Steiner's Fairchild Struggles On Without Him
Monday, February 9, 2009
When Jeffrey Steiner died in November, he left behind a complicated legacy. He was a former junk bond investor who became a high-flying -- literally, back and forth to Europe -- takeover artist.
Controversy trailed him everywhere, particularly with shareholders criticizing Steiner's McLean company, Fairchild Corp., for his extravagant pay packages. An entire chapter of the book "In Search of Excess: The Overcompensation of American Executives" was devoted to him.
But Steiner, who growing up escaped the Nazis in Austria, was also a prominent philanthropist, particularly to Jewish causes, and he had a medical center named after him. The French government honored him for his contributions to the arts, naming him a Chevalier des Arts et des Lettres. He showed up at the fanciest parties on both sides of the Atlantic. Andy Warhol painted pictures of his children. Super investor Jim Cramer once called Steiner a larger-than-life character, and that character was always tied closely to Fairchild.
After his death of cancer at age 71, there are questions about whether his company can survive. Fairchild, which sells aircraft parts and motorcycle apparel, has told investors that it faces "a very severe liquidity issue." It has missed two quarterly pension payments of nearly $1 million each, saying "we do not have sufficient liquidity to fund our pension plan obligations and satisfy ongoing operational costs."
The firm has been delisted from the New York Stock Exchange. A number of executives have recently left Fairchild's senior management team, including Steiner's son, Eric, who went to work on other investments. Eric's pay also had been criticized, and he sometimes stayed at a Paris apartment used by his father and paid for by the company.
The firm is now run by interim chief executive Phillip Sassower, a social acquaintance of Jeffrey Steiner who runs a New York private-equity firm that is Fairchild's largest shareholder. Sassower and Steiner had previously tried to take the company private, but the deal fell through. In an interview, Sassower said, "Now we are trying to make sense out of the chaos and quagmire we have been left."
Michael McDonald, Fairchild's chief financial officer, refused to comment on Fairchild's troubles. Eric Steiner did not return several phone messages left at his home and office.
Asked to detail Fairchild's most pressing problems, Sassower said "there are really too many problems to go into." However, he said a significant issue was that the firm's "overhead was excessive in relationship to revenue and profits." Fairchild is late on filing its annual report to the Securities and Exchange Commission, but its most recent financial report, for the quarter ending June 30, showed the company recorded $127 million in revenue and $121 million in costs. Fairchild also has $146.3 million in debt and only $9.9 million in cash.
Steiner took control of Fairchild, via a diverse conglomerate called Banner Industries, in 1989 for $400 million. But Sassower said the company's current overhead was more in line with when the firm was much larger, particularly before selling its fastener business to Alcoa for $657 million in 2002. "The overhead expenses were disproportionate to the business being conducted," he said. "It was unsustainable." To that end, the firm has embarked on a major cost-cutting effort, which has focused particularly on people. The company's employee head count was 47 last fall, before Steiner died. Today it is 14.
Less than a month after resigning as chief executive, Steiner died in Geneva, surrounded by his family, and he was buried in Israel, according to a paid death notice in the New York Times. In the notice, he was warmly remembered by family and friends. The rabbi from his synagogue wrote: "We treasure his very generous spirit. He enriched our congregation." And he was remembered by a long list of the board of trustees, including Bernard Madoff, from Yeshiva University, where Steiner established the Jeffrey J. Steiner Center for Opthalmological Research at the university's medical school.
In recent years, under pressure from investors, Steiner agreed to pay cuts. But he defended his compensation to The Washington Post a decade ago, saying: "When I compare my own income with some of the advisers at investment banks who are far more junior and far less knowledgeable about finance than me, I don't feel so bad."
Figuring out who is to blame for the company's problems is not easy.
"I find that a difficult question to answer," Sassower said. "I feel that the company finds itself in a very difficult situation, and the difficult situation we found occurred during the Steiner administration. But I wasn't there to determine whether it was bad decisions or if it was just a function of the economic maladies that are adversely affecting people in general everywhere." Asked specifically about Jeffrey Steiner's role, particularly his controversial pay packages, Sassower said: "I knew him for many years. I think that during his lifetime he did a lot of things, some of which were good and some of which were not good."
Now Fairchild is facing a cash crunch amid a recession that is not particularly good news for either of the company's main business lines -- aircraft parts and retail. The aircraft parts business seems to be holding up because of its focus on after-market products. Sassower said the retail component -- including the subsidiaries Hein Gericke and PoloExpress, which have extensive operations overseas -- have been hurt like other retailers.
Late last year, to raise money, Fairchild sold a 51 percent stake in the apparel company PoloExpress to its longtime managing director for $7 million, plus repayment of debt.
Still, much work remains. And the company is losing intellectual capital, too. At the end of December, Fairchild announced that Warren Persavich, its aerospace group president, had resigned for "personal reasons" and that Rich Nyren, the firm's controller, had taken a job with another company. Fairchild said "no replacements are expected to be made."
Asked whether the company would be sold in sum or in parts, Sassower said, "this is a public company, and if there are any material announcements to be made, they will be made."
Will Fairchild survive? "What if I asked you if Citibank was going to survive?" Sassower said. "The answer is: It's not important what I think. It's a question that will be. Every day is a challenge. We're doing everything possible to preserve the business."