017. Unfortunately, as you will read in this business case article, the situation is not as rosy as we are lead to believe, and it is a good lesson and warning to those small aerospace companies that seek “white knights” to help them achieve their goals. The Czech Government accepted my 2004 initial marketing and conceptual design study, and eventually over several years the Czech Government poured in CZK 1.0 billion ($US 40+/- million) in funding to bring the EV-55 to the certification stage, along with CZK 600 million ($US 24+/- million) from 17 other Czech aerospace firms who had a stake in the project. In fact EASA certification just started in March, 2015 with the first official meeting, but don’t hold your breath for this program to materialize any time soon or at all, the process is very long and requires many qualified people to lead it. With 7 brand new Part 25 and Part 23 aircraft projects launched in the Czech Republic in the past 26 years (est. investment of $US 400+ million), NOT one aircraft has gone into production and only one received certification. In fact all aircraft made it to flight testing but all failed to cross the finish line, to be certified, produced and commercialized which is the ultimate aim of any aircraft OEM, (e.g. LET-610G a 40 passenger regional airliner, IBIS 270 single engine turboprop funded by Taiwan-FAR type certified and cancelled, Ayres LM-200 Loadmaster twin engine single prop cargo plane launched by FedEx order for 50, Wolfsberg 257 a 10 seat rear loading cargo door piston twin, VUT-100 Super Cobra a 5 seat high performance metal piston single and the Z-400 Rhino based on Russia’s Technoavia SM-92 Finist a 6 seat STOL aircraft powered by one Orenda V-8 engine) and now the EV-55 may become aircraft #8 for the “Czech Museum of Aircraft that could have been”.

This article is written by my colleague and friend Peter V. Hartmann, and is based on his research and knowledge of Evektor s.r.o., and my 12+ years of working with the Evektor s.r.o. as its part-time Marketing and Business Development Director and Adviser. I have written the SUMMARY to lay out the challenges the Czech EV-55 faces under Malaysian ownership. Unfortunately even though the aircraft is well positioned in the market to do extremely well, but it will not achieve its potential as in this business, it is all about good people making great things happen, and that comes with good leadership, which the company never had, and does not have today.

Almost a year ago exciting news that over the next ten years Malaysian investors are planning to invest over US $200 million in the aerospace firm Evektor spread throughout the Kunovice region like a wildfire.

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The local media expressed great joy that this agreement will enable Evektor‘s future growth and, in particular, the completion of the development and launch of mass production of multi-purpose twin-engine aircraft EV-55 Outback which is designed to carry 9-14 passengers, and with it, after a long time, the Czech aviation industry – which is synonymous for Kunovice – will spool up again and create hundreds of new highly skilled jobs.

However, the most basic information, i.e., how the funds will be invested and how those investors expect an eventual return on its high investment, plus interest and profit – which for all investors is the ultimate raisons d’être – was not disclosed.

Thick fog obscuring the details of this agreement is slowly lifting up, and the picture that emerges from it is much different from what many expected. According to the now public information this “investment” is, in fact, a hostile takeover. Evektor‘s Czech owners obviously didn’t realize it at the time when one of them said that “the joint venture majority ownership will remain Czech“.

Today there is no doubt that the widely expected bright future from the Malaysian investment will eventually turn into the end of the century-old Czech aviation industry.

Investors

There are different types of investors, and one of them are aggressive investors specializing in hostile takeover, which was so beautifully depicted in the movie Pretty Woman (1990, Richard Gere and Julia Roberts). Such investors have easy access to huge finances – both their own and/or from other sources – but mainly have talent to recognize companies that are in a very serious and sometimes fatal problems, and for that reasons their market value is very deeply undervalued.

In such cases, hostile investors use their enormous financial powers to take over from weakened and powerless owners, break up the company into separate operating divisions, and using their finances and external consultants resuscitate those divisions that were in trouble. In the final stage investors individually sell off all the operational divisions of the original company, with the total sum of the prices of individual divisions being significantly higher than the value of the united company. And that‘s  how they quickly come to huge profits.

In the case of Evektor, the takeover proceeds as usual. Evektor’s fundamental weakness is that it has neither the financial nor the technical capability to certify their new EV-55 aircraft. While a non-certified plane has a value of two almost new engines and propellers, flight instruments, plus about two tons of scrap aluminum, the value of the EV-55 production program after successful certification could be potentially in the hundreds of millions of dollars. At the beginning both parties had a single common goal – break up Evektor into three separate operational divisions, resuscitate hitherto virtually dead and worthless EV-55 division by financing the certification, and then sell the entire EV-55 program to a foreign aircraft manufacturers (in China?). The difference between the two parties was primarily in their ideas about how to implement it, and especially how much each party can expect to profit from it.

Today there is no doubt that after certification of the EV‑55, neither of the two parties would have the slightest appetite for spending additional tens, if not hundreds of millions of dollars to start mass production, build the necessary production facilities and equipment, let alone to create marketing, sales, service, global distribution network, and customer support organizations, etc. First, neither party has the required skills to do this because they don’t have any relevant experience, and secondly, it is a very long-term investment which is against the basic principles of how hostile investors function, i.e. takeover-breakup-rehabilitate-sell-deposit profit in the bank. Furthermore, after certification of the EV-55, Evektor as a company will be completely out of the original Czech owners‘ hands.

Who is who in this game of high stakes?

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Evektor s.r.o.

After the 1989 Velvet Reorganization and change of government, most of the country’s  industrial sectors were in the US-style liberalization and democratization process devastated, looted by oligarchs, sold for a song to foreign rivals, or simply shut down. A similar fate befell the Czech aviation industry boasting a rich, century-old tradition which, in relative proportion to the small size of the country, ranked Czechoslovakia among the leading countries in this field.

Today, aerospace firms in the Czech Republic are either owned by foreign owners, e.g. LET Kunovice (100% by Russian) and the former Walter/Motorlet engine manufacturer (100% GE), which under the management of new foreign owners seem to prosper and have a future, while the last and largest giant in aviation still in Czech hands, Aero Vodochody (Penta), is transformed into a ‘cobbler’ who is happy with the production of small components for major world aircraft manufacturers – aircraft door handles, or even entire doors, tails, fuselage sections, wings, airstairs, etc. Aero‘s projects – a single-engine civil aircraft Ae-270 Ibis and military L‑159 – failed, and as for the Aero‘s current plan to restart production of a modernized version of the L-39 jet trainer aircraft from the 1960‘s, there is a big question mark hanging over it. Such military aircraft are sold mainly on the basis of highly politically motivated government orders, so that after the demise of the Soviet bloc and Comecon, and without the massive support of today‘s Czech government, who will buy it?

From Czech-owned companies, what remains is only Evektor, born in 1991 from an initiative of three former LET employees, which in 1996 merged with Aerotechnik, a local producer of ULL’s (Ultra-Light Aircraft).

There are still dozens of other small Czech producers, manufacturing mainly various types of ULL’s, which typically evolved from amateur homebuilt aircraft. In this category of small uncertified one- and two-seat sports aircraft the Czechs at one time even became a superpower with a 30% to 40% world  market share.

Evektor today consists of three more or less independent division. The Automobile division has contracts for computer-aided design of various car components for VW, Skoda Auto, BMW, Volvo, etc., and in this business it seems to be quite successful.

The second division, the original Aerotechnik, is engaged in manufacturing ULL’s which has sold more than 1,300 units worldwide. This market is now in decline as these originally very simple and very inexpensive airplanes, often produced by amateurs for the purpose of a weekend flying around the airport, have evolved into a relatively sophisticated aircraft with the complexity of its construction and equipment approaching commercial and fully certified aircraft. This is also reflected in their sky-high prices in hundreds of thousands of $‘s for which many buyers may need to take out a 100% mortgage on his house. At these prices and the continuing world economic crises and an overall uncertain future, the majority of potential customers have today other priorities than buying a ULL.

Evektor‘s third division is responsible for development of larger certified commercial aircraft. Evektor earlier developed a 4- to 5-place single-engined airplane, Cobra, which is an amazing aircraft, but the project was put on ice because Evektor was neither financially nor technically able to certify it. Otherwise, outside of Cobra, this department showed great talent for finding and participating in countless research projects generously funded by the government, the EU, and all sorts of institutions. One such project was ultimately the development of the EV-55 Outback aircraft, in which, besides Evektor, additional 16 smaller Czech companies also participated. Overall, government and EU grants for the EV-55 projects had reached about US $40 million, while participating companies invested about US $24 million of their own money. But when to government subsidies end, so usually the entire projects end as well.

Each of the three Evektor owners was in charge of one of these three operating divisions. Overall, Evektor demonstrated a long-term profitability, with gross annual turnover of around US $8 million. In the latest published financials for 2012, Evektor shows a record annual income of US $11.2 million with a net profit of US $2 million; each owner was paid US $0.4 million in profit sharing, and the remaining US $0.75 million was transferred to reserves.

It is quite common that the vast majority of successful businesses try to use their profitability for long-term business growth. Reasons for why Evektor‘s annual turnover during its 12 years of existence de facto stagnated despite the fact that during that entire period their business has had decent profits, is unknown.

New aircraft development program has three main stages:

(i) development of a new aircraft design concept and manufacture of prototypes. In the case of the EV-55, at this stage about US $64 million has already been spent, 2/3 of it being the taxpayers’ money;

(ii) aircraft certification, by either the European EASA or the US FAA. The EV-55 certification costs were estimated by its chief-designer at US $50 million, which is similar to estimates for other similar aircraft, as well as estimates of Malaysian investors;

(iii) the introduction of mass production of new aircraft and the creation of customer support organizations, marketing, sales, distribution, service, plus the ongoing essential development of aircraft. All this is commonly estimated to be a long term investment on the order of US $100 million.

As is evident from the above costs, the design and production of new aircraft is not only very long process, but also very expensive. Considering Evektor‘s long-term gross annual income of about US $8 million and net annual profit of less than US $2 million, plus taking into account that Evektor has absolutely no previous experience with aircraft in this category, it must be clear to everyone that Evektor on its own is unable to manage such project – neither financially, nor technically. Evektor proved it for the first time with the Cobra project, and then re‑confirmed it with the EV-55 project. But who would have the nerve to reject huge government grants?

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Aspirasi Pertiwi Sdh. Bhd.

The main, and probably the only Malaysian investor in Evektor is Tun Dr. Mahathir bin Mohamad, former long-time Prime Minister of Malaysia (1981-2003). Dr. Mahatir, who will be 90 years old this year, is one of the world’s (except Israel and the US) most highly respected political leader often called the Father of Modern Malaysia – during his long political career he transformed medieval Malaysia into a modern country and one of the main economic “Asian Tigers“. Born into a relatively poor teacher family, Dr. Mahatir is now head of a very wealthy family, and his son is a $ billionaire.

His partner in the firm Aspirasi Pertiwi Sdh. Bhd. (“Aspirations of Mother Earth“), which was established for the sole purpose of investments in Evektor and therefore does not have any history, is Keat Soon (‘David’) Chew.

David, a civil engineer by profession, is at least in his own mind the Father of KL Monorail (the smallest of the three elevated public transport systems in Kuala Lumpur, its length of 8.6 km representing only 13% of the total network);  the world expert on Microbial Green Technology collection and treatment of waste from poultry farms;  megalomaniac brain behind countless phantasmagorical but never realized mega-projects like the KL Linear City (12 km long, ten-story building),  or the longest building in the world built on pilings in the Klang river; and a Monorail project in Jakarta which went bankrupt because David failed to provide a single dollar of the promised US $400 million investment, while the Indonesian government invested in it – and eventually lost – US $60 million.

David, however, is best known as the front man to lead numerous projects of prominent Malaysian political and financial oligarchs (“tycoons”) such as Dr. Mahathir and Vincent Tan Chee Yioun (“Tan Sri Tan”), in which literally hundreds of millions of dollars – both government and private – vanished, with the main investors always staying anonymous and in the background.

KL Monorail construction was started by Hitachi in 1997, and during the 1998 Asian economic crisis, construction was interrupted. In 1999 Malaysian government on orders of the Prime Minister Dr. Mahathir took over the project and gave the task of completing it to David’s company MTrans, together with an initial grant of $75 million. Who and how financed the rest of the $375 million dollar project is not known, but indications suggest that all funding was provided by the government of Dr. Mahathir.

Only a few years later, David had to sell this company, which at that time was already deeply in debt.

The Euroala company, with Dr. Mahatir as its Chairman and David as its Managing Director, was established for purposes of purchasing manufacturing rights for the Jet Fox ultralight aircraft from the Italian firm Euro ALA s.r.l. in May 2011. However, for some reason, the Malaysian DCA refused to certify the aircraft even though it was already certified in Europe and several hundreds of them were produced in Europe, Israel and the USA. Thus Euroala failed and became inactive.

Six months later a media scandal erupted when the provincial government of Johor on direct instructions of the Member of Parliament, Dr. Mahatir, pre-selected the Euroala company as a winner prior to issuing a tender for a very lucrative and exclusive 40-year contract for treatment of biowaste from all poultry farms in the province of Johor using the Microbial Green Technology.

In the two weeks prior to being officially awarded the contract, David was able to transform Euroala’s business – and to retrain himself – from a failed ultralight aircraft manufacturer to the top experts in Microbial Green Technology processing of biowaste from poultry farms. And that’s perhaps how self-promoted ‘rumors’ about David’s unique ‘learning abilities’ started.

By the way, at the time Euroala asked Evektor for assistance with the Jet Fox certification, but after failing to produce even a single ultralight aircraft the two Malaysian owners ended up investing in Evektor instead.

Available information in the public domain contains no evidence whatsoever to document David’s ability to successfully manage any business in the long term.

EV-55M aircraft

The EV-55 project began in 2004, with the prototype’s first flight in June 2011, and shortly thereafter it was put on ice. Some time later this prototype was re‑registered as a military aircraft EV-55M allowing it a limited continuation of test flights by, and at the expense of, the Czech Defense Ministry. By today it has flown over 220 hours.

The original aim of the design was to create a twin-engined competitor to the most successful aircraft in this category, the single-engined Cessna Caravan C-208, of which over 2200 units were produced since 1984. Evektor advertises that EV‑55 as suitable for operation even in the worst conditions – on unprepared airfields, at very high altitudes, and at very high temperatures.

The EV-55 is generally designed as a classic, predominantly metal aircraft which, in comparison to other competing designs of mostly composite materials, is an advantage for easier maintenance and repairs during operation in harsh environments and in remote locations. Even without detailed technical analyses the EV-55 seems to have a great chance to dominate world markets unmatched in this category.

However, at first glance it is quite obvious that the very first prototype, as it exists today, has a number of very fundamental weaknesses that can prevent that plane from reaching its full potential These shortcomings are mainly due to the obvious marketing inexperience of designers, and their ignorance of how such aircraft are used in real life. No wonder – the number of operators of such aircraft in the Czech Republic can be counted on the fingers of an armless invalid, hence they had nobody to learn from. But what is important is that all these deficiencies can be very easily fixed – if the producer actually wanted to – but most importantly, they should be fixed before the aircraft is certified. For example:

(i) The first prototype is equipped with PWC PT6A-21 engines, because in the early days of development it was the cheapest available engine with the required power. At that time and with limited financial means, the choice was quite justifiable in order to test fly the first prototype. This engine is about half a century old design technology and metallurgy, and essentially the same as the very first prototype of the PT6 engine from the early 1960’s. The PT6A-21 was used on only one type of aircraft, the Beechcraft King Air C-90,  it has been out of production for many years,  and spare parts are very hard to find. Although PWC is capable of, if necessary, building a replacement engine of this model, but with a delivery period of 12 months. Will PWC be willing to invest perhaps tens of millions of dollars to re-open the production line for this half-century old engine, produce a considerable number of engines and spare parts, and supply them to distributors around the world, and all for a small manufacturer in the middle of Europe which does not have any history of producing such large aircraft?

Evektor has so far not asked PWC whether they are willing to do it for them. But – given the fact that since the 1960’s PWC has been busy producing over 41,000 PT6 engines and currently offering over 69 modern versions of these engines – Evektor has a snowflake’s chance in hell that PWC would consider such request. Without modern current-production engines, who is going to buy EV-55?.

(ii) The selection of the engine is also related to the performance of the aircraft. One of the top advertised advantages of the EV-55 is excellent performance at extremely hot & high airports. One of the leading airports at which the ‘unmatched’ performance EV-55 was to be proudly demonstrated to the world is Lukla in Nepal (9100 m ASL), the renowned departure station for Mt. Everest expeditions. Unfortunately, as it turns out, the EV-55 performance at Lukla is presently unsatisfactory.

(iii) Similarly, the propeller is a classic all-metal four-bladed prop by Avia. This propeller was chosen because Avia was one of the 17 companies that participated in the development of the EV-55, and hence the use of its propeller was given. Today, however, almost all projects of new generation aircraft are designed with a five- or six-bladed propellers of composite construction with improved design features and parameters, which offer higher aerodynamic efficiency, lighter weight, and lower maintenance costs with infinite life limits. With a larger number of blades, their diameter and total surface load are substantially smaller, with less vibration, and especially the noise is lower by 4 to 6 dB (where noise reduction of 3 dB is equal to about 50% lower noise level).

(iv) For the EV-55 use on unprepared airfields, which is one of its strongest advertised advantages, several things are immediately noticeable. Too low clearance of the fuselage from the ground – which is designed to facilitate easier passengers’ embarkation – and large open landing gear wheel wells mean that the bottom of the fuselage and equipment in the landing gear wells (hydraulics and wiring) are easily damaged by gravel thrown from the wheels. Mud and wet snow wrapped around the wheels and sprayed into the wheel wells can freeze at high cruising altitudes, and make the pilots sweat if they can’t extend frozen landing gear.

Moreover, the dual-wheel front landing gear design is a very unfortunate choice for use on unprepared runways. Every time one of the wheels hits a rock or sod of grass, that wheel will jerk and twist the landing gear, and these repeated random asymmetric shocks will cause vibrations in the nose landing gear and its control system. This will impact aircraft structural fatigue of the landing gear and the whole aircraft, lower the reliability of aircraft systems and increase maintenance costs. There is a very good reason why wheelbarrows on construction sites have only one big wheel.

Furthermore, tiny nose landing gear wheels with high pressure tires will easily dig into the soft ground. If you’ve ever tried to ride a bicycle on a sandy beach, this hardly needs any further explanation.

(v) A very low fuselage-to-ground clearance also prevents installation of various search equipment – radars, antennas, FLIR, sensors, and even guns – on the bottom of the fuselage for coastal and patrol version of this aircraft. The market for these modified aircraft is large and rapidly growing, especially in countries threatened by terrorists and illegal immigrants, which is essentially everywhere in the world outside North Korea.

Evektor is fully aware of all these shortcomings, yet stubbornly refuses to correct them, and insists on  certification of the prototype ‘as is’. This is a clear indication that Evektor’s concerns about the EV-55’s future do not extend beyond the initial certification.

All these easily fixed deficiencies make the EV-55 aircraft uncompetitive, thereby excluding it from most of potential markets. The eventual new owner of the EV-55 program will first have to fix all these shortcomings (new engines, propellers, landing gear, avionics), which will completely change its flight characteristics. The EV-55 therefore will need to be re-certified all over again for additional tens of millions of dollars. Who will pay?

Hostile Takeover

Evektor talked to potential investors in Russia and China, but in the end, on June 26, 2014, signed an agreement with Malaysian investors in Kuala Lumpur. Besides the statement that “the total investment over the next 10 years may reach US $200 million”, no further details were disclosed.

A month later, at the Evektor shareholders’ General Meeting on July 17, 2014, the first substantial change took place. Three Czech owners unanimously agreed to create two categories of board directors – three Directors A representing the three Czech owners, plus two Directors B representing Malaysian investors. David Chew was then elected as the first Director B.

Board directors also agreed to sweeping changes in the Article 8 of the corporate constitution defining or explaining the myriad of powers of both sides, which seems to be clearly tailored to facilitate future steps towards the investors’ takeover. These changes were to come into force only after the election of Dr. Mahatir on Dec. 4, 2014.

Not everything is recorded in the report of the General Meeting, as indicated by highly credible rumors of a very sharp rift between the Czech owners, when two of the owners, who are responsible for automobile and ULL (Aerotechnik) divisions, respectively, were charged by the third owner of a “dirty betrayal” because they reportedly concluded their own side agreements with Malaysian investors regarding the fate of their own divisions after breakup of  Evektor (presumably so that they could retain their old divisions?). That Evektor will be broken up by hostile investors is certain, and it’s just a question of the appropriate time for it to happen.

At the next general meeting of Dec. 4, 2014, far more substantial changes took place. Firstly, Dr. Mahatir was elected as the second Director B. In the English version of Malaysian notary’s authentication – and prior to the board meeting – Dr. Mahatir was already listed as Evektor’s Director and Chairman of the Board of Directors.

Second, and very important, is that the election of Dr. Mahatir triggered the new provisions in Article 8.5, which seem to be tailored for the purposes of the takeover by the investors, enabling them possible transfer of intellectual property and licenses for the EV-55 production, and even subsidiary divisions, to foreign companies.

Thirdly, the transfer of the 9% ownership stake in Evektor to investors was unanimously approved. According to Article 9.1 of the Final Provisions:

“The moment Owner 2 (Malaysian investors) acquires 85% stake in the share capital of the company, causes an immediate cessation of all functions of Directors A (Czech owners) and will automatically  expire provisions of Article 7.4 and all of the provisions of Article 8 of this corporate constitution”.

Thus the Supervisory Board will then consist of only two directors, both representing the Malaysian investors only, and a myriad of rules in Articles 7.4 and 8 will be replaced by a simple rule – the Malaysian investors can do whatever they want.

It is worth noting that this provision leaves no doubt that investors will indeed eventually acquire 85% shares. At that point the original, but by then minority Czech owners with 5% share each, will be completely excluded from Evektor’s management, and the company will be firmly in the hands of Malaysian investors who will have all the rights to the EV-55 program – and the company itself – and may dispose of them as they wish, including their transfer to another country.

Who will determine the value of the remaining 5% share for each of the original Czech owners, and who’s going to buy it? Even if certification of the EV-55 was at that time already well advanced, things like “partial certification” or “almost‑certified” aircraft – just like a “partially pregnant woman” – simply do not exist, and thus the value of the program and Evektor itself will still be minimal. At the last moment investors can easily delay the final completion of the certification pending resolution of this financial issue. Thus the original Czech owners will be able to exchange their remaining 5% share of still valueless company perhaps for canteen food vouchers.

The fact that from Dec. 2014 to March 2015 the proportion of Malaysian investors’ share in Evektor has increased from 9% to 15% suggests that as the Malaysian investment payments gradually come in, the payments are being converted to Evektor shares according to some unknown formula. When investors’ shares reach 50% of the company, the investors will have a simple majority stake in Evektor, and when investors’ shares eventually reach 85%, then we already know what will happen – the original Czech owners will end up on the street (or in the local canteen).

If all of this takes place in the manner just described – and there is no doubt about it – then it is quite possible that the Malaysian investors may indeed invest “up to $200 million over the next 10 years”, but invest in what? Perhaps in their 100%-owned Evektor company, regardless of whether it will be still in Kunovice, or in China(?).

Evektor’s near future

In normal practice, hostile investors have lots of money and capability to recognize deeply undervalued companies, but may not have managing experience required to run those companies. In what kind of business the targeted company is, is irrelevant to them – for the short time from when the company is taken over until its break-up and sell-off, investors can afford to hire external advisors and managers.

But David is an exception.

As one of the first steps David appointed himself to the highest position as Evektor’s CEO & Managing Director. He also brought along to Evektor two of his own men – a Malaysian accountant whose responsibility is to ensure that the investments are not used for anything other than the certification of the EV-55 and do not end up in the pockets of Czech owners, and an expert appointed with responsibility for the entire EV-55 certification process.

This expert is not only very personable, friendly and universally popular, but certainly also a highly qualified aeronautical engineer of an Italian-Egyptian origin, with experience in Italy, UK and Switzerland. His only shortcoming is that, as his résumé indicates, he never in his life certified an aircraft. He is like a battlefield medic who has for many years amputated limbs of wounded soldiers, but that does not automatically qualify him for brain surgeries.

David has demonstrated countless times that in matters of aircraft and aerospace industry he is an absolute and total dilettante. The fact that he personally took over the highest managerial position in the company is already in itself a recipe for a colossal mess.

An endless series of challenges in the EV-55 program, including the above described shortcomings of the prototype, is clearly well below his cognitive capabilities.

The prototype is not finished yet, and even the cockpit is not fully equipped because the avionics manufacturer Esterline CMC ceased development and production of its SmartDeck glass cockpit because aside from Evektor nobody else has ever purchased it.

Furthermore, the final definition of aircraft to be certified still doesn’t exist, there are neither the necessary technical documents nor a Certification Plan that must be approved in advance by the EASA, and yet David already in mid-November filed  an application with the EASA to initiate the type certification of the EV-55, and even paid the initial application fee of  about US $300k.

On the other hand, David is also a somewhat misunderstood man, mainly because no one yet realized his true intentions. He is widely criticized that his top priority was, and is, to open a marketing office “on the 25th floor in downtown Shanghai” where rents are astronomical, plus another office in Malaysia, despite the fact that Evektor still has no marketing organization of its own, not a single expert on marketing the EV-55, and besides a pair of outdated brochures does not have any technical or marketing documents. Who will then train the local Chinese and Malaysian marketing staff?

This seems extremely illogical, but only until such time as one realizes that his Chinese marketing organization is to serve completely different purposes.

China is famous for its technical talent that allows her to copy virtually anything, including even the most sophisticated supersonic Russian fighters. The only thing it has not yet mastered over the last few centuries is the civil aircraft certification in accordance with US or European regulations. Recently, Chinese CAAC certified a new ARJ-21 aircraft, which is a copy of the license produced McDonnell Douglas MD-80 with a new wing from Sukhoi and GE engines. The FAA provided the Chinese CAAC a team of experts to assist them with the FAA certification, but after years of efforts, those experts finally gave up and went home stating that the Chinese do not have even the most basic skills for the FAA certification.

China is currently investing billions of US$ to buy countless companies around the world, perhaps just to at least partially reduce their astronomical US$ reserves. The chance to get a production program of an already certified aircraft of the type which they need hundreds or even thousands of, will be irresistible, even at the cost of hundreds of millions of US $.

So David’s office in Shanghai is to be used for search of a potential Chinese customer to purchase the entire production program, and not just for sale of individual Made-In-Kunovice aircraft. It is already known that part of David intentions is to let the Chinese manufacturer sell the EV-55 throughout China (which by itself is a huge market), and his own two offices will only manage a distribution network of Made-in-China EV-55 throughout Asia (outside China) and Africa. Furthermore, David has also made it clear that he has no interest in selling EV‑55 in North America and Europe, which are the largest markets in the world. Apparently, even David has realized that such an expensive civilian aircraft with a label “Made in China” is unmarketable in the West.

(Recently Cessna completely abandoned production of its C-162 Skycatcher which it transferred to China in 2009, because these Chinese aircraft exported back to the US not only had to be taken apart and reassembled again, many had to be literally “re-manufactured”).

David must also be given credit for amazing business skills when a few months ago he managed to sell “a pig in a poke”, more precisely, four EV-55 for US $3 mil apiece to two Malaysian buyers who have never operated any aircraft. He did it without any technical, operational and marketing documentation for a price that is almost half as much as the original advertised price (US $2.09 mil), without demonstrating an actual aircraft in the final production configuration, and especially with the delivery in two years (2017!). By the way, previously published price of EV-55 is based on a simple price comparison with other  aircraft, and Evektor has not yet been able to calculate how much the minimum price would have to be to cover at least the production cost of mass-produced aircraft.

Conclusion

All the evidence described here is consistent and supports each other, clearly showing that the sole purpose of the original Czech owners is just to maximize value of their assets by certifying the EV-55, and then immediately sell it to someone else. It is clear that they are fully aware of being neither financially nor technically able to complete the certification by themselves, let alone be able to start mass production, marketing and customer support that would cost at least as much as what has already been spent.

Neither the Malaysian investors have the technical and managerial capabilities to operate their own (100%) company of this size in the long term, especially in a foreign country halfway around the world, and definitely are not capable of producing a high-tech large commercial airplanes which they do not have the slightest understanding of.

Their only purpose is what is typical for all hostile investors – take over a deeply undervalued sick company, break it up, fix it up, and then sell the individual parts for multiple of the value of the original company. And all this in the shortest possible time.

There are numerous and potentially even fatal challenges they will encounter, which haven’t been mentioned here, like the need for the new foreign manufacturer itself to be certified.

After considering all the circumstances, the chances of completing the certification of EV-55 under the direction of David is maybe 10% to 20% in the next five or more years. If experts currently working on the EV-55 who complain that for many years they have not received a raise, and remain in place only in the hope of a lifelong career once the production gets going, realize the reality described above and find a job somewhere else (which some have already done), then David’s plans may collapse very quickly indeed.

One day, when the former Czech owners and employees of Evektor, along with taxpayers standing alongside the runway and watching with moist eyes the last prototype of the EV-55 take off – and with it the whole company and US $64 million Czech investment – and gradually fade in the sun’s haze on the eastern horizon, one has to wonder whether they will realize that it’ll be also the end of the century-old Czech aviation industry? Chance that another Czech company financially and technically capable of development, certification and mass production of new commercial aircraft will ever be found, is essentially zero. This will leave in Kunovice only sub‑assembly facilities of foreign aircraft manufacturers.

Thus the vision of a US $200 mil Malaysian investment and bright future of the Czech aviation industry in Kunovice are nothing but false illusions. With hindsight, perhaps the best solution would have been if the Russian owners of the next-door LET company purchased it and certified it. Then LET would have two excellent and highly complementary aircraft for two different markets – in both the 9- and 19-seat markets. And at least some parts of the original Evektor would thus hopefully remain in Kunovice.

Following the future developments at Evektor will undoubtedly be more interesting than even the best TV soap operas.

The author is a Czech-Australian and Canadian aerospace engineer with more than 20 years of experience in marketing regional jet and turboprop aircraft on four continents, who also recently successfully completed a five-year certification project of the regional aircraft DHC 8/200 to operate at airports in extreme altitudes (up to 4100 m ASL, such as e.g. in La Paz).

xdh@xdh.ca                                                                                                                 Peter V. Hartmann, May 22, 2015


 

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About Aviation Doctor - Helping aviation companies to transform the present into a more profitable tomorrow

I am a Canadian and EU national with an MBA and 33+ years experience in aviation business development with 20 years overseas and work in 25+ countries. A former investment/merchant banker (mergers and acquisitions to corporate turnarounds). airline and OEM senior executive and past owner of 6 successful aviation companies in 3 countries (executive jet charter/management companies, aircraft sales, aircraft broker, airline/aerospace consulting to aircraft insurance). I have a very diverse aviation background with 75+ aviation companies (45+ airlines of all sizes, OEM's, airports, lessors, MRO to service providers) as consultant, executive management, business analyst and business development adviser. Excellent success track record in International Business Development. Most work with airlines is with new start-ups and restructuring of troubled carriers. I sold new business jets, turboprops and helicopters for Cessna, Raytheon, Gulfstream to Eurocopter as an ASR as well as undertaking sales and marketing of commercial aircraft for Boeing, de Havilland, Dornier, Saab and Beechcraft. Brokered everything from LET-410's to B747's and from piston PA31 to G550 business jets. I look beyond the headlines of the aviation news and analyze what the meaning and consequences of the new information really means. There is a story behind each headline that few go beyond. Picked the name Aviation Doctor, as much of my work has been with troubled companies or those that want and need to grow profitably. I fix problems be in the business, and help with restructuring for a better tomorrow. You can reach me with comments or suggestions at: Tomas.Aviation@gmail.com and I comment a lot on Google+, my Facebook and LinkedIN.

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