AvCraft’s ‘sweetheart’ deal draws fire from councilman

 - February 5, 2007, 5:51 AM

While those with an interest awaited word from Leesburg, Va.-based AvCraft about when it would get its German assembly line rolling, another curious development involving local officials and businessmen in South Carolina raised questions about the status of the company’s Myrtle Beach maintenance base.

Councilman Marion Foxworth of Horry County, S.C., is waging a campaign to block financial incentives that attracted AvCraft to Myrtle Beach International Airport. A staunch opponent of a plan by airport director Bob Kemp to add a second runway and a new 32-gate terminal at Myrtle Beach, Foxworth called AvCraft’s $750,000 incentive package and its rolling 30-day “space-use agreement” for $1.60 per square foot a “sweetheart deal” executed with “smoke and mirrors.”

“The reimbursement agreement was signed by the airport director and never approved by the council,” Foxworth claimed. “The lease was never signed at all; there’s a space-use agreement that was signed again by the airport director and not witnessed by anybody and signed by AvCraft by somebody with a ‘J’. We don’t even know what the name is.”

Last month Horry County Council chairman Liz Gilland began looking into whether or not the department of airports and Partners Economic Development Corporation–the non-profit development authority that facilitated the deal–should have sent the contract to the council for a vote. The question arose as the Myrtle Beach Air Force Base Redevelopment Authority prepared to cut AvCraft’s first check for $187,000, even though it hadn’t yet signed a long-term lease or met a county requirement to build its employment rolls to 80 by January 15. Now the county has agreed to change the terms of its contract to give the company until June 15 to meet its employment obligations, while Kemp prepares to submit a long-term lease agreement to the council.

Foxworth said he “can almost bet on five or six” council members out of 12 to join him in voting against a modified lease that reflects the new deadline, in which case AvCraft would have 15 days to vacate the facilities.

“When just about all the airlines in North America dropped the Dornier [328], most of them ended up here,” said Foxworth. “The company has admitted to 45 or 46. We’re getting ready to hit them with a bill for the property taxes on those airplanes.”

Last month a county auditor visited the site to assess the value of AvCraft’s inventory and asked the company for a full accounting of the airplanes on its premises. The tax bill would come to 4 percent of the value of all those airplanes.

Despite Foxworth’s protestations, Gilland has expressed satisfaction with the company’s performance, and said she sees no reason not to extend AvCraft’s employment deadline. “They have paid their bills [and] they have renovated the building they are leasing, which belongs to the county airport, so that’s a plus for us,” said Gilland. “At this point I’m not sure the county officially has any complaints with AvCraft.”

Foxworth disagreed. “[AvCraft CEO Ben Bartel] is claiming that he’s spent more than a million dollars improving the hangars when he doesn’t have a lease,” said Foxworth. “Now what business is going to do that?”

A Shrinking Market
Meanwhile, the accelerating trend toward larger regional aircraft presents a problem for AvCraft, as a number of airlines, including PSA and Independence Air, removed their Fairchild Dornier equipment in favor of 50- and 70-seat Bombardier CRJs. Along with the 33 Independence Air 328Jets, the estimated inventory of 328 turboprops in storage last month exceeded 50.

In the U.S., only Midwest Airlines’ Skyway unit uses Fairchild Dornier airplanes, flying ten 328Jets from Milwaukee. Last April Midwest Airlines entered negotiations with Delta to fly some of the grounded 328Jets as Delta Connection, in which case it would assume their leases from Independence Air. Almost a year later those plans have yet to materialize. However, a Midwest Airlines spokeswoman said that negotiations with Delta have become “more active” recently.

Early last year Bartel announced his company would complete and deliver five partially assembled Dornier 328Jets by the fourth quarter and build 18 new 328s this year. But as the new year approached it became clear that those plans wouldn’t come to fruition when no word came from Oberpfaffenhofen about the start of production. In January plant manager Wolfgang Walter told the German press that first deliveries would occur sometime in the first quarter, and that the company lowered its production rate target to 12 airplanes.

AvCraft had taken possession of a number of white-tail 328s from Fairchild Dornier’s insolvency manager in 2003, all of which Bartel claimed to have sold. The manufacturer’s current order backlog for new aircraft includes fifteen 32-passenger jets for Hainan Airlines of China, seven Envoy 3s for the British executive charter company Club 328, and one for distributor Aerodienst Nurnberg, Germany.

Club 328 announced an order for eight Envoy 3s last year and took delivery of the first one, a former demonstrator, in September. However, AvCraft needs to modify the Envoy 3 spoiler system for steep approaches up to 5.5 degrees, a capability essential for Club 328’s planned operations into London City Airport.

Hainan, the largest 328 operator, flies 27 of the airplanes. The regional airlines Sun Air of Denmark and Cirrus of Germany reportedly rank as promising prospects. Cirrus has taken delivery of two second-hand 328Jets, which replaced propeller aircraft on its Bern-Berlin and Bern-Vienna links assumed from Austria’s InterSky. AvCraft delivered a used 328 turboprop to Australia for sea-air rescue operations, and hopes to win follow-on orders.

AvCraft officials did not respond to numerous phone calls by AIN to their headquarters in Leesburg or factory in Oberpfaffenhofen.

Additional reporting by Thomas Stocker.�