MONTROSE – A much anticipated due diligence report from Boyd Group International is finally public, and decidedly cautionary, regarding the deal between Montrose County and Extra Aircraft.
The report cites uncertainties in the general aviation industry, which could affect Extra’s sales projections, and doubts about Extra’s dependence on capital funding provided by the county, the city, the Montrose Economic Development Corporation, and other groups that have been negotiating an incentives package with Extra since July.
Extra CEO Ken Keith countered Boyd’s arguments point by point in a September 27 letter to County Manager Jesse Smith.
According to the report, the county would spend $2.19 million to buy land and improve it for the manufacturing facility. But, the report concludes, “The company may not have adequate capital to support its operations at Montrose should projections not be met, and review of market data . . . shows no certainty of such targets being attained.
“It is recommended,” Boyd goes on, “that the proposal be restructured to include additional safeguards for the County’s risk . . . including reasonable lines of credit as a fallback.”
Extra had said it expects to build one EA 500 turbo-prop aircraft a month during its first year in Montrose, and over 40 per year after five years. The Boyd Group considered those numbers to be potentially optimistic. “General aviation was down for 2009, and prospects for 2010 are cloudy,” the report stated. “The market can turn around, but there are no market data to indicate that it would be in such a manner to meet [Extra’s] production estimates.”
Extra’s Keith countered by stating that the company has international orders for five aircraft that would be built in Montrose in the first 18 months of operation. He also wrote that the turbo-prop market is considerably stronger than general aviation overall, down only 18 percent in the last year.
He also said that the dealers signed up to sell the EA 500 “wouldn’t be willing to make such a large investment” in the company if they didn’t believe they could be successful. “These dealers are in the market every day and know what is happening versus . . . making projections based on historical information which always lags a recovery.”
Keith also disputed Boyd’s assertion that the county was bringing the majority of capital to the deal. The report “ignores Extra’s $3 million in composite airframes, tooling, equipment, parts and intellectual rights that will be transferred to the Montrose facility.”
He added that four dealers have signed agreements to sell the EA 500, and that they have agreed to buy a demonstrator aircraft for $1.65 million. “The financial risk taken by the county and Extra Aircraft is much more balanced than presented in the Boyd Group report.”
The Boyd report said that the county could reduce its risk by providing Extra with airport property already owned by the county. But that that would provide Extra with less working capital to get started.
“There is no question that the management of Extra Aircraft has good intentions to bring quality manufacturing jobs to Montrose County,” the Boyd Group wrote. And “Any proposal – particularly one from a company that has an established operation, as does Extra Aircraft – offering to create 200 jobs should be considered.”
A public meeting (Wednesday Oct. 13 at 7 p.m.) with county commissioners to discuss where things stand has been moved to Friendship Hall at the Fairgrounds to accommodate the expected crowd.
Copies of the Boyd report are available at the County Administration Building on South Townsend.