How crisis takes down aircraft manufacturer: Fokker story
If you were to turn back the clock 100 years, the aviation industry would look very different. The duopoly that we know and love today, would be missing one of its members, namely Airbus. Boeing would still be in its infancy, as William E. Boeing established the company, then-called Pacific Aero Products in 1916. The commercial aviation market itself would be very limited, as not a lot of airlines were even operating at the time. However, some familiar names, including Avianca (AVHOQ) , British Airways’ predecessors, KLM and Qantas, were already grazing the skies.
And one manufacturer was particularly dominant at the time: Fokker. The Amsterdam-based company was regarded as one of the largest aircraft builders, as the company established in 1919 was pumping out aircraft left and right, including commercial and military planes. The predecessor to the now-bankrupt manufacturer, Fokker Aeroplanbau, based in Germany, famously built the Fokker Dr.I triplane, which became associated with the Red Baron, Manfred von Richthofen.
However, at the end of the day, all that history could not save the company and on March 15, 1997, Fokker declared its bankruptcy, officially ending the story of the planemaker. While other units of the company, which were responsible for aircraft maintenance and the manufacturing of certain components, have survived up until this day as Fokker Technologies, the manufacturer that was responsible for such aircraft as the F27, F50, F70 and F100 was no more.
So, how did Fokker’s story end?
The Fellowship of the aircraft
After the two world wars have passed, Fokker established itself as a manufacturer of small, regional aircraft. Its first attempt to build an aircraft suited for the post-war market was a relatively successful one. The Fokker F27 Friendship, which was able to carry up to 60 passengers, was very successful, as 592 units were sold before the last F27 left Fokker’s factory doors in 1986. The F27 allowed Fokker to develop its first commercial jetliner, the F28 Fellowship.
The Fellowship was not strong, though. It first flew in 1967 and only gathered 241 orders in total, putting the company under immense financial pressure. The pressure was further increased by an unsuccessful joint venture with Vereinigte Flugtechnische Werke (VFW), a Germany-based manufacturer. The two companies collaborated on a regional jetliner, the VFW-Fokker 614. However, with only 19 sold units, the relationship became messy: the VFW 614 was canceled in 1977 and three years later, the two companies went their separate ways.
At that point in time, Fokker was in turbulent air, despite being a profitable company in both 1979 and 1980 with a net income of $1.9 and $3.9 million, respectively, as reported by the New York Times. It needed to come up with a solution as sales for its commercial airliners started to dwindle.
McDonnell Douglas and Fokker working on MDF100
And search for solutions Fokker did: the Dutch firm planned to collaborate with McDonnell Douglas to develop the MDF100, a derivative of the F29, another conceptual project that the manufacturer planned to launch. However, the two projects never materialized. Despite the Dutch Government pleading to provide a huge chunk of the financing for a state-of-the-art jet, Fokker needed a partner to go ahead with the jetliner – a crucial circumstance if the Dutch Government were to go ahead with the $711 million aid package to develop a new aircraft.
It seemed like the Memorandum of Understanding (MoU), signed between McDonnell Douglas and Fokker in May 1981, was the first nail in Fokker’s coffin. The Dutch company walked away from the agreement just a year later and focused on the joint development on two new aircraft instead: the 100-seater F100 and a turboprop replacement for its cash cow, the F27 Friendship, the F50. The manufacturer would develop the two alone, without any partnerships involved.
But now, the competition was much tougher. The two new Fokker products were announced in the early 1980s, the same time as Boeing revamped its 737s and introduced the Classics into the aircraft market, Airbus officially announced the A320 program in 1984, while McDonnell Douglas released the MD-80 in the late 1970s, providing the main competition for the F100. The F50 meanwhile had its hands full with the ATR 42, De Havilland Canada Dash 8 Q300 and the Saab 340. If currently, the turboprop market is troublesome for two players, with De Havilland Canada struggling for sales and the ATR dominating, competing with three aircraft was not an easy task for Fokker. In total, the Dutch manufacturer sold 213 F50s.
On the other hand, the F100 had similar sales numbers, as Fokker sold 283 units to airlines. While in hindsight the numbers are not necessarily bad, the main issue was the fact that development costs for both of the aircraft skyrocketed. With competition breathing down Fokker’s neck and already tight profit margins, ballooning development costs was the last thing that the Dutch manufacturer needed.
Double debut and lifeline
The F50 and F100 first flew in 1985 and 1986, respectively. But the two aircraft, which were supposed to carry Fokker’s torch into a Golden Age for the company, almost burned it down. The development costs for the F100 alone spiraled out of control; from the initial estimate of $500 million to a total of $800 million. To rescue the company, the Dutch Government had to step in firmly this time and provide more than $750 million of subsidies, reported the Chicago Tribune. Furthermore, the Government took a 32% stake in the company just to save thousands of jobs.
Other companies stepped in to save Fokker as well. In 1989, an abundance of customers appeared behind the F100: American Airlines (A1G) (AAL) signed up for 150 F100s, (75 firm, 75 options), Braniff ordered 18 and USAir opted for 40 jets. The world looked like a happier place for Fokker, as sales were going great.
However, ironic it might sound, customers were the other nail in Fokker’s coffin. The company developed the F100 based on the F28 Fellowship, trying to make as little changes as possible to control costs. Airline customers, who were crucial towards Fokker’s decision to launch the jet, asked for a lot of changes. The Dutch manufacturer planned for the F100 to use 80% of the technologies of the F28, with 20% being new additions. The split swayed the other way and the F100 was 80% new, reported The New York Times.
Erik J. Nederkoorn, the former Fokker Chief Financial Officer, stated that the manufacturer’s “customers had wishes and we [Fokker – ed. note] respected them,” but then the company encountered a “cash-flow problem,” added Nederkoorn. Swissair, the predecessor to Swiss International Air Lines, demanded a highly electronic cockpit, including a radio signal guidance system that would allow landings in a heavy fog. USAir asked for aircraft with polished and unpainted skin. Fokker had to research to cater to the demands of the airline.
Nevertheless, the abundance of orders from United States-based airlines alone seemed like the lifeline for the company.
Except it was all about to change.
As the 1990s began, a short and sudden spike in oil prices resulted in a recession that would particularly affect airlines. Even before the crisis, one of the aforementioned customers – Braniff – folded once again. Fokker’s problems continued. To ensure its survival, Fokker once again looked for partners to help the company. Frans Swarttouw, a former Fokker board member, who resigned in a protest over the upcoming merger, stated that the manufacturer could not survive alone in that “day and age,” as the company was a niche-producer.
The merger with Daimler-Benz and its aerospace division DASA came in 1993. A holding company was established with two shareholders. Daimler-Benz held 51% of the stake, while the Dutch Government was responsible for 49% of the company.
“Daimler-Benz was on an expansion binge and Schlempp snapped up everything, ripe or rotten, in order to become a European giant. Daimler had industrial muscle but no plane market and no synergy with Fokker,” stated Frans Swarttouw, as Daimler-Benz cut its financial support for Fokker in January 1996, nailing the final and last nail in the company’s long-standing coffin.
The Dutch government said it was stepping back and allowing Fokker’s management to figure the situation out and decide on the future of the company, reported Reuters. Reportedly, Daimler-Benz spent over $2 billion from the period of 1994 to 1996 just to keep the manufacturer running. At the same time, Fokker’s profits turned into massive losses. In 1993, the company posted a negative net income of $122 million (NLG220 million). Just a year later, the losses went down a deeper hole with a negative net income of $358 million (NLG642 million).
Fokker tried to save itself: a cost-cutting program was announced in 1994. 1,900 jobs were cut and the yearly aircraft output was lowered from 60 to 40, as there was not enough demand to sustain such production rates. In 1995, a restructuring effort was launched with the goal for the company to break-even in 1996. As part of the effort, several plants were closed and supplier contracts re-negotiated on a case-by-case basis. But that, seemingly, was not enough. Daimler-Benz pulled its financial plug and the company was sent to the brink of extinction.
Several interested parties
Fokker’s management was not willing to give up, as several parties, including Samsung, approached the company and the Dutch Government to purchase the controlling stake of the manufacturer. The South Korean company attempted to do so twice. The second attempt incorporated three additional companies, namely Daewoo, Hyundai and Hanjin, which were to build a conglomerate to save the Dutch manufacturer. Yakovlev, the Russian aircraft manufacturer, was also rumored to be a party interested in purchasing a stake in Fokker.
However, nothing truly materialized. And there might be a good reason why – Shorts Brothers, which was recently sold by Bombardier to Spirit AeroSystems, manufactured the wings for the F100 and its shortened-version, the F70. In November 1996, Shorts shut down the production of the wings and the undercarriage doors for Fokker’s aircraft, meaning the new owners would have had to either pay a hefty fee to restart the production or to find someone else to build the aircraft’s wings.
But it was not meant to be: Fokker declared its bankruptcy on May 15, 1997. Despite the bankruptcy, some parts of the company lived on as Fokker Technologies. The company, currently a subsidiary of GKN, still produces lightweight aircraft structures, wiring harnesses and landing gears for aircraft manufacturers. It also provides services to current Fokker operators.
However, there are plans to re-establish Fokker’s name in aircraft manufacturing: Netherlands Aircraft Company planned to build the Fokker 130, or F130 for short, to compete with the Airbus A220, Embraer E2 and Mitsubishi SpaceJet families. While the project initially gathered its fair share of hype at the start, including a website, which includes promises of incredible operating economics of the F130, the process is at a standstill and no news have been heard for a while now.
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