Thursday, September 26, 2013

Brunswick, Maine: Kestrel Aircraft struggling to pay workers, rent

Beth Brogan and Whit Richardson, Bangor Daily News

Thursday, September 26, 2013 at 7:36 am

BRUNSWICK — Kestrel Aircraft Co., a major tenant at the former Brunswick Naval Air Station, continues to face funding problems, leading to problems with vendors and an inability to cover employee insurance.

Kestrel CEO Alan Klapmeier confirmed Wednesday that his startup company is behind on rent payments, has been late with paychecks and that Kestrel employees in Brunswick are currently without health, life and dental insurance after the company failed to pay premiums.

Kestrel employs about 40 people at Brunswick Landing, where Klapmeier announced in July 2010 that the company would invest $100 million to design and build a new turboprop single-engine plane. At the time, Klapmeier said it hoped to bring 300 jobs to the former Navy base, although he later said as many as 600 jobs could have been created.

But in October 2011, citing difficulties obtaining financing — including New Market Tax Credits — in Maine, Klapmeier announced that the company would manufacture the planes in Superior, Wis., although composite components of the planes would continue to be made in Brunswick. The company employs about 60 people in Superior.

On Friday, an employee alerted the Bangor Daily News that his insurance had been discontinued, direct deposit checks had been late and Kestrel was late in making rent payments to the Midcoast Regional Redevelopment Authority, which oversees Brunswick Landing and civilian reuse of the former Navy base.

The employee, who preferred to remain anonymous for fear of retaliation, said a Kestrel administrator told employees Friday that “the company could get funding at any time and that could clear things up.”

Kestrel also owes vendors who supply the company with materials to manufacture its prototype turbo-jet. Delays in acquiring those materials — as well as the process of becoming certified by the Federal Aviation Administration — have caused Kestrel to push back the delivery date.

“Originally we were supposed to have a plane in the air in January of next year,” the employee said Tuesday, “but we only have two or three parts molded, and we need about 200 parts.”

A former employee, who said he left Kestrel because of its inability to make payroll on time for about four months, said Wednesday that several vendors have “put Kestrel on a credit hold due to nonpayment.”

“I’ve been at work and not had materials to work with due to the vendors not getting paid,” he said.

Klapmeier confirmed by phone Wednesday that completion of the prototype is “a year behind schedule,” and that Kestrel has “not started building conforming prototypes in any meaningful way.”

Klapmeier also confirmed that “the company has been short of cash, and we’re working to finance our operations … We appreciate the patience of everybody as we go through cash flow issues.”

The CEO said the company is current with payroll, although some employees have been furloughed or on reduced work or pay. He said the company expects a significant source of funding to come through shortly — funding that would finance “essentially the majority of the project.”

At an aviation industry conference in late July, Klapmeier said the company needs to raise $125 million to see the aircraft through FAA certification, according to Aviation International News.

“We’re very optimistic about where we’re at and what’s going on,” he told the BDN. “I understand how frustrating it is for people. We’re definitely behind on some things. [But] we’re really pleased with the progress that we’ve made. The progress on the design is much further than I would have expected, given the slow pace of financing.”

Funding challenges and cash flow problems are hurdles any aircraft manufacturing start-up should expect to face, according to industry watchers.

“That comes with the territory. It’s almost a guarantee,” said Mike Boyd, an aviation industry consultant at Boyd Group International in Colorado. “You don’t ever achieve anything unless you risk something, and that’s what this company is doing.”

Boyd said the airplane Kestrel wants to make should be popular in the marketplace, if they can get it to the marketplace.

“They have an ambitious design and ambitious program,” said Boyd, a former Bangor resident and vice president of Bar Harbor Airlines. “It’s very clear to me there is a niche for this airplane, but it’s a tough business to break into.”

Bob Wiecezak, head of the aviation practice at the Washington, D.C.-based Avascent Group, concurred that the aviation business is “a tough environment,” but he offered hope for Kestrel.

“It’s a beautiful airplane — just amazing,” Wiecezak said Wednesday.

While larger aviation companies such as Boeing have a significant share of the market and the money and access to government to make the financial world work for them, smaller companies such as Kestrel have to have demand lined up.

“Ultimately that will happen for Kestrel,” he predicted. “I look at the airplane and I think people will be drawn to it. Composites are the future now — Boeing is going that way. Kestrel is very forward-leaning.”

Steve Levesque, executive director of MRRA, said his organization is working with the company to address its financial situation.

“They’re trying to recapitalize things and they’re keeping us informed,” Levesque said Wednesday. “I’m not pushing any panic buttons … they’re pretty convinced that they have the capital resources coming that are going to allow them to get caught up.”

Levesque pointed to other businesses that leased space at the former Navy base that since have gone out of business, including Integrated Marine Systems and Resilient Communications, which closed its doors after selling some assets to Oxford Networks.

“This isn’t an uncommon situation that companies go through periods of financial struggle,” he said, adding that it’s especially true for start-up companies such as Kestrel that have large capital needs.

Regardless of the challenges, Klapmeier remains confident.

“I think we have accomplished a lot over the last three years, and we expect to accomplish more,” he said.

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