We sometimes think the entire edifice of new aircraft engine development is like a beachfront house built a little close to the surf. The view is great for awhile, then the tide rises and foundation crumbles. That analogy works for Thielert AG, whose stunning initial success with aerodiesel engines has devolved into insolvency and an investigation into potentially fraudulent financial reporting on the companys fiscal health. The owners of some 600 diesel-powered Diamond aircraft are less worried about the financial niceties than they are this overarching question: Is the engine itself technically and economically viable or is it just too maintenance hungry to survive in the market? And if so, is that what dragged Thielert into this mess? Based on our interviews with owners, sales people and Diamond officials, our conclusion is that this may be unknowable at the moment. As we go to press this month, Diamonds senior management is huddling in Europe with Thielerts new management and insolvency overseers to bring clarity to this situation. It may be weeks before we learn anything useful, if we ever do. Meanwhile, to its credit, Diamond is aggressively stepping up and has established a hotline for owners seeking support for Thielert aerodiesels and has placed significant parts orders with the insolvent company. We see that as good on two counts: It means that Diamond intends to support these engines even if it has to do so on its own and the parts orders will give Theilert needed cashflow.
What Happened?
Theilert is a public company, having completed its IPO in late 2005, so its financials should be relatively transparent. Unfortunately, the board of directors in late April declared that Thielerts financial statements for 2003, 2004 and 2005 are “probably incorrect and possibly void.” The data in these statements served as the basis for the IPO in 2005 and German authorities are looking into the potential of criminal fraud.
At issue, among other things, is the use of “ghost invoices” or imaginary orders to pump up the companys financials to obtain bank credit and sweeten the potential stock value. According to
Defense Industry Daily, which reported extensively on the story, Thielert carried on its books unpaid invoices for a number of companies, including General Atomics, which uses a variant of the Thielert Centurion engine in the U.S. Armys MQ-1C SkyWarrior UAV.Investigators found large discrepancies between invoices on file and actual cash received, according to DID. When the investigation rose to the level of a criminal complaint in early 2007, investigators obtained a search warrant for Frank Thielerts residence and the business itself.
We wondered if any of the companies dealing with Thielert were aware of these developments, especially the U.S. defense contractors. General Stephen Mundt, who heads the U.S. Armys aviation branch, said he was unaware that the CEO of a major supplier was under investigation until asked about it by a reporter, according to DID. Cessna told us it did know about the investigation before it announced the Cessna 172 TD last fall. Cessna has since delayed deliveries of the TD Skyhawk.
Meanwhile, owners of some 450 DA42 Twin Stars and another couple of hundred DA40 singles hold their collective breath to see what happens next. Diamond has clearly expressed its intent to support these engines and, in our view, has thus far done a satisfactory job of communicating with owners on the one hand, while staring at the opaque reality of Thielerts meltdown on the other. As press time, no one seemed to know enough detail about Thielerts inner workings to offer useful insight.
Late last fall, we polled owners on their experiences with the Thielert diesels and