Fairchild Industries Inc. said yesterday it had lost $82.3 million in the second quarter, the latest in a spate of bad news from the Chantilly, Va.-based aerospace and electronics company.
The company also said its lenders had agreed to temporarily waive certain provisions in its loan agreements, apparently so the company can avoid defaulting on the loans. A Fairchild spokesman said the company was not now in violation of the loan requirements, which cover various financial measures, but he said, "our concern was that we would not be in compliance." The spokesman, William Fulwider, said the company hoped to renegotiate the loans before the waivers end Sept. 15.
Other Fairchild officials could not be reached for comment.
To raise additional capital, Fairchild also said it would reclaim more than $45 million in assets from its employe pension plans. The money represents assets in the plans in excess of their liability for future benefits and will have no effect on benefits for participants in the plans. The action, which echoes similar moves made recently by several other large companies in need of cash, is subject to approval by the Pension Benefits Guarantee Corp., a federal agency.
Also yesterday, Moody's Investors Service said it has downgraded its rating on Fairchild's senior debt to Ba1 from Baa2, on subordinated debt to Ba3 from Ba1, and on commercial paper to "not-prime" from "prime 3."
Moody's said the actions "reflect problems with two new aircraft programs" and Moody's expectations that the company's operating performance "will remain well below its historical average."
Fairchild, the eighth-largest company in the Washington area, lost $11.1 million in the first quarter, sliced its dividend earlier this year and last week announced the sale of some of its best-performing businesses. Analysts believe the company will have to sell other divisions in coming months to avoid a cash crunch.
The company said the losses were due to higher than expected costs of two of its key projects, the Saab-Fairchild SF340 33-passenger turboprop airliner and the T46A jet trainer it is building for the Air Force.
The company said it had added $85 million to the $50 million it has already reserved for losses on the SF340 project because of higher costs, slow sales and "certain manufacturing performance improvements assumed in previous estimates that did not occur or do not appear likely to occur as projected."
And Fairchild said it is writing off another $21 million in losses -- on top of the $28 million it has recently took -- on the T46A program because of high start-up costs of building the trainer, the prototype of which is scheduled to make its first test flight next month. The company has been plagued by unexpected engineering development costs, high manufacturing costs and schedule delays on the plane, which it is building on a fixed-price contract for the Air Force, which eventually could take delivery on 650 of the planes.
Fairchild's loss for the quarter came on $196.8 million in sales, off slightly from $197.4 million in 1984's second quarter, when the company had a $7.3 million profit -- augmented, Fulwider said, by a particularly large payment to the company by the Air Force.
Analysts said the recent reshuffling of the company's assets clouds future earnings prospects by removing some of Fairchild's most attractive businesses. Last week, the company said it would sell its 50 percent interest in American Satellite and Space Communications Cos. (ASC) to its partner, Continental Telecom, for $105 million, and it has previously announced sales or planned sales of several other operations, including its VSI Hardware division and its VSI Fasteners and Fairchild Burns airline-seat divisions. The telecommunications division that included ASC and the fastener operation were among the units cited by Fairchild yesterday as having had particularly strong performances in the second quarter.
However, the analysts said, if Fairchild can control the short-term losses on the two plane programs -- particularly the T46A, which is expected to be the more profitable -- the company should be able to weather its current financial crisis