Global 7000 jet’s wing supplier contemplates insolvency

The supplier of the wing to Bombardier Business Aircraft’s new Global 7000 business jet is thinking about insolvency, which could be a setback for the parent of Wichita’s Learjet.

On Friday, Pennsylvania-based Triumph Group filed with the Securities and Exchange Commission an amended credit agreement that “also provides the Company’s Vought Aircraft Division … with the option, if necessary, to commence voluntary insolvency proceedings within 90 days of the Eighth Amendment Effective Date,” Triumph said in the filing.

In Wichita, Triumph employs 225 people. Triumph also has a 115-employee operation in Wellington and a 120-employee operation in Edgerton, in the Kansas City metro area.

According to the company’s website, its Vought division facilities are in California, Florida, Georgia, Oklahoma, Tennessee and Texas.

A Triumph Group spokeswoman on Monday emphasized that voluntary insolvency is one option for Vought.

“It is important to understand that this is just one of several possibilities under consideration and no decisions have been made at this time,” Michele Long, Triumph Group director of corporate communications, said in an e-mail to The Eagle.

According to the filing, the amended credit agreement separates the Vought division – also known as Triumph Aerostructures LLC – from being a “Subsidiary Co-Borrower” to Triumph. In other words, it wouldn’t have access to the loans Triumph Group receives.

Triumph said in the filing the move is intended to “provide the Vought entities with greater financial flexibility to address their significant cash utilization relative to certain contracts.”

Triumph Group has been struggling with costs and cash flow and, for more than a year, has undergone restructuring to get them under control.

‘Negotiating tactic?’

On Monday, analysts said in notes to investors that they think higher costs to manufacture the Global 7000 wing are partly the reason for the changes to Triumph’s credit agreement.

Seth Seifman of J.P. Morgan noted the lawsuit Triumph brought against Bombardier early this year for failing to pay “certain non-recurring expenses” during the Global 7000’s development. He estimated Triumph’s spending on development of the 7000’s wing so far at about $600 million.

“We believe TGI needs a settlement with Bombardier that recognizes the higher recurring cost of the wing so that Triumph has the potential to earn an acceptable return on the program from here,” Seifman wrote in an investor note on Monday.

“Triumph’s contemplation of insolvency in Aerostructures may therefore be a negotiating tactic on some level but it is not one that we believe management would undertake lightly or wholly unnecessarily.”

Bombardier has two Global 7000s in flight test in Wichita. It plans to begin deliveries of them in 2018.

It is one of two key aircraft programs for the company – the other being its C Series commercial passenger jet – that has struggled with its own cash flow problems in the recent past. The Global 7000 is Bombardier’s biggest and longest-range business jet.

Business aviation forecaster Rolland Vincent said it’s not just Bombardier that stands to be affected should Vought become insolvent. It also is a supplier to other aircraft manufacturers including Boeing and Gulfstream.

“(It’s) not completely unexpected as this part of Triumph’s business has been struggling to ‘right the ship’ and get back to stronger profitability,” Vincent said. “They have had several underperforming contracts.”

But Vincent said the suggestion of insolvency is likely more than “simply a strong-armed negotiating tactic by Triumph with regards to Bombardier.”

“They need relief, especially on the Bombardier Global 7000 program, both for now sunk costs and on the recurring costs of the contract going forward,” he said.

“This will drag on for quite some time … (and) does nothing to reassure existing and prospective customers that the Global 7000 program will remain on track for late 2018 entry-in-service.”

A Bombardier Business Aircraft spokesman said the company continues to negotiate with Triumph.

This story was originally published May 8, 2017 at 10:59 AM with the headline "Global 7000 jet’s wing supplier contemplates insolvency."