Kestrel lands in Superior

Robert Boone

Kestrel Aircraft Company will establish its manufacturing plants and headquarters in Superior, eventually creating up to 600 new jobs; Wisconsin Governor Scott Walker announced Monday. “I am pleased with the aggressive package we have put forth in conjunction with strong local support to make this major job creation contribution to Superior,” Walker said. “This relocation will be a huge boost to the Superior-area economy.”

     In a story first broken by the Reader October 20th of last year,  Kestrel will build a six to eight passenger single engine turboprop at two manufacturing facilities in Superior.  The project was quoted as being in excess of a  $100 million dollar development.

     Over 150 people attended Monday’s announcement at Superior’s Bong airport. Dave Minor, CEO of the Superior Chamber of Commerce exclaimed “Not since World War II has this number of jobs been created.”

     Kestrel first met with Superior Mayor Bruce Hagen in last July,  at the request of Duluth businessman Jim Caesar. 

The Cirrus connection. 

Alan Klapmeier
Alan Klapmeier

     Kestrel Aircraft Company is led by Alan Klapmeier.  Klapmeier, and his brother Dale, are founders of Cirrus Design Corporation.  Cirrus was founded 25 years ago, and has operated out of Duluth since 1994.  The Klapmeiers created the SR 20 and SR 22 aircraft, which were innovative in bringing to market composite materials, flatscreen dashboard technology and the first-ever whole plane parachutes for personal aircraft. Cirrus at one time had over 1000 employees in Duluth, (several hundred are currently laid off) and lesser operations in Grand Forks, North Dakota and has been the most popular selling aircraft in its class. 

     Cirrus began development of a four passenger private jet, called “The Jet” (also called the Vision) with prototypes eliciting much favorable interest. The Klapmeiers gave up more and more of their ownership stake in Cirrus as the demands of operating a larger company unfolded; with majority interest eventually going to Crescent Capital, ( now called Arcapita) a US division of the First Islamic Bank of Bahrain in 2001.  In 2007, Arcapita announced that they intended to sell their share in Cirrus.

     The recession hurt Cirrus sales immensely and “The Jet” development has stagnated.  Alan Klapmeier was forthright about wanting to continue aggressively develop “The Jet”, as well as other larger private aircraft. As a result of his divergent viewpoint on the future of Cirrus, in 2009 the stockholders voted Alan Klapmeier out of his operations role at Cirrus. In an apparent family split, his brother Dale remains at Cirrus.  Alan Klapmeier then made an unsuccessful bid to buy “The Jet” from Cirrus. Alan Klapmeier is considered an innovator and a leader in the aviation industry.  A story entitled “The Second Act of Alan Klapmeier” ran in the Atlantic Monthly in August of 2010; comparing him to Steven Jobs of Apple. The author, Lane Wallace, states that “Klapmeier also earned a reputation for being not only a passionate and talented visionary, but also a passionate man of his word who delivered what he promised, cared deeply about the quality and safety of his product, and would make it right, in the end.”

     In February 2011, Cirrus was sold for $210 million to the China Aviation General Aircraft (CAIGA), a commercial aircraft subsidiary of the Chinese government. In July of 2011, the CAIGA president gave a non-binding Memorandum of Understanding to Duluth Mayor Don Ness stating that the Cirrus jobs would remain in Duluth.

Kestrel Aircraft Company.

     In July of 2010, Alan Klapmeier emerged as part owner and CEO of Kestrel Aircraft Company.  Itself a creation of a merger between two previous aircraft companies, Kestrel Aircraft had just brought out a prototype of a state-of-the-art composite, six (or eight) passenger turbo prop executive aircraft.  With speeds of around 320 knots, more fuel-efficient, and the ability to operate out of short and unimproved runways, the Kestrel will fill an empty niche in the aviation market; according to Kestrel’s website. The Kestrel expects to sell for about $3 million.

     In July of 2011, it was announced that Kestrel Aircraft had committed to locating its headquarters and manufacturing plant at the-soon-to-be-abandoned Naval Air Station in Brunswick, Maine.  According to the Brunswick Times Record newspaper “Kestrel has a 10-year lease agreement ... to occupy about 93,000 square feet of the 174,000-square-foot hangar”.

     Shortly thereafter, Alan Klapmeier announced that there would be a second division of Kestrel Aircraft, called Kestrel Aeroworks.  The Aeroworks division is to almost immediately begin upgrading existing small private aircraft such as the popular Piper Meridian A-46, and later, older Cirrus aircraft. The updates will modernize cabins and control panels for an average of $130,000 apiece.  Klapmeier expects this retrofit division to improve the company’s cash flow while the new plane is in a three year gestation period. Kestrel recently opened an engineering office in Duluth, which eventually expects to employ 30 people; predominantly former Cirrus employees.

The Deal

     Kestrel envisions three facilities in Superior to build the Kestrel K-350.

One manufacturing location is adjacent to the waterfront in the Winter Street Industrial Park (which takes advantage of a tax free zone). This plant, which requires massive ovens, will produce only the composite material (similar to carbon fiber) for the frame and body, and then ship the panels to the airport location for assembly. This plant is Kestrel’s first priority.

     The second manufacturing facility will be located at the Head of the Lakes Fairgrounds, for immediate access to the airport. Several of the outbuildings such as the curling club will have to be demolished to make room for the plant, but the race track itself will not have to be relocated. Douglas County has already committed to transferring the necessary parcel to Kestrel.

     A location near downtown is being sought for the headquarters and engineering staff. Kestrel anticipates that it will take three years to reach full production and FAA approval for the new model. Employment will reach 300 people within two years, and should reach 600 in about four years.

     The state government partnered with local officials to bring Kestrel to Superior.  The total value of loans, grants and tax credits is $118 million dollars, $112 million from the state. The City of Superior and Douglas County will provide approximately six million in loans and grants. Walker told KUWS that this is the largest jobs package the state has put together during his term, “Yeah, yeah. The money doesn’t come in if the jobs don’t happen. So, very much like we’ve been doing the past year, we put incentives, whether it’s tax credits or other incentives, but they’re all tied specifically into the number of jobs that are created. So for us, they don’t get the full amount unless the full 600 are created.”

   The Wisconsin Economic Development Corp. (WEDC) will create an enterprise zone so as to provide $18 million in tax credits to Kestrel. WEDC will also provide a $2 million loan, and is working with the Wisconsin Housing and Economic Development Authority (WHEDA) to secure a $2 million state small business credit initiative program loan. The repayment of the WEDC loan and eligibility of tax credits are based on the capital investment, worker training and job creation by the company.

     WHEDA has committed to obtain a $30 million allocation of New Markets Tax Credits for the Kestrel project. The tax credits are part of a Treasury Department  program that assists businesses that locate and grow in qualified low-income or rural areas. WHEDA also committed to an additional $30 million allocation later this year as conditions are met; and a third $30 million dollar New Markets Tax Credits package for next year, providing the program has dollars available at that time.

     $118 million dollars in public investment for 600 jobs works out to $196,666 in subsidies per job; but it should be noted that the eventual net cost to the public is likely to be far less than that after all factors are accounted for.

     Kestrel’s deal with Brunswick, Maine fell apart because some of the allocation of New Markets Tax Credits that Maine initially promised Kestrel turned out to be unavailable.  A disputed package that  Klapmeier has described as worth 100 million, mostly in New Markets Tax Credits, dwindled significantly. According to the Brunswick Times Record newspaper, the package that Maine Governor Paul LePage offered last Friday was $20 million in tax credit allocations, and “a possible $4.75 million loan guarantee ... and a $3 million guarantee or letter of credit from the Midcoast Regional Redevelopment Authority.” Future allocations of credits  could not be guaranteed. “In the end, that’s the really big difference. We couldn’t keep going down the path we were on with that level of uncertainty,” Klapmeier said. The prevailing mood in Maine is disappointment. A comment to the Times Record states: “I hope Wisconsin taxpayers appreciate their tea party governor who has them on the fast track to becoming part owners of a aircraft business without any of the profit.”

     Kestrel’s public relations person, Duluth based Kate Dougherty, stressed that the Aeroworks division (aircraft retrofitting) with  about 25 employees, would definitely remain in Brunswick.

The Future

   Kestrel will eventually create 600 high tech, high paying positions. Additionally a project of this magnitude creates significant construction investment, as well as 100’s of related spinoff jobs. In this instance, that effect may be somewhat mitigated by the fact that there are already local aviation industry companies (such as Northstar Aerospace) in place to service Cirrus. 

     Klapmeier says that this is “only the first Kestrel”.  Future plans include twin engine planes, and corporate jets.  Klapmeier told the Reader that a whole plane parachute option will be offered  two years after production commences.   Adrian Norris,  Kestrel partner and CFO, was also confident that this is just the first model.  When asked by the Reader if these future projects will lead to a new round of negotiations with other cities,  Norris emphatically replied that future Kestrels will be built in Superior.  Norris asserted that “organic”  (conceived and designed by Kestrel) “new Kestrels will be built here”;  although he couldn’t rule out the possibility that Kestrel might take over an existing aircraft development project, and hence inherit production facilities.

Construction on the Winter Street facilities will begin this spring.

Editors note:

Both the Reader and the News Tribune have withheld information from our earlier reports, so as to not unduly disrupt negotiations. The Reader is still withholding some details which may be sensitive; as well as to protect our anonymous sources.   

Credits