Let the Pension Fund Games Begin

Chapter 11 for The Fairchild Corp.

March 19 (Bloomberg) — The Fairchild Corp., once the largest U.S. maker of commercial aircraft, sought bankruptcy protection after missing two pension fund payments, which totaled about $2 million.

The McLean, Virginia-based seller of aircraft parts and motorcycle apparel listed assets of $89.4 million and debt of $228.1 million, according to a Chapter 11 petition filed yesterday in U.S. Bankruptcy Court in Wilmington, Delaware.

Fairchild sought protection from creditors after suffering “operating losses for more than 10 years,” Mark Collins, a Wilmington, Delaware-based lawyer for the company, said in a court filing yesterday. Donald Miller, Fairchild’s chief restructuring officer, didn’t immediately return a call for comment.

Fairchild failed to make a quarterly pension payment of less than $1 million on Jan. 15 because of “financial hardship,” the company said in a U.S. Securities and Exchange Commission filing. Fairchild also missed a quarterly pension- funding payment of about $1 million that was due Nov. 14.

The worldwide economic decline hurt sales of Fairchild’s products, which include aircraft parts and motorcycle helmets, Collins said in court filings. Fairchild officials also are dealing with “legacy liabilities” left over from former Chief Executive Officer Jeffrey Steiner’s tenure, he added.

Steiner’s Perks

Steiner, who died in November, had been criticized by investors for approving excessive salaries and loans for himself. Shareholders also questioned why the company picked up the tab for his aircraft fees and apartments in London and Paris.

The company wants a judge to allow it to auction off its Banner Aerospace unit as part of the bankruptcy case, according to a court filing. Phoenix Group, a private-equity firm, has made an undisclosed bid for the unit, Collins said in the filing. He noted that Phoenix bought a 31 percent stake in Fairchild in December 2007.

Fairchild officials said a Chapter 11 reorganization provides the “best platform from which to quickly realize” the value of the unit’s assets, according to the filing.

On March 12, the company agreed to sell its Hein Gericke Deutschland motorcycle clothing unit for $1.4 million to a group of four Hein Gericke managers, the company said in a regulatory filing.

Fairchild traces its history to the Fairchild Aerial Camera Corp., founded by Sherman Mills Fairchild in 1920, according to the company’s Web site. Sherman Fairchild was a pioneer in aerial mapping the five boroughs of New York City in 1924, the site said.

$170 Million Sought

In the 1920s, Fairchild developed the first commercially successful U.S. cabin monoplane. For the military, Fairchild developed the P-47 Thunderbolt, the C-119 cargo plane, the PT-19 trainer and the F-105 Thunderchief, according to the Web site, which says the company was once the nation’s largest maker of commercial aircraft.

Fairchild’s 40 largest unsecured creditors of the company contend they are owed about $170 million, according to court documents.

In 2005, Steiner agreed to pay $3.76 million to resolve shareholder lawsuits challenging his pay and benefits as excessive. A Delaware judge rejected his initial $1.5 million offer to settle the case.

Investors zeroed in on Steiner’s pay and benefits after Fairchild disclosed that it paid $5.6 million to cover the CEO’s legal fees in a French court case.

Suspended Sentence

Steiner received a suspended sentence and a 500,000-euro ($632,775) fine in 2003 for misusing funds of Elf Aquitaine SA, an oil company now owned by Total SA.

The charges stemmed from an eight-year French probe of illegal commissions Elf Aquitaine paid to businessmen and political leaders in exchange for contracts.

“All of the debtors’ businesses have been hampered by numerous legacy liabilities, including under-funded pension obligations, retiree benefits, environmental claims, tort and other litigation,” Collins said in yesterday’s court filing.

The case is In re The Fairchild Corp., 09-10899, U.S. Bankruptcy Court, District of Delaware (Wilmington).