Another grand old American company has filed for bankruptcy protection recently. This time, it’s storied gun maker Colt Defense.
Colt’s history is a long one, but it seems in the last 20 years, things began to "fall off the rails" for the company.
Colt won the contract to replace older M16-derived service rifles with the newer M4 design, which saw acceptance by the Pentagon in 1994. But in 2009, the U.S. Army took over the rights to the design and opened up the contract to competitive bidding.
Fast forward to 2012. The U.S. Army announced a buy of more than 120,000 M4 A1 carbines to start re-equipping frontline units, replacing the original M4. The first 24,000 were to be made by the Remington Arms Company and after this run, there was to be a battle between Colt and Remington for the remaining production run.
Surprisingly, Colt sued the Army in an attempt to force them not to use Remington, and so the Army reworked the original contract to get around the legal issues. However, in November 2012, Colt’s protest was dismissed.
Not surprisingly, Colt didn't win. But neither did Remington. The Army awarded the contract for 120,000 M4 A1’s, worth $77 million, to FN Herstal. The contract is expected to be completed in 2018.
In November 2014, Colt took out a $70 million loan from Morgan Stanley to help with interest payments. In May 2015, it missed a $10 million interest payment and in the filing, the company said it carried $500 million dollars in liabilities.
That's bad, but with $500 million dollars in assets, day-to-day operations at Colt will continue. Collective bargaining agreements are still in place, facilities have been leased long-term and so it seems a future for the company has been planned. But how can Colt bounce back?
Sales for 2014 sporting firearms had dropped by 30 percent. This reflects Colt’s strategy of primarily going after military contracts.
What does any of this mean for civilian gun sales? Business is booming in the U.S. Personal, concealed firearms are an issue throughout the country and it’s only growing as President Obama advocates for stricter gun control laws.
Despite this tremendous growth opportunity for gun makers, the market is choosing lower-cost, higher-technology products from manufacturers like Glock, Ruger and Smith & Wesson. I think the lesson here is, as a manufacturer, Colt has to play by the same rules as everyone else by making leading edge, low-cost products with a high-tech mass production system.
Colt’s customers, civilian and military, have spoken with their wallets and I feel in a world where products are strong, reliable and available from a wide range of manufacturers, you have to come to market with something unique at an affordable price point. There’s no question Colt will come out of bankruptcy protection, but when it comes back it better have the competition in mind.
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