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

Case 1:96-cv-00408-LAS

Document 158-5

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TELEFAX MESSAGE

l~ax : {) L~ ~ IZ

ATTN :

PIP..

B.

CARMICHAEL

OUR REF i UE/SB-IO30

REF

; C-47

I'VE HAD SERIES OF DISCUSSIONS THIS WEEK WITH HIGH~AF COMMAND, THE FOLLOWING ARE. THE RESULTS. THE SPANIARD~ CASA, DID NOT ACCEPT THE C-d7 SOLUTION THAT THE AF HAS PROPOSED TO THEM. AT THE S~ME TIME THE AF DUE TO THE DEFENSE BUDGET CUT~ IN'TURKEY AS WELL, HAVE HADE A FINAL DECISION TO PUT THIB PRO3ECT ON A WAITINO LIST.
UNDER THESE ~ONDITZONS I WOULD LIKE TO PUT A HOLD AND CEASE OUR AGREEMENTS ~7NCE IT WOULD NOT BE FARE FOR BOTH PARTIES TO CONTINUE~ AFTER A DECISION LIKE THIS. UNFORTUNATELY, THE 31TUATZ0N WITH THE EAST BLOCK ZNCIDENTS~ PERESTRO~KA AND GENERAL DEFENSE BUDGET CUTS HAS FORCED THE USER INTO A DECISION LIKE THIS,

1F THERE IS ANYWAY AT ANY TIME THAT I CAN ASSIST YOU, PLEASE DON'T HESITATE TO ~ALL UPON US,

M, MURAD DURAL PRESIDENT

C001348

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Case 1:96-cv-00408-LAS

Document 158-5

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~ EM OR A N DUM

Wm. Timothy Sprague John Berry

FROM DATE

Thomas A..Fraker September i0, 1990

BASLER TURBO CONVERSION INC. INNOVAIR AVIATION LTD.

HISTORY OFT HIS DEAL:
Two years ago, Harry Eastlick bought a shell called United States Aircraft Corporation. One part of the shell was a small business that dealt with the conversion of DC-3's. Shortly after this, Harry was approached by Warren Basler and partners to license to them the conversion of'DC-3's. I'm not sure to what extent United States Aircraft Corporation had developed expertise in this area, but they must have had some to attract Basler. Through Basler's efforts, a knowledge of aircraft and the business backing of Brian carmichael and Barry Wilson, they were able to receive on February 27, 1990, a supplimental type of certificate covering the conversion (Turbo 67 was issued by the FAA.) A parts manufacturing authorization was also issued by the FAA in March, authorizing the sale of Turbo 67 conversion kits.

Basler Turbo Conversion is currently completing-twelve conversion kits that are being installed in a 75,000 sq. ft. facility in Wisconsin. Two kits are also being installed in a facility in Van Nuys. Harry stated to me ~hat the license, agreement expired in April of this year, and he is not sur~what he is going to do legally relative to that situation. His proposal to the various principles has been to roll their company into his company, give them llguidlty~"cash to fund the rest of their .~peratlon and be able to take some dollars out of their company. Harry would llke our help in completing this transaction.

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Basler/Innovair

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NATURE OF BUSINESS:
Basler Turbo Conversion Inc. and Innovair Aviation Ltd. were incorporated in the first half of 1988 for the express business objective of modernizing and converting the Douglas DC-3/C47 aircraft "to turbo power. The Turbo 67 conversion modernizes the cockpit and replaces virtually all major systems on the aircraft. The airframe, with appropriate maintenance, has no life limitations. Hence, the converted aircraft can be positioned against new aircraft with comparable performance. The sales will' be made in two manners: i) They will actually convert the aircraft in the U.S. and deliver it to the ~ustomer; 2) They will sell kits to customers who have DC-3/C47's, .and the conversion will be done where the plane is located. NATUR~ OF T~E PRODUCT: When the DC-3 was conceived, structure analysis was in it's infancy, and the airframe was designed at a greater level of structural strength than would be the case today. The DC-3 is not pressurized, hence it is not subject to pressure fatigue/cycle factors applicable to pressurized airframes. The DC-3 is unique, because there has been no replacement aircraft with the same operating capabilities: Low cost of purchase Payload and cubic volume Ease and low cost of airframe maintenance Rough field capabilities Excellent flight characteristics One of the problems with the DC-3 is the engine is a piston engine, which is no longer available or efficient. This company will convert to a turbo power, which provides many attractive benefits. The engine used will be the Pratt & Whitney PT6-67R.

The flnised product will ha~a many advantages, as stated above, over similar a!rcraft. One in particular is the ~one-thlrd cost comparison to similar aircraft.

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Basler/Innovair

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From the supply side, availability of DC-3/C47 aircraft is approximately 1,200 to 1,500, operating in many countries, both in civilian and militarY applications.

The demand side is both domestic and international. The following are markets that they are going after: I) Civilian: - general car~o - small freight feeder routes - commuter - fire control - surveillance of oll spills - mapping M~litary: 2) - general cargo - passenger - surveillance - drug enforcement - intelligence
From the enclosed marketing plan, letters of interest, initial sales and various sources I have checked, I believe they are well positioned to market their conversion plan to many different markets. COP~PORATE STRUCTURE: There are three entities involved under the corporate structure. Basler Flight Service, which is located in Oshcosh, Wisconsin, will be the kit installation entity for the U.S. and foreign markets. It will also be in charge of U.S. sales. General marketing and distribution for international operations will be done by Innovair Aviation Ltd., located in Hong Kong. The kit manufacturing and product support activities will be handled by Basler Turbo Conversion. There w£11 be only one facility that will conve~-t these engines in the U.S., located in Oshcosh.

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Basler/Innovair

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COMPETITION:

There appears to be only one serious competitor, Aero Modifications International (AMI), which received it's STC in 1987. Only five conversions have been made by them. We need to find out'more about the competition,, but according to Basler's business plan, AMI is not viewed as a threat for the following reasons: l) The engine that Basler uses provides- a'better performance; 2) " AMI does -not reenforce wings and center section, ¯resulting in inefficient weight capacity: The maximum gross weight of the. AMI conversion is 3) more than Basler'st 4) Basler exhaust eliminates heat-seeklng missilest AMI does' not have the in-house technical support 5} capabilities required;
Harry Eastllck is still working on the structure, but he anticipates that they will need approximately $8 million, to be used in the following way: $2 million will be paid to the three principles currently involved and the remaining $6 million in working capital. This is in addition to their present llne of credit. He needs our input in order to put all of this together.

PROFIT POTENTIAL: Their forecast is for total sales in 1990 of $20 million, with net income after interest of'$3,745,000. The sales project out to 1994, to a level in that year of roughly $92 million, net income after interest of $25 million.
Comments: The projections were prepared ~y the Deloltte Haskins, but obviously were prepared based on numbers given them by the principles of the respective companies. We would have to go into detail as to the va~idlty of these projections. I believe that we should sit down with Harry and investigate his ability . to have the letter of intent signed. We should also. see if there isn't a retainer in this from Harry's company, although it would not.Be large in amount.

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