One Aviation Braces as Wisconsin Prepares Kestrel Suit

 - April 12, 2018, 4:21 PM
Wisconsin will likely file legal action in the coming days against One Aviation, seeking repayment of an estimated $3.6 million in combined delinquent state, county, and local loan payments made to the company since 2012, when it agreed to develop and build the K-350 single-engine turboprop in Superior. (Photo: One Aviation)

The state of Wisconsin could be just days away from launching legal action against One Aviation unit Kestrel Aircraft to recover an estimated $3.6 million in combined delinquent state, county, and local loan payments made to the company since 2012, when it agreed to develop and build the K-350 single-engine turboprop in Superior, Wisconsin. Wisconsin Economic Development Corporation (WEDC) spokesman Mark Maley told AIN this week that the state, county, and city finalized a “joint litigation agreement” last week to pursue Kestrel, and that legal action is imminent.

The Wisconsin package for Kestrel included a $2 million loan from WEDC in 2012 and another $2 million federally funded state small business credit incentive loan; Kestrel has repaid approximately $865,500 on the former. The company also owes the city of Superior $2.2 million and Douglas County $500,000.

The bigger part of the deal was tens of millions of dollars in state-backed tax credits that Kestrel planned to use to leverage private financing, provided on a sliding scale tied to the number of jobs the company created. Had the Kestrel K-350 actually entered production and the estimated workforce of more than 600 been hired, those could have amounted to close to $20 million in state job-creation tax credits. But Kestrel's payroll never reached one-tenth of that and the actual employment tax credits paid topped out at just over $700,000. Another part of the deal, for up to $90 million in federal tax credits facilitated by the Wisconsin Housing and Economic Development Authority (WHEDA), collapsed, with Kestrel only receiving about $9 million of those credits.

Kestrel Aviation was formed by former Cirrus chairman and co-founder Alan Klapmeier in 2010 and originally intended to build in Brunswick Landing, Maine, but later opted for Superior when state and local officials presented the company with a more lucrative incentive package. However, the company retained its rented facilities in Brunswick until it was evicted by the Midcoast Regional Redevelopment Authority in late 2017 for non-payment of rent.

In 2015 Kestrel merged with light jet maker Eclipse Aerospace to form One Aviation and Klapmeier became CEO of the combined company. In 2016 One announced that it was devoting its resources to developing an improved version of the Eclipse with more speed, range, and cabin space, the EA700, while ceasing production of the Eclipse 550 and suspending the K-350 project. Klapmeier said the K-350 project had been put on the back burner due to changing market conditions and company priorities, but he also blamed Wisconsin officials for not delivering on what he said was the full package of promised economic incentives. Wisconsin officials have denied those claims, saying that they merely agreed to assist Kestrel in pursuing those incentives.

 WEDC spokesman Maley concedes that the state will be “lucky to get any money back.” Last year the company conducted several rounds of layoffs at both its company-owned service centers in Chicago and Albuquerque, New Mexico and at its Albuquerque factory. JetNet IQ founder Rolland Vincent told AIN that resale value of Eclipse 500-series aircraft was already negatively impacted by a lack of new production aircraft and that any negative financial news would encourage the market to “run away from the aircraft. It's already being priced into the market.”

Moving Forward

As One Aviation faces legal action tied to Kestrel, the company has drastically scaled back operations at its Albuquerque headquarters while exploring its options going forward.

"Obviously the company has had, and continues to have, ups and downs with its financial situation," Klapmeier told AIN. "We are in discussions with various stakeholders over a wide range of opinions for financial restructuring."

Possibilities include new investors in One Aviation from domestic and international interests, or selling the company outright. "We've seen very good progress with a number of investors, although we've not yet completed a transaction," Klapmeier added.

Meanwhile, the company works to accomplish as much as possible with limited resources. Last December, One Aviation relocated from the former Eclipse Aviation headquarters at the northeast corner of the Albuquerque International Sunport's general aviation area to smaller offices at its primary assembly facility across the field.

Following two rounds of layoffs in 2017 and halting Eclipse 550 production, the remaining workforce of approximately 85 employees has focused on preserving a revenue stream through maintenance, upgrades, and training to support the existing Eclipse fleet of approximately 290 aircraft, while also working to bring the larger Eclipse 700 to fruition.

"Throughout this process, work has continued on new product development, including the path to the EA700 and other upgrades to current aircraft," Klapmeier added.

In March, the company made headlines in Albuquerque media with the announcement of a public auction of Eclipse S/N 272 that was seized by the Bernalillo County Sheriff's Office in relation to a civil judgment against Eclipse Aerospace before the One Aviation merger. Klapmeier couldn't comment on the scheduled April 27 auction except to note, "there are several legal and contractual issues involved."