In­dus­try an­a­lysts see sev­eral rea­sons for Colt De­fense’s slide to bank­ruptcy

The China Post - - WORLD BUSINESS - BY STEPHEN SINGER

The bank­ruptcy be­ing sought by Colt De­fense was fu­eled by mis­steps with gun own­ers, a mis­read­ing of the po­lice firearms mar­ket and a fall in gun sales to the public af­ter an ini­tial spike sev­eral years ago, an­a­lysts and in­dus­try observers say.

But a ma­jor blow to the 179-year-old gun maker was the plum­met­ing rev­enue from gov­ern­ment con­tracts, which Moody’s In­vestor Ser­vice said has dropped to less than 10 per­cent of sales from 60 per­cent in 2009. Colt lost a U.S. mil­i­tary con­tract for the M4 car­bine in 2013 to Rem­ing­ton, though the con­tract ul­ti­mately went to F.N. Her­stal of Bel­gium fol­low­ing a dis­pute be­tween Colt and Rem­ing­ton.

“The loss of the U.S. gov­ern­ment con­tract made it far worse,” said Alan Rice, a mem­ber of the board of the New Hamp­shire Firearms Coali­tion.

The gun man­u­fac­turer, which is based in West Hart­ford, filed for chap­ter 11 bank­ruptcy on Sun­day. It es­ti­mates it owes up to US$500 mil­lion to dozens of cred­i­tors.

Colt De­fense is “uniquely de­pen­dent on re­la­tion­ships with for­eign and do­mes­tic mil­i­tary cus­tomers,” Keith A. Maib, Colt’s chief restruc­tur­ing of­fi­cer said in bank­ruptcy court pa­pers. Sa­muel Colt, who patented the first com­mer­cial suc- cess­ful re­volv­ing cylin­der firearm in 1836, be­gan sup­ply­ing U.S. and in­ter­na­tional mil­i­tary cus­tomers with guns in 1847, less than a decade af­ter the com­pany’s start, he said.

Busi­ness trends that have un­der­mined Colt in­clude a de­cline in sport­ing ri­fle sales from a 2013 peak and declines in hand­gun de­mand and de­lays in an­tic­i­pated tim­ing of U.S. gov­ern­ment sales that in­clude for­eign mil­i­tary sales through the fed­eral gov­ern­ment.

“These trends are ex­pected to con­tinue to put pres­sure on our li- quid­ity for the fore­see­able fu­ture,” he said.

Richard Feld­man, head of the In­de­pen­dent Firearm Own­ers As­so­ci­a­tion, said Colt for­feited gun sales to po­lice forces at least 20 years ago, be­liev­ing profit mar­gins were too small. Adding to Colt’s prob­lems were the de­ci­sion to give up on 30 to 40 per­cent of po­lice firearms mar­ket share and Colt’s work on smart gun tech­nol­ogy in­tended to make guns safer or not ac­ces­si­ble to cer­tain users.

“Things col­lec­tively led to dis­as­ter,” he said.

AP

In this April 19, 2010 file photo, a visi­tor tries out an M4 car­bine ri­fle, man­u­fac­tured by Colt De­fense LLC in the United States, at the 12th De­fence Ser­vices Asia Ex­hi­bi­tion and Con­fer­ence in Kuala Lumpur, Malaysia.

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