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