Free Post Trial Brief - District Court of Federal Claims - federal

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SALES/MARKETING
Sales Projections: The Company's- marketing success is keyed to successful sales coordinated through UTC and other distribators~ Projected sales units for the reorganized Company for the period 1991 through 1995 are anticipated to be as follows:

INN0VAIR

1991 1992 1993 -1994 1995

4 '18 20 24 2__8

In arriving at the sales units ihcluded in the projection, ~; conservative sales goal for each customer (see Table 3) was based on the positive feedback from customers when they com~rared. performance features, with the cost of the ~onvert~d aircraft (Exhibit "D" emphasizes this). The supply of DC-3 airframes is believed to be more than adequats to meet the anticipated high demand for conversions. Two Turbo-67s hav~ been delivered to .the U.S. Air Force and its FMA program, and the U.S. distributon for the-Turbo has advised that four more are in the final stages of negotiation. One Turbo-67 has been delivered to United Technologies Corporation ("U.T.C.") for use by it as a demonstration aircraft. Additionally, two Turbo-67s have been sold to ~ South American cargo airline and one conversion has been delivered and one is nearing completion for the U.S. Forestry Service.
Spares supply has been only focused on as a part of the product support, program. The supply of spares represents a potentially lucrative source, of future income for the C~mpany and a study. will be put in place to optimize this profit opportun, ity.

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Pricing Strategies: The Companies' current promotional sales strategy focuses on the low capital cost of a converted aircraft. It is intended that this pricing policy continue until the Turbo-67 achieves initial market penetration .and acceptance of its performance advantages. This pricing strategy still allows for very attractive margins on all stages of the conversion process. A one-price policy has been established without recognition of discounts for volume. Because of. the Company's low price focus and current absence of direct competition, this policy should be sustainablewith the possible exception of large government orders~ The pricing objective is to provide an Instrument Flight Rules (IFR) capable, minimum frills, converted, aircraft for around $2.5 million and a Part. 121 aircraft (conforming to current passenger carrying regulations) with instrumentation to support Category II operations,, for $2.8 to $3 million.

Most new aircraft with qomparable performance capabilities are priced in the $8 to $12 million range. This indicates a considerable priC~ el~s~Ici~y-T~r ~he ~urbo-67 to provide increased profitability for the Company~ Since the reputation of the Turbo-67 is rapidly being established, the Company believes that it should not be. difficult to increase the minimum frills conversion to $3 to $3.2 million and the Part 121 conversion to $3.5 to $3.8 million. These potential price increases have not been recognized in the projections. A considerable number of optional equipment items are available to equip the converted aircraft for specific operating functions. A list of these ~ptional items is set forth above under "Summary of Conversion Process," along with items included in a conversion kit and installed on a basic conversion. Potential profits that could be m~de from option sales have not been included in the financial projections. Distribution and Marketing: Sales and distribution for Innovair will be handled by distributors covering the following areas:
1~ 2 3 4

M d=o

Mille

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Distribution agreements will be exclusive and distributors will handle the following functions:
*

*

Sales and Marketing Installation of Conversions Product Support and Maintenance Warranty Program Spares Support Training

There is being established a core group of very qualified distributors. One .of the best examples is U.T.C. (see Special Corporate Relationship). Since U.T.C. has received their aircraft, potential interest has increased demonstrator dramatically. The Companies intend to build on this solid fou!~datio~ of distribution to optimize sales. Pending- distributors being in place, customer sales contacts, are being, handled by sales agents operating under one year contracts. The Company currentlyhas sales agents located in Miami, Fla., zimbabwe, Australia, Switzerland and Monaco.
g .Th._~_~./Tent status of the appointment of distributors for the five territorial groups is as follows: Asia/Pacific Rim Countries ("PRO") - The Companies have signed an. agreement with united Technologies Corporation (U~T.C.) to handle distribution of the T~rbo-67 in Asian markets including U.T.C. has appointed Herb Hayes, a former mainland China. lon@-time U.T.C. employee,, to manage the administration of the project; Delward Underwood, who has had forty years experience in .-marketing with Boein@, to handle marketing; and Kiko Bernniason, an FAA Designated Enginee;ing Representative whohas been closely associated with the construction of the Turbo-67 prototype, t~ oversee conversions at the Air Asia plant at Tainan, Taiwan. .The project will benefit from the support available from the U.T.C. and Pratt & Whitney organizations in all major markets. The ability of U.T.C. to utilize, the foreign trade offset credits related t6 sales of kits. has caused them to be even more aggressive in their marketing effort. Canada, Mexico, _Central America and the caribbean - Several contacts have been made with potential Canadian distributors. South America - SoUth America is handled by a sales agent (Phil Trudell). Mr. Trudell has been successful in consummating the sale of two Turbo-67 conversions to the United States Air Force(U.S.A.F.) for use in E1 Salvador. He has also brought to near completion four more sales to the U.S.A.F. There is, however, the need to appoint a distributor in order to develop the South American market effectively.

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Western Europe and Middle East ~ Dream Aire Inc., a Swiss company, is currently acting as sales agent in E~rope. The Company desires to eventually replace this agent with a very Discussions have taken place with Air qualified distributor. Atlantique who operates twelve DC-3s out of Coventry in the .U.K. Air Atlantiq~e is believed to be quite interested in participating in a maintenance and product Support role.

The distribution arrangement currently under study for Europe is to structure a relationship between Air Atlantique and a European firm with marketing expertise. 'The potential in Turkey is considerable and this market will be handled directly by Innovair, using a Turkish agent. Discussions have been commenced to appoint the Turkish Agent.
Africa - The African markets are currently handled by sales agents. However~ discussions have progressed with Lonhre, a large and politically very powerful company in Africa, to handle the distribution of the Turbo-67. A draft distribution contract is under preparation and will.be forwarded to Lonhro. Eastern EuroPe - ~ally all of.the marketing effort to date in Eastern E~rope has been directed towards ~oland. This activity has been handled by Dakota Aircraft Corporation. Considerable progress has been made in negotiating operational structures with the Poles. Additional capital is needed in the area to bring this negotiation to a successful conclusion.

The effective development of the Eastern European market will require securing a distributor with some political, clout developed through the marketing of other, products in Eastern European markets. Many major U.S. companies haqe Trade Offset ommitments in Eastern European countries and the Turbo-67 program would be a very effective method of fulfilling these obligations. The desire of major corporations to utilize offsets this way has been proven by the agreement, with U.T.C. Special Corporate Relationship: An agreement has been entered, into with United Technologies Corperation (the parent of Pratt and-Whitney, manufacturer of .PTC6A-67R engines) to cooperate on trade offset programs on a worldwide basis. This agreement provides United Technologies with the right . of first refusal to participate, in cooperation with Innovair, in all Turbo-67 programs in overseas markets which are eligible to receive trade offset credits. The Company believes the .ability to approach foreign governments and companies jointly with United Technologies will greatly enhance our credentials and ability to make overseas sales.

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Innovair is currently negotiating an agreement coverlng distribution of the Turbo-67 by U.T.C. in Asian markets. U.T.C. has purchased a Turbo-67 for use as a demonstrator aircraft and this aircraft recently made a demonstration tour from the wright-Patterson Air Base in Ohio through Canada and Europe. to Asian markets, ending in T~iwan. Product Availability:

The Turbo-67 conversion is available in conversion kit form for shipment to conversion facilities anywhere in the world. It is also available -as a completely converted aircraft ready to commence operations.. Airframes can be supplied .by the Companies or by a current DC-3/C-47 operator who wants their airframes 6onverted. A converted aircraft presently takes approximately seven months to be delivered. Wi.th the recapltalizatlon of the companies, a. program -will be put in place to allow.urgent requirements of customers to be met in a shorter timeframe. The conversion kit when shipped is complete with all parts including rivets, nuts and bolts required for the conversion and overages to cover normal losses during installation. All specialized tgols, drawings, detai~ed kit installation instructions, maintenance manual, flight manual and structural repair manual
Product SUDDOrt:

Pratt and Whitney and Hartzell have effective worldwide product support systems for engine and " propeller maintenance, respectively. Distributors will be required to provide product support in their territories, including spares, maintenance and warranty programs. The distributors product support structure will be backed up by the Companies who will maintain in-house training, maintenance facilities, and spares inventory. The C~mpanies will also provide a trouble shooting capability for domestic and international customers. All parts and components used in the conversions are in current .production. The small n~mber of ~omponents that have a lead time of up to nine month~ will be kept in inventory. Purchasinq: Eighty to" eighty-five percent of the cost of a conversion kit is made up of parts or components, such as generators, pumps, valves, etc., which are purchased in finished form from third

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party vendors. One conversion kit contains approximately $I million of. materials, parts and components, including engines and propellers, pu!chased from 200 vendors. As a result, purchasing will be an important factor in the Companies' potential future profitability.

During the design and certification phase of the project, purchasing of many materials and components was held to a minimum until the design was finalized~ Hence, purchasing was not always cost efficient. Now that the design of the conversion is fixed, purchasing provides a potential for worthwhile savings. Original Equipment Manufacture (O.E.M.) status has been established with most vendors and as vol~me builds,purchasing prices are expected to be reduced. These potential savings have not been built into the projections.
Alternate supply 'sources have been,or are being, established for all but five vendors. It is expected that this n~mber-will eventually be reduced to two, namely Pratt .and Whitney engines and Hartzell propellers. Status of Cur~.ent customer. CoDtacts:

The following is a list of current potential customers that are expected to form the basis for anticipated future gr.~th in sales and earnings. This section attempts to provide an insight into the current demand as illustrated by Innovair's recent trip .to England and Europe in March of this year. Air Atlanti~ue Air Atlantique ("AA") currently operates twelve DO-3 aircraft out of Coventry Airport in the U.K., mainly on government contracts and charter freight. Its management visited the Companies' operations in Van Nuys and Oshkosh in 1990. AA arranged for.the U.K. certification authorities to visit the FAA at Long Beach to determine whether ~here would be any problem in obtaining U.K. certification for the Turbo-67 (see Exhibit "D"). In the first week of March, the T~rbo-67 was demonstrated to Air Atlantique in Coventry, U.K. and to two of their contract customers, namely Ford Europe and the British Postal Service. The response to these demonstrations was very positive. Air. Atlantique management preliminarily, indicated that they intended to place an initial order conditional on a lease arrangement. TURKEY .Tu. rkish Air Force The T~rkish Air Force operates twenty-seven C-47s and has an additicnnl twelve which are being cannibalized to provide

spares.

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In the near future, Dr. Dinc, a recently retired member of the Turkish Treasury Department, is expected to be appointed the Company's sales agent in Turkey. Dr. Dinc is well-connected in government circles. He has been able to arrange high level meetings with the Turkish Air Force and the Ministry of At a meeting arranged by Dr. Dinc in March, the Defense. following were attendees: the Turkish Air Force was represented by Lt. Genera~ Lutfi Akdemir, Chief of Staff, Turkish' Air Force Headquarters, and Major General Ibrahim Uyanik, Chief of T.A.F., plus three other Generals and Logistics Division supporting staff. The .Ministry of Defense was represented by Hasim Keklik and Halil Tokel plus several of their colleagues. At .the end Of the presentation.and flight demonstration, General Akdemir stated that the Air Force needed a turbine powered light/medlum, transport capability which the Turbo-67 could provide. General Adkemir requested us to submit a proposal based on the conversion kits being installed on T.A.F. C-47s at Eayseri in Turkey. This proposal is under preparation.

Zimex- zurich, Switzerland
Zim.~ op~ra~es____th__ir~_~..Ai~r~ft_~_m~nl~__~n__~ntracts, f~r the Red Cross and U.N. agencies in Africa and Asia. Their aircraft range from C-130s to single engine. Cessnas.. The Companies' first substantial contact with zimex was late in 1990 when its. management visited Oshkosh t~ discuss the purchase of a Turbo-67 for a Red Cross contract in Namibia. In March, the Turbo-67 was flown to Zurich for a meeting with them. Zimex had an interest'in purchasing a Turbo-67 .at 'the end of last year, but because oflack of productio6 capacity and the orders BTC had to complete, this sale c~uld not be made.

Swiss Atlantic Swiss Atlantic" ~s a we~l-financed, rapidly expanding company with operations similar to Zimex. Its management attended a demonstration at: Sion Airport, Switzerland in March and they would give the Turbo-67 a serious indicated that evaluation.
.THAILAND

The Royal Thai Air Force The Thai Military operates twenty-four C-47s. The Turbo-67 was demonstrated to the Thai Air.Force at Bangkok Airport on March 22. There is potential for a significant order based on conversions being carried out in Thailand on their own airframes.

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~anqkok Air Bangkok Air is licensed as an international air carrier currently operating a DeHavilland Dash-8 and F-27s on passenger/freight operations between Thailand, Burma, Laos and Cambodia. They have expressed interest in the Turbo-67, which would be ideally" suited to their operations. The Turbo-67 was demonstrated to them in Bangkok in March of this year.

The Taiwanese Air Force has recently retired twenty C-47s. UTC has based th6ir demonstrator in Taiwan and is in the process of establishing a conversion facility at Tainan. There is an .excel!en~ potential for UTC to convert the retired C-47s and market them in Taiwan, China and elsewhere in Asia.
India The ~ndi~/1 Air' Force recently retired forty C-47s. The Indian government is in the process of opening charter and commuter .airline .mperati~ns to the private sech~r~ In the C~mpany's opinion, the Turbo-67 represents an ideal aircraft for use. in the rural areas of India. The availability of airframes, the potential for local manufacture, the low capital cost and the needs of the market indicate a potential for significant sales volume "in .India. The conclusion of a projeCtotO exploit the Indian market will be time-consuming and require considerable ingenuity. However, the potential of the. market over time justifies a considerable effort.

T~e Turbo-67 was demonstrated in Dehli in March ~o four potential civilian customers. Australia/paDua New_ Guinea (P.N.G.) The Australian Air Force and Navy operate a total of six C-47s. P.N.G. has six C-47s which are operated for them by the Contacts by our sales agent in 1990 Australian Air Force. for four to eight conversions over the indicated, a potential next two of three years. It is planned to have the demonstrator visit Australia and New Guinea in the next few months, and in the near future orders are a distinct possibility.

Afritair - This -is a Zimbabwe government owned airline which operates two DC-Bs to Europe and smaller aircraft on local routes. There has been considerable correspondence andvisits by our representatives to AZritair. They.have expressed a high level of interest in the possibility of acquiring three airframes from the Air Force of Zimbabwe for conversion in order to establish a passenger/cargo airline in Zimbabwe.
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Mainland China (P.R.C.)
There are reported to be eighty to one hundred C-47s and Li-2s in china. It is expected that direct contacts will open between Taiwan and the P.R.C. witihin the next several months. When this occurs, the need for air cargo and passenger capacity will expand very slgnficantly. The Turbo-67 with its low hapital cost, rough field capability, dependable performance and ease of maintenance is believed to be well-suited to fill a segment of the aircraft needs of china.

A meeting was held in Hong Kong in , Janua~ to discuss the Turbo-67 with, two. Chinese representatives ,involved in the purchase of aircraft for the Chinese Air Force. A demonstration trip for the aircraft to China-will be planned for follow-up on contacts already made.
Poland

Inn0vair has been represented in Poland for the past two years bY ..Dakota Aircraft Corporation. An arrangement was worked out for conversions to be'carried out at an ex-military facility in Poia~--Sy a government "owned company, WZL,. ~6cated at Bidgoscs The converted aircraft would be between Warsaw and Gdansk. operated by. PZL, a company located in Warsaw~ PZL currently manufactures light aircraft and operates approximately. 300 aircraft, mainly in Africa. These aircraft are used in industries. The plan included agricultural cargo/passenger substituting the. Turbo-67 for a number of aircraft currently operated by PZL. The Polish project has a sound rationale, ~owever, to date it has not been possible to raise adequate financing for the project. Work on r~ising finances is ongoing and. the chances of eventually successfully funding the project are considered to be good. However, the timeframe could be protracted.

The management of Innovair believes its Turbo-67 will provide a financially attractive business base throughout -the next decade.. However, the Company needs to develop new products to: i) capital~ze on the technology and expertise developed on the Turbo-67 program, 2) provide diversification to reduce the vulnerability which can be associated with single product companies, and 3) to create the foundation for continued volume and profit growth. Innovair has developed a plan to concentrate on a relatively limited range of products related to technology of which the company has had experience. The current broad guidelines are:

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Conversions to turbo-prop power of twin engine aircraft in the 25,000 ibs. to 35,000 Ibs. maximum gross weight range.
Projects to reduce the infrared profile or noise levels on turbo-prop aircraft. A working relatiohs~ip has be~n developed with the various technical groups which were involved in the Turbo-67 program. It is anticipated this will provide a basis for working with the same groups on future projects. -, The FAA has stated that it considers the Turbo-67 development and certification program to have been.efficiently carried out and that excellent quality control standards were maintained. is believed this successful certification program will It provide the company with credibility with the FAA when additional projects are undertaken (see Lac~dre letter under Exhibit "D").

Each .pr6ject will be studied thoroughly from the point of view .of technical feasibility and financial return. Seed money to study ~o~----~l~--e~-g&1~t projects w~l±"~e budgeted for and initiated . by the Company's management. However, the decision to Proceed with the-development of the projects will rest with the Company's Board of Directors. Several potential projects are currently in different stages of developmental s'tudy. Additional details on these projects are included in Exhibit "I," with the exception of the most advanced, namely, the DeHavillan~ DHC 4 Caribou. A status report prepared by Bryan Carmichael on this follows: A concept study on turbinization of the Caribou has been completed by Innovair in cooperation with Lacadre (the design .engineering fir~ who collaborated with the company on the DC-3 project). This study is based on utilizing Garrett. TPE331-15AW turbo-prop engines which develop 1,650 SHP. the time this study was done, Pratt & Whitney did not have a turbo-prop engine availa~.le in this power range, however," they have recently advised that they. are completing development- of a turbo-prop engine with the required power for the Caribou project. This engine will be considered prior to finalizing on the power plant for this project. There are approximately I00 to 120 caribous Still in service plus an unknown number in Vietnam left behind byU.S. -forces. The ~urbo-prop Buffalo developed by DeHavilland was the replacement aircraft for. the Caribou, however, the selling price of $13 million limited the sales of this aircraft. Apart from the Buffalo, a modern STOL rough field

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aircraft in the 5-ton payload class wiKh tail ramp loading has not been developed to replace .the Caribou, and as a result, Caribous are still utilized by the Air Forces of Australia, Malaysia, India, Thailand, Spain, the U.S. National Guard and some African countries. An approximation of the net cost of prototype construction and an FAA certification project to modernize and convert the caribou to turbo-prop power would be in the area of $6.5 million (less the selling price.of the prototype). It is estimated that an aircraft could be modernized and converted at an "ongoing cost of manufacture of something in the area of $2.5-$2.75 million and sold. for $3.25-$3.75 million. These figures indicate a profitable project,, but considerable additional technical and financial study is required to adequately define this project.

The concept study of the turbine conversion of the caribou with Garrett TPE331-15AW engines is. attached as part of Exhibit "I."
An estimate of. the.cost of th~ development Of new products that ~nno~air plans ho.-pursue f.~llows~ ................... ---~.-. SUMMARY OF ANTICIPATED RESEARCH EXPENDITURES

_CARIBOU
1991
1992

C-130 $ 235,000
465,000

C-123 $ 40,000
461,000

ALB~TROS~ $ -0-

TOTAL $ 425,000
5,267,000

$ 150,000
4,341;000

1993 1994 1995

2,009,000
-0-

300,000 -0-

5,532,000 1,467,000

40,000 5,922,000

7,881,000 7,389,000 1,538,000 $22,500,000

1,538,000

$I, 000"z 000 $7,500,000
Estimated Number of Airframes Available:

$7,590,000

I00

1,00~

75

50

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The projected development costs are the estimated amounts required to obtain 'a supplemental type certificate. As Company would not commit to the previously stated, the expenditure of the above funds until a s.tudy of the technical feasibility and financial retLtrn has been completed and theproject has been approved by the Board of Directors. The above expenditures would represent an aggressive approach to new product development. This could be justified to optimize the market available, but further study is needed before we can include this approach into the financial projections for the companies. Accordingly, research expenses .shown on this schedule have not been included in financial projections shown 'elsewhere in'this memorandum. Additionally, no account has been taken of sales or production costs for the new product program.

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MANAGEMENT/ORGANIZATION

BRYAN CARMICHAEL, Age 63. President. Twenty-five years experience in corporate general management with Fortune 500 companies both domestically and internationally. Last position was Senior Executive Vice President for Warner Lambert Company (annual sales volume $3.5 billion), also Member of the Board. of Directors, Executive Committee, Finance Committee and Chairman of Retirement Fund Committee. Previously Chairman and President of Pfizer International (annual sales volume of Pfizer, Inc. $5 billion). Bryan Carmichael developed the concept to carry out the Turbo-67 project through the acquisition of United States Aircraft Corporation know-how, and directed the management aspects of the building of the prototype and the certification program to obtain the-Supplementatl Type Certificate (S.T.C.). BARRY W. WILSON, Age 46. COnSultant.. Over ..twenty years experience in corporate general management, with Fortune 500 companies with a heavy emphasis on international operations. A business history is included. ROB~T W. CLARK, Age 40. V~ce President & "General Manager. Fifteen years experience with DC-3 charter airline successively as chief Pilot, Chief Inspector and Chief of Maintenance. Mr. Clark has played a major role in determining the design basis, manufacturing of the prototype aircraft, and directing the certification program for the Turbo-67 project. Mr. Clark is one of the most knowledgeable persons on DC-3s in the country. Be was Chairman of the Supplemental Inspection Document Progrnm. Committee sp6nsored by Douglas Aircraft and the Federal Aviation Administration. MARK BACHUS, Age 38. Manager, Product Support. Mr. Bachus has been a key contributor in developing the installation methodology, and writing the instal~ation manual, on the Turbo-67 conversion kits. Mr. Bachus has @ffectively Set up the conversion kit installation facility in Oshkosh and has achieved significant productivity improvement since the start-up of production. The above experience has spanned fifteen years in the aircraft industry. TERRY LIEM, Age 36. Produ~ion Manager. Fifteen years of production experience within the airline industry. Mr. Liem has been responsible for the ~nitiatio~ of conversion kit manufacture at Van Nuys. He has established the kit manufacturing facility at Oshkosh and has headed the program to bring all fabrication drawings up to date.

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TIM ENGLE, Age 40. Supervisor Electrical Kit Production and Mr. Engle played a key role in the design of the Installation. electrical kit for the Turbo-67 and supervised the p~ototype He established an electric kit manufacturing i~stallation. facility" at V~n Nuys and caught up with the required production schedule in quite difficult cir~Imstances. He has now moved the electrical kit production to Oshkosh. JOE H~INGTON, ~Age 28. Quality Assurance Manager. Six years in the aircraft industry. He has played a key role in establishing and implementing the inspection procedures for the Turbo--67 priam. B. TIMOTR~ CARMICH~EL, Age 25. Assistant to Marketing Manager. Recen~ graduate from UCLA (Economics and International Business). Mr. Carmichael has gained a thorough knowledge of the Turbo-67 conversion during his two year period at the Van Nuys facility handling office management, purchasing and stores.

~ Br~K~Z~ER~--~ER---Eng~rLngV,---I~w-'~ngeies. Prmviaes technical advice and hands-on planning for problem, ar~as as they arise in certification programs. AKRON GELLMA~ - Aaron Gillarons Assoc., Philadelphia. Aircraft Industry Consultant and Lecturer at Wharton Sch~l of Business. ~r~vides Specific advice in the small package freight fiel~ and general advice on corporate strategies. LACK~RE, INC. - Air=raft Engineering Design Company,. Los Lacadre managed the Design and Certification program Angeles. for the Turbo-67 project. The company has a broad air,raft engineering capability ~nd has a r~ord of successful air,raft c~i~.ification progl-ams. .. : T~M CONNORS - Age. 64. Recently retired as Executive Vice President of Pfizer International, Inc. He has a legal background with extensive international legal and business management experience ~

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PrinciDals' Backqround:

1988 - PRESENT 1979-1988
1972--1979

President of Innovair. Wonbah Pastoral Company - Prasident (Private Investment Company~ WARNER LAMBERT (Annual Sales "Volume $3.5 Billion)
1977-1979" Morris Plains, NJ - President

WarnerLambert Professional Products Group - U.S.

1972--1977

Morris .Plains, NJ - President Warner Lambert International -(Annual. Volume US $i Billion} Warner Lambert Company.Corporate Positions: - Senior Executive Vice President - Member Exe~nltive Committee - Member Finance Committee -. chairman Retirement Fund Committee

1957-1971

PFIZER, Billion)
1971

INC.

(Annual Sales Volume US

New York - Chairman.& President Pfizer International New York - Executive Vice President Pfizer International Bl~ussels - President Pfizer Europe Tokyo - President ~ Pfizer Asia Hong Kung -Area Manager.- Asia Manila - President Pfizer Philippines, Inc. HongKon~ - Controller for Asia Asia- Traveling Auditor

1970-1971
1968-1970 1964-1968 1963-1964 196111962

1957-1958 1953-1956 1952

CALTEX INDONESIA - Financial Management Bach. Commerce, University of Melbourne Australi~
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1988-PRESENT 1980-Present

Director, BTC BRISTOL MYERS SQUIBB CORPORATION .(Annual Sales Volume $12.5 Billion) President, Bristol Myers squibb Present Europe
1987-1990

Princeton, N~ - President Intercontinental Princeton, NJ - Executive V.P. Intercontinental " .Princeton, NJ - v.P. western Hemisphere

1986-1987 1985-1986

...... 198~-19B~ .'.~nng_.K~ng_-_.V~.L_~n~ifi~ Region
19~7-1980

PFIZER CORPORATION (Annual Sales Volume $5 Billion) 1978-1980 Seoul - General Manager Korea
1977-1978

London - General Manager UK/Ireland Tokyo - Gener~l Manager Japan Hong Kong - Director Asia Management Cen~ar Munich - Group Brand Man~g&r Germany Europe Management Center

1974-1977 i972--197~
1970-197~

1969--1970- Brussels - Assistant to President 1967--1969

~ohannesburg - Marketing Manager South.Africa New York - Trainee Headquarters

1967

Wharton School University of Pennsylvania
~oko

1965

Cambridge University, England

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Consultant Barry W. W~ison

I PresidentI B. R. I Carmichael

I SecretaryI

SecretaryI I

[
Marketing Director

¯

Tim Car~Lichael

-

Develop marketing material. .Appoint and administer, distributors and sales agents. Develop and negotiate direct Innovair sales programs where appropriate. Interface with B.T.C. production unit. Administer trademark, registration protection progrnm. and property, rights.

-

Administer trade offset programs.

Administer aircraft leasing, program.. -" Administer group iegal matters.

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p~oductio~ Facilities: currently, all production " activities (manufacturing and conversion), and administrative and managerial functions are performed in Oshkosh, Wisconsin at a facility owned by the sole shareholder of BFS. The production functions are: conversion kit manufacture, kit installation, optional equipment production and optional equipment installation.

The BFS plant is an excellent facility consisting of 75,000 square feet of hangar and office space. However, the overhead associated with the manufacturing operations in this plant are believed to be higher than necessary because: I) the plant was built with too much capacity, and 2) the climate results in all production operations to be located indoors in heated hangars for a good portion of "the year. It is anticipated that the manufacture of conversion kits will be moved out of Oshkosh, Wisconsin to a rented facility of about i0,000 square: feet. No special conditions are required for conversion kit. manufacture (apart from employee comfort) and no no_x_~ or tq~g ~~Is_~__~ i~v~.ly_~d., which would create effluent or other OSHA problems. Accordingly, the Company bel~eves they have considerable flexibility in locating this production facility. United Technologies is in the process of establishing an arrangement to have conversions carzied out in Taiwan by Air Asia. The Company's assessment is that this conversion facility, which, is expected to be FAA certified, will be efficient" and cost-effective. It is planned to establish the Taiwan facility as the prime conversion location for international sales. The Company believes this will be an for U.T.C. as it will help them meet its attractive proposition commitment under Trade Offset programs in Taiwan (see April 4, 1991 letter in Exhibit "D".relative to DC-3 turbo conversion at Air Asia).

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INNOVAIR AVIATION LIMITED

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~|

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A0250A

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DATEr June 27, 199~ TO: FAX TEL: Fred Johnson 203-555-2898

FROM=

HERB RA~ES

¯ LOCATION| M/S 124-2g

NO, SHEETS INCLUDING COVER SHEET= SUSJECT=

LOCATION= Vermont TELE/FAXz 802-254-3453. FAX~ PRESS (-) -

DC-3 Conversion Program Actlon/Status

I, UPA INCORPORATION Price Waterhouse £iled o£flcial request on 6/5..Expect approval by 7/]9. ¯ Talwan Aerospace, Pacific Electric Wire and Cable and First Talwan Bn~klng Group ~orklng. group decided against recommending a Joint Venture to ~helr Boards due to insufficient evidence of TURBO-67 mar~eta~illty. ¯ First Talwan Banking Group is interested i~ coordinating a U.S.Consortlum purchase o£ Air Asia.
¯ Asia Capita] Partners (Hong Kong) has a potential flnanclal ~nvestor foe DC~3 conversion program.

¯ Actlone= a. Price Waterh0use (Sue Lu) to coordinate vith Joe Hadison to conduct a preliminary assessment of Air Asla's assets and provide a proposal to UTC/PW to conduc~ a detailod assossmont and ostabllsh ~n appraised value. Follo~-up with Sue Lu and Joe Madison (Herb or Fred)¯ b. First TaJvan Ban~ing Group submitted a 1let of questions relatlng to Air Asia procurement¯ Prepare answers (Fred).
c. Asln Capital Partners needs cZari£1catlon of UPA/DTC/ ~nnovalr relationship and a business proposal defining a proposed ~oint Venture and Capltal requirements. Prepare same (Herb or Fred)¯ 2.
¯

DISTRIDUTOR AGREEMENT
PW nnd Innovair reached agreement on issues 6/25¯

¯ Actions=

a. Incorporate nogotlatod changes for final review and signature (Ray Stone}.
b. Prepare and submi~ let~er to Innovalr (wlth.deposlt} ~o initiate order for Eiret kit. Retention oE deposit and subsequen~ progress payments, contingent upon: ;~) Confirmation of Innovair's capability to deliver kits, provide

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Page 2.

necessary dooumen~ntlon and provide necessary technical and logistic support and 2) receipt by UPA of n' £irm customer contract for aircraft conversion. (Fred) c. Review and modify Air A~la =cntrac~ and CAF proposal "to incorporate necessary pass-dove requirements from the Distributor Agreement. (Herb) 3. TURBO-67 MARKETING o A new brochure end vlo~graph, presenta~ion promoting ~rbo-67 ate available. ¯ A Turbo-67 presentation and N95DF flight demonstration were made ~n Taiwan ~o interested parties nnd ROC military on 5/22.

¯ A Budget and Planning proposal was made to the CommaDder in ChleE of the Chinese Air Force ~CAF) on 6/13.
Current prospects include~ Talvan CAF, Indonesia~ ~angkoK Airways, Phillipplne~, PROC, and m~lltary/ surveillano~ alrcrn£~ for several Pac~flc Rim c~ntrle~. ¯ Offer has been made ~o Dust~ M~11~r (retired PW Cnnada. Marketing Director) to replace Del Dnderwood for Turbo-67 marketing. . A ~tudy and graphics are available" shoeing ~he outstanding cargo revenue pot~ntlal using the Turbo-67o A Turbo-67 brochure supplement is bale9 prepared high1~hting mllltary/survelllance features.
¯

a. Follu~-up on Dusty Mlllcr and Jim Ec~es contracts. (Fred) b. Work vi~h J~m Eckes to intensify efforts ~o sell or lease N95BF to Bangkok Airways an~ ob~aln an Inlt~al De-3 aircraft convsr,lono (Herb). c. Develop an~ Implement n customer contact plan Includlng further demosstrations of N95BF alrcraft..(Herb, Dusty, Jim EckeS)o
d. Follow-up on CAF proposal (llorb)

Update Turbo-67 cargo revenue analysl~ based on Eckes and BTC review. (Herb)
f. Coordinate proparatlon o£ Turbo-57 milltery/ surveillance brochure supplomen~ (including Incorporation of Recon/Optlcsl data) wlth C3 Documentntlon, Innovalr and BTC. (Herb, Dusty)

Coordinate the r~print of Fllgh~ lnternationnl Artlcle

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Page 3.

!

with Innovair and BTC (Herb).

h. Work with ~ryan Carmlchael to pursue potential African conversion and Dowty.(~nd~a} dis~rlbuSorship. .(Herb and Dusty) AIRCRAFT CONV~RSIONS

Actions; a. Obtain Air Asia contract agreement (Herb).
b. Identify conversion tools and equipment we want A~r to make and ob~aln cost estimate prior to go-ahead (Kiko}o c. Assist A~r Asia in obtaining DC~3 convar~on~ on" their FAA Certificate (K~ko) d. 0btn~n ~ecessary documentation from BTC/~nnovalr and es~abllah production process documentation and local procedures at Air Asia e. Coordinate the mod~f~catlon of work space/hangers
A~r Asia (K~ko)

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ir r ovaiP, ii4c.
July 2, 1991

Managing Director Temsa Konsult Arj~ntin Caddesi Na 8/4 06700 I~avaklidere-Ankara Turkey Dear Doctor: Thank you for your letter dated June i0, 1991 informing me of the opening of your office in Ankara. I have had several discussions with Rex Pingle regarding the Turbo-67 project in Turkey and have forwarded him a copy of Innovair's standard Sales Agency Agreement, which can be used as a basis for establishing the

As a starting point I shall briefly summarize in this letter the status of the Turbo-67 project in Turkey.
The Turkish Air Force currently operates twenty-six C-47 aircraft, and have an additional thirteen which are being cannibalized for spares to keep the twenty-six flying.

A program has been approved to manufacture Casa 235 aircraft in Turkey to provide the long term light/medium transport needs of the Air For~e. This is a major project estimated to cost over $400 million, and it will probably take 2 or 3 years before C~sa 235 aircraft are available from this program.
The Turbo-67 conversion can be installed on a C-47 in six months, and the conversion of say 12 to 18 aircraft could be completed in about eighteen months. Accordingly, we plan to position the Turbo-67 project as an interim solution to Turkey's light/medium transport needs until the Casa 235's are available. There will be a resale market for the converted Turbo-67 's if and when they are no longer required by the Turkish Air Force and this represents a potential generation of foreign exchange.

president: b,r. carmichael (b.comm), vice president, b.w, wilson (m.a..m.b.a.)

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~he financial proposal we have been considering involves a finance group purchasing the kits from Innovair. The finance group would also purchase the piston engined c-47's from the Turkish Air Force (TAF). (The C-47's technically belong to the US Air Force under Lend-lease, however the Milgroup at the US Embassy in Turkey indicated that there would not be a problem in tr-~nsferring ownership to the TAF). The finance group would arz-ange for the conversion kits t~ be installed on' the C-47 airfr-~mes, probably at the Fayseri Air Force base. The financial group would ~e to lease the converted C-47's to the T~rkish Air Force. Rex Pingle has indicated that he feels confident that a finance package could be put'together for this project. The following contacts have been made in Turkey on d~s project:

Muz~d arranged f~r us to make a presentation to the Ministry of Defense in 1989. qhe FAA certification program was not c~mpleted at that time, and this contract did not lead to further discussions with the M.O.D.
The only other substantive contact was the demonstration of the Turbo-67 to the Turkish Air Force and officials from the Undersecretariat for Defense Industries, which you kindly arranged for us at the Ankara airport recently. Innovair has a world-wide ~ement .with United Technologies (parent company" of Sikorsky) whereby they are entitled to participate in all Turbo67 projects in order..to gain the benefits of any trade offset credits which can be negotiated. Hence, w~ anticipate united Technologies (UTC) working with us frmm the outset of the program in Turkey.

We plan to have a ~eeting with UTC before alid-July to establish their level of interest, and form of participation in, the Turkish project.
Tentatively I am hoping to visit Turkey before the end of July at which time we can finalize our arrangements and establish a plan of action. In the meantime, I would appreciate any thoughts or questions you may have about the project. Specifically I would be interested in your initial thoughts on the feasibility of our being successful with this project.

I am looking forward to working with you and Rex and developing a rewarding relationship between our ~cmpanies. Very truly yours,

Bryan R. Carmichael President

O01G1G

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" " " UNITED ~" ": " ~ TECHNOLOGIES PRATT&WHrTNEY

Mr. 3ryanR. Carnlchael znnovair Aviation. IAmi~ed 9405 Hayvsnhurst Place Van Nuye,-CA 91406

relatl~ ~o y~ ~ly s~ply of ~s aZo~ WI~ ~a o~ ~o~i~o~, United ~s ~ri~s conchs ~t ~t ~at~tals a~

$SO,O00 toward purchase of one (1) DC-3 conversion Ki~ (Ki~) l~ss directly. T~e Kit will contain all ~omponsntm (sxcmp~ engines) necessary to onvsr~ DO-3 alrc~aft pursuant to ~TC Supplemental Type Attachment A ~o ~him letter.

Innovair and ErC providing ads~a~e assurances ~t a Kit and to

performed

aircraft.

p~Tvide produ~ suppor~ ~orthe conve~ed

Successful cc:~letion o: negotiations between ~nLtsd end cu~sr for a convsr~sd aircraft. ./ F~nal a~e~en~ on ~e details of ~ prlcfn~ for ~e Final approval of senior United ~anage=ent. C001776

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¯ .Page "~,ro

al~af~ ~ a ~ely ~8r u~ p~ide p~du~' su~.
~. ~e f~ ~it£on, ~e:e~ore, is ~ pac~g one ~ ~ ~£on, a~ 1~ 18 essential ~ ~ p~mss ~a~ United

look forvard ~o hearing fr~: you, We ar~ ar~ious to pr:csmd on deposit, ~luding ~m ~e~J ~der vht~ it will ~ rofu~ed, pZoaae Bt~ and re~ one orig~l of ~ts lot~er. Sincerely,

Donald H. Lang VIes PresiderS, Group D~vmlopnan~ and PlannJ,.ng

A~oap~ancs:

B~y~ R. Can~chaal Prestdmn~ Innoveir A~ia~i~n Lini~ad

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