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$27.4 million award to Canadian supplier from Cessna upheld

  • The Wichita Eagle
  • Published Friday, May 3, 2013, at 5:35 p.m.

A U.S. District judge has upheld a disputed $27.4 million award to Canadian supplier Avcorp Industries from Cessna Aircraft over a long-term supplier agreement between the companies.

Avcorp has received a notice of the decision from the U.S. District Court for the District of Kansas, which heard the motion by Cessna to overturn the award made in November 2012, Avcorp said.

The court also awarded interest at a rate of 10 percent per annum from Dec. 16, the date of the judgment, which totals about $1 million.

The court is expected to enter its final judgment against Cessna for about $28.4 million on May 8, according to Avcorp.

Cessna may appeal the judgment to the U.S. Court of Appeals for the Tenth Circuit by filing a notice within 30 days.

Cessna had disputed the award to Avcorp, made during arbitration last year.

Avcorp alleged that Cessna breached an exclusivity agreement when it bought components from dual sources.

Cessna alleged that the contract between the two parties had never been a “sole source” agreement or exclusive, and that Avcorp breached the contract by shipping defective parts, and Cessna also argued that the supplier’s deliveries were late most of the time.

Beginning in 2001, Avcorp built major structural aircraft components, such as wing spars, center wing boxes and tails, for various Cessna aircraft models.

Over the life of the contract, Avcorp delivered 4,631 major structures to Cessna and submitted about 9,000 nonconformance reports, about two per unit shipped, court documents filed last year said.

Each had to be repaired, analyzed or dispositioned before they could be deemed airworthy and installed on an airplane, Cessna alleged.

In 2003, Cessna began buying Sovereign empennages, or tails, from both Avcorp and Fokker. That continued for six years.

In 2005, Cessna also began building the center wing box for the Citation CJ3.

Over the years, Cessna tried to improve Avcorp’s quality by stationing inspectors full time inside Avcorp’s facility to inspect components, Cessna said in a court document last year.

And it injected millions of dollars over the years to keep Avcorp, which had been insolvent or on the brink, afloat, Cessna said in a court document.

In December 2010, Cessna advised Avcorp that it would begin to transition to other suppliers, and it would begin to make some of the goods in-house.

Avcorp initiated arbitration against Cessna.

Two of three members of the arbitration panel favored Avcorp, saying the contract was “unclear and ambiguous” on whether it was exclusive.

It found that Avcorp did not materially breach its contract with Cessna, and concluded that Cessna had waived its right to complain about late deliveries when it continued its business relationship with Avcorp.

Finally, it concluded that Avcorp lost profits of $27.4 million when Cessna transferred work elsewhere.

Cessna sought to get that award dropped.

Reach Molly McMillin at 316-269-6708 or mmcmillin@wichitaeagle.com.

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