Fairchild Dornier Discontinues The 428 jet Program Due To Changing Market




Fairchild Dornier Discontinues The 428 jet
Program Due To Changing Market

Oberpfaffenhofen, Germany, August 8, 2000,  After conducting a comprehensive assessment of the 428JET program, Fairchild Dornier has determined that, due to changing market conditions, a viable business case cannot be made for continuing the program, according to Chairman and CEO, Chuck Pieper. 

"Immediately following the infusion of new equity, we launched a 100 days effort to ground all programs in reality. We evaluated all of our businesses with the aim of absolutely meeting our customers' schedule and service commitments, as well as our financial objectives," Pieper said. "It became clear that the 428JET program, while technically on track, was not viable commercially." Similar evaluations of the 328JET, 728JET and 928JET were favorable, and the company is fully committed to these programs, Pieper said. "We intend no lay-offs, and all available resources will be redirected to support our 328JET and turboprop customers and 728JET and 928JET development programs," he said. Fairchild Dornier has three 428JET customers -- ACA, Skyway and KLM Air Alps. "We have discussed our decision with these customers," Pieper said.


According to Pieper, several developments influenced the decision to terminate the program. "The market has changed in the last year. There is consolidation in the US airline industry, which is resulting in very large volume purchases by a small number of carriers. Furthermore, recent pilot scope clause developments now include 50-seat aircraft, indicating the 428JET has more overlap with these existing successful products. This not only puts us at a disadvantage in the market when scarce slot capacity favors 50 seaters but also puts additional pressure on pricing. The combination of these factors has resulted in a substantial lowering of the expected margins, even though the airplane itself attracted market interest," he said.

"We gave it our best shot," Pieper said. "Even at the beginning of the program, over a year ago, the team knew it stretched our resources. As a result, we depended on a higher than normal share of the non-recurring and recurring work to be done by suppliers. However, with the lower average selling prices there is not enough margin in the product sales to accommodate all the players. With this not being a risk or revenue sharing program, Fairchild Dornier assumed most of the development costs. Tougher competition means margin pressure, and a business has to have enough contributed value added to make a difference. We have that on the 328JET, 728JET and 928JET. We didn't on the 428JET. It was a good product that complemented our high-wing product line, but the structure in a more competitive market just didn't allow for a positive cash picture," he said. "The technical and program personnel assigned to the program have done an outstanding job, and this business decision does not in any way reflect on the excellent work done by the 428JET team. Their efforts can now be applied to our other programs," he said. Despite the discontinuation of 428JET program, Fairchild Dornier's total order book is approximately $11 billion, more than $5 billion of which is firm.

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