Avcorp Wins $27-Million Suit Against Cessna

A Cessna Citation CJ3 flies over Avcorp’s Delta plant

A U.S. District Court in Kansas affirms Avcorp Industries Inc.’s award of $27.3 million in a suit against Cessna for breach of contract.

The U.S. District Court for the District of Kansas has affirmed a November 2012 ruling that awarded Avcorp damages for Cessna’s decision to reclaim work in 2010 that it had contracted to Avcorp.

The court’s affirmation is a big win for the Delta, B.C. aerospace manufacturer. “First, it means that the judge agreed with us in saying that there was a breach of a contract, which from a contractor’s point of view is important,” says Avcorp CEO Mark van Rooij. “Because it’s compensation for lost profits in the future, it also enables us to have money available to invest in new programs and new opportunities.”

Avcorp Industries Inc. built components for the wings and stabilizers of Cessna’s mid-size business jets, the Citation Sovereign and CJ3. Cessna outsourced component manufacturing for the CJ3 to Avcorp in 2005, and by the final quarter of 2010 Cessna’s contract accounted for 40 per cent of Avcorp’s revenue.

In 2010 Cessna moved production to its facility in Independence, Kansas, as part of cost-reduction efforts. Avcorp protested that Cessna couldn’t unilaterally revoke the manufacturing agreement, and when the two parties could not come to terms, the dispute went to binding arbitration. The initial arbitration award in Avcorp’s favour was delivered on November 16, 2012. This week’s Kansas district court decision dismisses Cessna’s attempt to vacate that award. Cessna can appeal the judgment to the U.S. Court of Appeals by filing a notice within thirty days of the final entry of the recent district court judement, which is expected by May 8.

This is not the first time Avcorp has taken legal action against a partner: in 2007 the company sued Bombardier for $18 million over a terminated contract. That case was put aside last year and Avcorp continues to build components for Bombardier’s business aircrafts.

Avcorp reported net income of $20.6 million in its 2012 results, buoyed by the successful suit. It was the company’s first profitable year since 2006, when it recorded earnings of $1.5 million on sales of $103.9 million.

Avcorp’s sharea have been trading at around $0.60 since 2009, and have hovered under $0.10 since the fourth quarter of 2010.

In 2012 Avcorp signed a five-year contract extension with Boeing worth approximately $80 million, according to Cantech, publisher of an online magazine focusing on Canadian technology. Avcorp manufactures wheel wells for the Boeing 737.

“Basically we’re on Boeing’s 737 program, so we deliver components for the Boeing 737 and Chinook helicopter, we deliver components on the Challenger Business Jet and on the Q400 and on the CRJ700s for Bombardier, and we deliver components for the F35 and we deliver components to Boeing,” says van Rooij.

Founded in 1985, Avcorp is listed on the TSX.