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Superior, Douglas County join legal action against Kestrel

Kestrel Aircraft CEO Alan Klapmeier (center) speaks during a news conference at the Superior airport in January 2012 as Wisconsin Gov. Scott Walker (left) and then-Superior Mayor Bruce Hagen listen. (Superior Telegram file photo)

Six years ago, Kestrel Aircraft officials came to Superior with a promise of hundreds of manufacturing jobs.

Now, the city and Douglas County are joining forces with the Wisconsin Economic Development Corp. to recoup defaulted loans made to Kestrel Aircraft.

As part of the package of incentives for manufacturing facilities to build the Kestrel K-350 turboprop composite jet, the city of Superior, the Douglas County Revolving Loan Fund and WEDC all approved loans to help the aircraft company get off the ground.

But none of the promised jobs materialized. A Wisconsin plant was never built, and in 2015 Kestrel merged with Eclipse Aerospace to form ONE Aviation, which is building planes in New Mexico.

WEDC had provided $2 million in a Business Expansion and Retention Incentive loan and $2 million in a federally funded State Small Business Credit incentive loan to Kestrel in 2012, WEDC spokesman Mark Maley said. According to a timeline he provided, WEDC modified the company's loans in 2014 after the company ran into cash-flow problems. While the company made periodic principal and interest payments totaling $865,490 after November 2014, the last payment the economic development corporation received was in November 2016.

The agency met with company officials in 2017 and entered into a forbearance agreement in May, agreeing to delay legal action to give the company time to solve its cash-flow problems.

The city and county also participated in that agreement, but the company never paid the $8,000 agreed for the forbearance, Superior Mayor Jim Paine said.

According to Maley, a Kestrel representative contacted WEDC in October to request additional time, but the corporation hasn't heard from the company since.

WEDC has engaged with its partners — Superior and Douglas County — and is actively working with outside counsel to pursue its legal remedies, Maley stated in a memo.

"Since the contracts were first entered into with Kestrel in January 2012, WEDC has fulfilled all its contractual obligations," Maley stated. "Since that time, WEDC has worked with the company, its bank, and also local officials, to take the steps needed to give Kestrel the best possible chance of succeeding."

In Superior, the City Council has decided to join a lawsuit with WEDC, Paine said following a closed-session meeting last week to discuss the city's options with legal counsel. Paine said he anticipates a lawsuit being filed in coming weeks.

Superior loaned the company $2.6 million in 2013, but Kestrel only made its first two annualized payments of $368,709.

The last payment was received in October 2015.

The Douglas County Revolving Loan Fund also provided $500,000, all of which is in arrears.

The Douglas County Revolving Loan Fund executive board also met in closed session last week to discuss the matter and reached a consensus that it would pursue a suit with WEDC, Douglas County Board Supervisor Mark Liebaert confirmed. He said once the suit is filed, it's likely the entire Board of Supervisors will discuss the matter.

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