Thielert's Board is Steamed, and Here's Why That's Not Good
Developing a new aircraft engine for general aviation is such a daunting undertaking that not many companies attempt it, including Lycoming and Continental. It's not that it's technically difficult—compared to the automotive industry, the engineering is actually relatively rudimentary. The challenge is selling enough of them to make the enterprise profitable after you've jumped the certification hurdles.
So the German-based Thielert Group, with its Mercedes-based Centurion four-cylinder aerodiesel, was an unusual success story. The company seemed to be profitable right out of the box, or so its early financials seem to suggest. But things appear to be rapidly unraveling for Thielert. The company's board, citing financial anomalies and a liquidity crunch, removed founder Frank Thielert as CEO two weeks ago, although it allowed him to remain in place as operating officer while it sought new senior management. But this week, the board entirely removed Thielert and CFO Roswitha Grosser, terminating their service contracts on the spot. The reason, the board said, was "among other things, explanations of the management board and information received by the supervisory board from the Hamburg Office of Criminal Investigation in connection with preliminary investigations against management board members of the company."
Further, said the board, the company's financial statements for 2003 through 2005 "are probably incorrect and possibly void." These are the very same financials the company used as the basis of its IPO filing in 2005, so presumably it has concerns about fraudulent financial claims for the IPO, a big no-no in the world of investing. The board said this week that in light of these developments, a group of investors willing to fund a restructuring of the company has said no thanks. In the meantime, the stock has cratered from a high of 25 Euros at the IPO to .43 Euro this week. Unless the board can find more willing investors, Thielert will apparently be left to rescue itself, which doesn't seem likely, in my view.
These developments have wide ranging implications for the GA market, which is already reeling from escalating fuel prices that aerodiesels were supposed to ameliorate.
It's quite possible that Thielert could find itself in receivership. If it does, this will complicate life for owners of Thielert diesels, for Diamond Aircraft and for Cessna. It's hard to imagine how a bankruptcy won't momentarily interrupt deliveries of new engines and parts—which haven't been all that great to begin with, say Diamond and owners we have interviewed. There's obviously a large enough installed base to constitute a business worth reviving but it's hardly a lead pipe cinch toward profitability, for several reasons.
Diamond has been publically critical and privately livid over weak customer support from Thielert for engines in the field. Many owners we have interviewed have complained about the same thing. Diamond had a similar unhappy experience with Rotax for its Katana trainer and, twice burned, it has started its own aerodiesel company at Diamond's Austrian headquarters, the so-called Austro line. This effort is apparently high priority for Diamond, as well it should be. So short term, Diamond has a problem; long term, it has a plan.
Cessna is midstream with development of its Skyhawk diesel, using the new Thielert 2.0 Centurion. I have to think the caps are being popped off the Rolaid jars in Wichita as Cessna—a company not accustomed to being overtaken by events—waits to see what will happen. If no other investors see Thielert's juice worth the squeeze, maybe Jack Pelton will pull another rabbit out of the hat and buy it himself. I'd give the odds of that as about one in 10 because ...
... Lycoming has something in the works, and I think there's a good chance it's a heavy fuel engine. Continental has already said it will announce an aerodiesel this year for certification in 2009. So if this is beginning to sound like Thielert had the market to lose and is just about to do just that, you get the picture.
And how about Superior Air Parts? Flush with cash after its IPO, Thielert bought Superior in 2006, which made good business sense because the Superior's network could serve as the basis for building up Thielert's then non-existent service network. Furthermore, Thielert's Germany-based factory was already doing finish work on Superior's aftermarket engine cylinders so it was a good fit. But one CEO's good fit is another's ready cash source, so we shouldn't be too surprised to see Superior sold off to raise needed cash, if other investors aren't found. [Late addition: An industry insider phones to tell me that if Lycoming or Cessna did buy Thielert for less than 10 cents on the dollar, they'd get all of Superior's PMAs and could compete head to head against Continental for parts. They could also eliminate a pesky competitor and enjoy less constraint on prices for replacement parts. Good for them, bad for owners.]
What all this means is to simply confirm what we've been saying all along: the aerodiesel revolution looks promising, but even the slightest business misstep—never mind a series of them—could tank the market or set it back several years. And that, as much as anything, explains why we don't see many new engines in GA. And the current developments made bode worse for the industry than is immediately apparent.