Increased expenses incurred in a long-term contract with a Canadian manufacturer helped send historically profitable NORDAM into a financial nosedive from which it couldn’t recover, federal bankruptcy documents show.
Facing outstanding funded debt of about $286 million, Tulsa-based aerospace manufacturer and repair firm The NORDAM Group Inc., along with its domestic subsidiaries, filed a voluntary petition Sunday for protection under Chapter 11 reorganization, documents indicate.
The action followed a long contract dispute with Pratt & Whitney Canada regarding the PW800 nacelle system used in Gulfstream G500 and G600 aircraft. Unanticipated costs connected with the program led NORDAM to spend more than $200 million on it, a move that “materially jeopardized” its profitability, federal records show.
The Tulsa company’s EBITDA (earnings before interest, taxes, depreciation and amortization) went from about $88 million in fiscal year 2008 — a couple of years before it entered the pact — to about $50 million in fiscal year 2017, documents show.
Upon filing for bankruptcy, NORDAM’s capital structure consisted of about $285.9 million in totally funded debt, made up of fully drawn revolving credit facility in an outstanding principal amount of about $266.5 million and an unsecured promissory note issued by three lenders owned by the Siegfried family in an outstanding principal amount of roughly $19.2 million plus interest, records show. Both notes matured June 18, documents indicate.
NORDAM declined to elaborate on the filing Monday and how it might effect its workforce.
Earlier this month, NORDAM announced that it had suspended production of the PW800 series nacelle system because of the impasse, an action that affected about 250 permanent employees and contract workers at NORDAM’s Nacelle and Thrust Reverser Systems Division, 6911 N. Whirlpool Drive.
NORDAM entered into the contract with P&WC in October 2010, records indicate. Under the pact, NORDAM agreed to invest up-front engineering and design costs and other preproduction expenses on the understanding it would recoup that investment, plus significant profit, through the delivery and sale of nacelle systems in the PW800 Program.
The nacelle system is what many call the “pod” that houses the engine of an airplane like the Gulfstream G500.
Unanticipated design changes occurred in subsequent years, however, leading to materially higher costs incurred by NORDAM, documents indicate.
Among creditors who have the 30 largest unsecured claims and are not insiders, 14 are owed at least $1 million by NORDAM, topped by Hexcel Corp. (roughly $5.1 million), a composite materials and structures manufacturer in Connecticut, documents show.
Ray H. Siegfried II founded The NORDAM Group in 1969 and expanded the local manufacturing company into a global aerospace corporation. NORDAM employs just more than 2,000 worldwide, with about 1,800 in Tulsa, federal records show. None of the employees are covered by a collective bargaining unit, documents indicate.
As of the petition date, NORDAM also had a supplemental workforce of independent contractors, consultants and temporary workers of about 535, records show.
“NORDAM is one of Tulsa’s best home-grown success stories and a tireless corporate citizen,” Tulsa Mayor G.T. Bynum said in a statement. “They have an excellent leadership team in place, and I am confident they will emerge from this an even stronger company — just as so many other great businesses have before them.”
The company enters Chapter 11 with $45 million debtor-in-possession financing provided by its existing lender group, documents indicate.
“The debtors believe this financing will both provide a substantial liquidity into these estates and, no less importantly, send a strong message to vendors, customers and the market that these Chapter 11 cases are well-capitalized and positioned for success,” one of the filings says.