Fairchild Dornier, Germany's second-largest aircraft maker, is on the verge of insolvency.

The privately owned German-American company has so far been unsuccessful in finding a strategic investor and could seek protection from creditors as early as Tuesday, people close to the company told Handelsblatt.

Negotiations with U.S. aircraft manufacturer Boeing Corp. were broken off before the Easter weekend, these people said.

Boeing is widely considered to be Fairchild Dornier's partner of choice. But industry observers said that Boeing could still make an investment after Fairchild Dornier filed for insolvency, thus avoiding having to take on the company's large debts.

Fairchild Dornier declined to comment over the Easter weekend.

Situation "critical"

The people close to the company told Handelsblatt that after paying the salaries of its 4,000 employees in March, Fairchild Dornier was not in a position to pay April salaries unless it secured fresh funding. Supervisory board chairman Chuck Pieper said recently that the company's situation was "critical".

It has been losing $50 million a month following the slump in the global aviation industry and higher-than-expected development costs for its 728 regional jet.

The new 70-seater aircraft is seen by experts to have excellent marketing opportunities. The first aircraft is due for delivery to Lufthansa CityLine in summer 2003. Fairchild Dornier owes $350 million in bank guarantees from the federal government and Bavaria's state government and a further $740 million in bank loans.

The banks extended a $870 million financing package at the end of last year, and now industry observers consider it unlikely that they will bail out the ailing company on a second occasion.

"The Bavarian banks have enough on their plate with Kirch Group. They'll be too scared to open the lid on what could prove to be another bottomless barrel,"; said a Munich banking industry insider.