Fokker Bankruptcy Analysis

In addition, two activities of the bankrupt Fokker Aircraft will continue in slimmed-down form as separate companies, again part of Fokker Aviation. These are Fokker Product Support, which will continue to supply spare parts and technical support for the worldwide fleet of 1,130 Fokker aircraft, and Fokker Aerostructures, which builds parts and components for the aerospace industry.

Aircraft manufacturing has ceased and the main assembly plant at Schiphol Airport, Amsterdam, has virtually closed. A few staff have remained at the plant to finish the assembly of about 15 aircraft which were close to completion.

Fokker’s collapse leaves several of its major suppliers with serious problems. Shorts in Belfast, whose wing assembly line directly employs 660 people with another 800 or so involved in support and manufacturing jobs is one, while Rolls-Royce will also suffer as it builds the Tay engines for the 70 and 100, leaving the Gulfstream IV corporate jet as the Tay’s only application. Major shareholder Daimler-Benz Aerospace (DASA) also employed 1,200 of its own workers on Fokker-related jobs.

The situation leaves the operators which have Fokker aircraft on order in a very difficult position as it appears they will have to accept that these aircraft will not be built. Some have had the first few of an order delivered and will be left without the others, forcing major problems with fleet planning and provision for adequate capacity.

Fokker 70 purchasers are the worst hit as the first aircraft was delivered only in October 1994. The Fokker 70 backlog is 40 aircraft: Alitalia (11), Austrian Airlines (5), British Midland (4), KLM Cityhopper (2), Malev (3), Pelita Air Services (4), Sempati Air (8), Tyrolean Airways (1) and Vietnam Airlines (2).

Customers for the 13 Fokker 100s still to be delivered are Formosa Airlines (1), Merpati Nusantara (6) and a further six unannounced, while 12 Fokker 50s had been earmarked for Ethiopian (5), the Royal Dutch Air Force (2) and TAM (5).

The Road To Ruin

Looked at subjectively and with the benefit of considerable hindsight, it seems apparent that Fokker’s demise can be traced back to November 1983 with the simultaneous launch of its current range of regional turboprop and jet aircraft. Despite being derivatives of the existing F27 Friendship and F28 Fellowship designs (albeit with many changes) this placed enormous financial strain on the company as the development and certification costs of the aircraft mounted during the remainder of the decade at a time when sales of the existing products were declining and production was winding down.

The Fokker 50 and Fokker 100 entered service in 1987 and 1988, respectively, released just before the onset of a world recession and onto a highly competitive market where every order involved a battle and ever more imaginative financing packages had to be put together. This was undoubtedly the fatal flaw in Fokker’s survival tactic and it has now been revealed that each aircraft it has built in recent times has been sold at a loss of about $US3m. As the debt increased to unmanageable proportions due to the company financing aircraft during the recession, so did the losses and problems.

By late 1995, estimates of Fokker’s debt bill went as high as $US10bn and its situation was made more difficult by the fact that the strength of European currencies against the US dollar hindered the company’s efforts to keep its prices competitive and its profit margins up. We now know that this couldn’t be achieved.

In April 1993, agreement was reached for Deutsche Aerospace—now Daimler-Benz Aerospace (DASA)—to purchase an initial 51% interest in Fokker with the Dutch Government and private investors holding the rest. DASA was to acquire all of the Dutch Government’s then 38.1% holding in two stages, the second of them scheduled to be finalized this year. By the end of 1995, DASA held 78% of Fokker.

In the meantime, the company was accruing more debt and losing more money. In an attempt to cut costs the workforce was reduced from 12,000 to 10,400 by early 1994 with a further 1,900 redundancies planned; a production plant was closed and the production rate reduced from 74 deliveries in 1993 to 47 in 1994 in order to clear some of the backlog of unsold aircraft. Fokker’s financial results for 1994 told a sad story despite these cuts and an operating loss of about $US900m was recorded. More job cuts were announced (employment down to 6,700 by 1997) and it was agreed that two-thirds of the profitable Fokker Space and Systems subsidiary would be sold off.

On the surface, things began to look up a little in 1995 with 63 new orders booked (47 jets and 16 turboprops), a 62% increase on the previous year. Deliveries also increased in 1995, 52 aircraft being handed over to customers comprising 26 Fokker 70s, 15 Fokker 100s and 11 Fokker 50/60s.

However, this was still insufficient to save the company which by September 1995 was facing a major financial crisis unless there was an immediate and large capital investment. DASA was itself in no position to supply all the required cash as it was losing large amounts of money, including about $US1.7bn on Fokker alone since 1993. Analysts suggested that up to$US1.2bn was necessary to bail Fokker out of its troubles and minority shareholder the Dutch Government went on record to state that it would not allow the company to collapse, although future funding would depend on a viable business plan being presented.

Fokker struggled on for the next few months until late January 1996 when DASA announced it was withdrawing financial support. This forced the manufacturer to seek bankruptcy protection, Dutch law permitting companies to operate under such protection for up to 18 months as long as bridging finance was secured. This was provided by the Dutch Government in the form of a $US200m loan which allowed Fokker to operate until mid-March 1996 while a buyer was sought.

There were several possible buyers mooted, most notably China’s AVIC and South Korea’s Samsung, but no bids were received from these or any other sources. With no more funding to sustain it, there was no choice but to withdraw bankruptcy protection and to close the doors of one of the world’s oldest aircraft manufacturers.

A Proud Heritage

The company founded by Anthony Fokker has a long and distinguished history. The Dutchman built his first aircraft, the Spider, in 1912 but his early career is best known for the designs he produced for Germany in World War 1, classic fighters such as the E series monoplanes (the first to have forward-facing guns firing through the propeller arc between the turning blades), the Dr.I triplane (the type in which Manfred von Richthofen was killed) and the D.VII biplane, generally regarded as the best single-seat German fighter of the war.

With the Armistice in 1918, Fokker smuggled some D.VIIs and components back to his native Holland and in July 1919 established the forerunner of the modern Fokker company. It flourished through the 1920s and ’30s, producing numerous civilian and military types for Dutch use and for export. Some of them were classics, such as the F.VII series of eight-seat commercial aircraft available in both single and three-engined form. Perhaps the most famous of them all is the F.VIIb-3m Southern Cross of Sir Charles Kingsford Smith, while other trimotor Fokkers were also used for long-distance pioneering flights by aviators such as Richard Byrd and Amelia Earhart.

Fokker’s commercial aircraft were also built under licence by Avro in Britain and Atlantic Aircraft (a Fokker subsidiary) in the USA. More advanced aircraft were introduced in the 1930s but the revolution created by the Douglas DC-2 and 3 soon saw them rendered obsolete and even the Dutch national carrier, KLM, soon became a large Douglas customer at the expense of its own.

World War 2 and the German invasion saw the end of Fokker’s design and manufacturing efforts for several years, but not before the entry to service of the D.XXI monoplane fighter and the G.I twin-engined heavy fighter and ground attack aircraft.

Postwar, Fokker quickly developed its own new types such as the S.11 and S.12 piston-engined basic trainers and the S.14 Mach-Trainer jet. The company also established overhaul contracts and was responsible for the production of 189 Hawker Hunters between 1956 and 1958 and large numbers of F-104 Starfighters after that. More recent military activities have included the production of 213 General Dynamics F-16 fighters for the Netherlands, Norway and Denmark between 1979 and 1992.

The company’s best-known product of recent times, the F27 Friendship regional turboprop, first flew in late 1955 and went on to dominate the ‘DC-3 replacement’ market over the next three decades. Including licence manufacture by Fairchild in the USA, total F27 production reached 786 aircraft.

The F27 was joined by the F28 Fellowship regional jet in 1967 and 241 of these were built before the introduction of the upgraded Fokker 100 family. DASA’s involvement in Fokker from 1993 was not the first time the company has had a German connection. In 1969 Fokker and VFW merged, this association formally continuing until 1980 when it was dissolved.

Australia’s Fokkers

Australia has had a long association with Fokker, stretching back to Charles Kingsford Smith’s and Charles Ulm’s F.VIIb-3m Southern Cross in 1927 and the airline they subsequently founded (Australian National Airways) which had Avro Tens (licence-built F.VIIb-3m) as its initial equipment.

The F27 era represented the peak of Fokker representation in Australia with no fewer than 78 appearing on the civil register over the years. The peak years were 1972 and 1973 when 51 F27s were flying in Australia. The first aircraft arrived in 1959 for TAA and the type gradually replaced DC-3s with most operators and went on to make a very significant contribution to the development of Australia’s regional airline network. For the passengers on these journeys, the relative smoothness of turbine engines and the advantages of cabin pressurization brought new standards of comfort. For the operators, the F27 proved economical and reliable.

The F28 Fellowship has also seen widespread use in Australia with various of the Ansett group, East-West Airlines and AirServices Australia and its predecessors operating the type. The F27’s successor, the Fokker 50, was also purchased by Ansett although in much smaller numbers than the earlier aircraft and ironically the company had enjoyed an extremely positive response to the late ’95 tour of their latest offering, the Fokker 70. All that has sadly now passed into the annals of history.

Readers wishing to know the full story of Australia’s involvement with the F27 and F28 are reminded that the former features in our Airliners In Australian Service book (Vol 1) while the Fellowship appears in Volume 2, due out this September.