Wisconsin taking legal action against Kestrel
The state of Wisconsin is taking legal action against an airplane manufacturer that received $4 million in state loans and millions more in tax incentives in 2012 to build a plant in Superior that was to employ 665 people.
Five years after the loans were made to Kestrel Aircraft, the manufacturing plant hasn't been built, there are no aircraft manufacturing jobs in Superior and Kestrel — now part of ONE Aviation, headed by Northland aviation mogul Alan Klapmeier — hasn't made a loan payment to the state in 11 months.
In a memo from the Wisconsin Economic Development Corp. requested by the News Tribune, state officials on Monday told the company they are "moving forward with legal action against the company" due to "Kestrel's inability to show measurable progress toward obtaining financing."
"We will pursue any and all remedies available to us to protect the state's investment," the memo notes.
Meanwhile, one year after being offered $1.5 million in public financial incentives to expand to the Grand Rapids airport, a subsidiary of ONE Aviation still hasn't accepted the money.
Iron Range Resources and Rehabilitation Board officials confirmed this week that Albuquerque, N.M.-based ACC Manufacturing Inc., which makes composite airplane parts for its parent company, ONE Aviation, hasn't used the $1.5 million IRRRB loan.
ONE Aviation — formed in 2015 by the merger of Kestrel Aircraft and Eclipse Aerospace — also hasn't moved any work into a vacant hangar at the airport purchased by the Grand Rapids Economic Development Authority last year with a $293,000 loan from the IRRRB to the city. ACC had pledged to build a manufacturing plant in the empty hangar employing at least 20 people making composite parts for ONE Aviation's Eclipse jet by now.
IRRRB officials and state lawmakers on the IRRRB board even expressed hope that Klapmeier would not just build the parts plant but also decide to build his long-developing Kestrel business airplane in Grand Rapids.
So far, neither has happened.
"We're being cautious. But we're still hopeful," IRRRB Commissioner Mark Phillips told the News Tribune. "The latest we've heard is that they're still trying to get their financing organized. We aren't out anything to let them have more time."
Klapmeier is the former co-founder and head of Duluth-based Cirrus Aviation who left that company in 2009 and struck out on his own to build the Kestrel. He has said he still maintains a home near Cloquet and a cabin near Iron River. He did not return News Tribune requests to comment on the status of Kestrel.
Wisconsin legal action
WEDC officials say the state has fulfilled all of its contractual obligations and tried to work with Kestrel, the company's bank and local officials in Superior, to no avail.
According to the WEDC memo, Kestrel repaid $865,490 of the $4 million but hasn't made a payment since Nov. 15, 2016.
ONE Aviation is based in Albuquerque, N.M., where it produces the Eclipse business jet.
So far, the company's planned Kestrel turboprop aircraft has not received federal certification for manufacturing, and it remains unclear if or where the business aircraft will be built. In July, Klapmeier told the AIN Online aviation news site that plans for the Kestrel had been shelved.
"Everyone's working on Canada," Klapmeier said, referring to ONE Aviation's new Eclipse Canada model jet aircraft.
Wisconsin officials last December notified Kestrel that the company was in default. The state gave official notice of the default in February, with the company behind in payments by $180,450. In May, WEDC agreed to delay legal action to give the company one last chance to get current on the loan, setting an Aug. 31 deadline.
The company failed to meet the deadline.
In 2012, Kestrel received both a $2 million business expansion loan and a $2 million small-business credit loan through WEDC.
The company also was offered $18 million in state job-creation tax credits but earned only $717,500 of those because employment promises were never met. Kestrel reportedly has about 25 employees in Superior, far short of the 665 promised.
Locally, Douglas County gave Kestrel a $500,000 loan for which the company has paid about $72,000 in interest. That loan is in default and the county is weighing all its options, according to Douglas County Board Chairman Mark Liebaert. The loan, which came from the county's revolving loan fund, was funded by a $2 million oil lease the county entered into years ago rather than tax dollars, Liebaert said.
The city of Superior offered Kestrel free land and $1.125 million in tax-increment financing as well as a $2.6 million loan. While the company made its annual loan payments in 2014 and 2015, the $368,709 payment for 2016 is outstanding and the 2017 payment is due Sunday. The company is currently past due on its loans with the city in a combined amount of approximately $736,000. The current amount outstanding on this loan is $2,044,000.
"The City of Superior will confer with the City Council to determine future direction related to the Kestrel loan," said Mayor Jim Paine in a press release. Paine was traveling on city business Thursday.
Grand Rapids hangar
In Grand Rapids, ONE Aviation subsidiary ACC does employ four people at a different mold-making facility across from the airport, said Rob Mattei, Grand Rapids economic development director. The company also has stored a single Eclipse jet at the Grand Rapids hangar.
Because the city owns the hangar purchased for ACC, there's no public money lost.
"We're still hopeful that they can get things going and use our facility," Mattei said, noting the startup aircraft company has been slow to attract private financing. "That's not uncommon in that business."
Eviction in Maine
The slow progress at Grand Rapids is just the latest in a string of unfulfilled projects as the Kestrel project has struggled for years to get off the ground.
Last week the Portland Press Herald newspaper in Maine reported that Kestrel Aeroworks has been evicted from its facility in Brunswick, Maine, for not paying rent.
The company, headed by Klapmeier, in 2010 promised to create 600 jobs in Brunswick developing the all-new turboprop business aircraft. That never happened, and last week Kestrel's lease at a 64,000-square-foot facility in Brunswick was terminated by the Midcoast Regional Redevelopment Authority, the quasi-governmental agency that operates the former Brunswick Naval Air Station.
Kestrel reportedly owes about $360,000 in back rent, and the paper reported that the authority was considering court action to seek the past-due amount. The company reportedly had about 12 employees in Maine.
Layoffs in Albuquerque
ONE Aviation is producing the corporate Eclipse jet in Albuquerque. Klapmeier said last year that the company is focused on bringing the Eclipse to full production and the second-generation "Eclipse Canada" jet to market before it starts producing the planned Kestrel turboprop.
The Eclipse 500 is a small, six-seat business jet in the works since the mid-2000s. Last month Klapmeier announced that faster, larger "Eclipse Canada" version had been successfully tested in flight.
"This is a key milestone in the path to making a very good airplane a great airplane," Klapmeier said in a September statement.
But sales of the Eclipse have not gone as planned. In January, ONE Aviation announced an undisclosed number of layoffs at the Eclipse plant in Albuquerque, according to AIN Online.
Airline industry analysts "expects quarterly sales to be down for aircraft deliveries, and we're seeing that throughout this market space," Ken Ross, ONE Aviation president, told AIN at the time. "We have primarily realigned our production, service and engineering capabilities to be more efficient."
Klapmeier returned to Minnesota one year ago with the promise of some related jobs. The parts made in Grand Rapids would be used in the Eclipse assembly line in New Mexico. But it's still not clear if or where the Kestrel will be built.
The Kestrel 350 is planned to be an all-composite, single-engine turboprop aircraft that could carry up to eight people at high speed over long distances and designed to be "far more versatile" than jet aircraft. It would burn less fuel, and be able to maintain approach speeds at large busy urban airports yet land on short, grass or gravel strips in rural areas, according to the company's website.
Superior Telegram editor Shelley Nelson contributed to this report.