NORDAM Blames Engine Nacelle Project For Bankruptcy
TULSA, Oklahoma - The NORDAM Group blames the costs associated with a deal to design and build engine nacelles for a business jet for causing the cash flow problems that forced it to file for bankruptcy.
According to the petition it filed in bankruptcy court in Delaware on July 23, 2018, NORDAM entered into a long term partnership agreement in October of 2010 with Pratt & Whitney Canada to design and build engine nacelles for Pratt & Whitney Canada's PW800 Program. The engine nacelles would be used on Gulfstream's new G500 and G600 aircraft.
The petition says the company agreed to pay for "upfront engineering and design costs and other preproduction expenses on the understanding it would recoup that investment, plus significant profit." However, the company says unanticipated design changes made after the agreement was signed led to higher costs for NORDAM.
NORDAM says it invested more than $200 million in the PW800 program over the years and that investment had a corresponding impact on its cash flow. For instance, it says in the petition it had earnings of about $88 million in fiscal year 2008, before the partnership agreement was signed, compared to about $50 million in fiscal year 2017.
The petition says NORDAM and Pratt & Whitney Canada have tried since 2013 to negotiate a resolution to the long term partnership agreement, through several avenues, including arbitration.
According to the petition, in 2017 NORDAM negotiated an agreement with Pratt & Whitney Canada and its bank group, but the cash flow problems persisted. In December 2017, Pratt & Whitney Canada began an arbitration proceeding in the International Court of Arbitration, claiming NORDAM had breached the long term partnership agreement.
The petition says the temporary agreement with Pratt & Whitney Canada and NORDAM's bank group expired on June 18, 2018, and the company laid off dozens of workers two weeks later.
The petition says NORDAM hired Huron Consulting, LLC and Weil, Gotshal & Manges LLP for advice on restructuring. It also appointed two independent members with restructuring experience to its board of directors and hired Guggenheim Securities, LLC as its investment banker to evaluate its restructuring alternatives.
In its petition, NORDAM asked for permission to continue paying its employees, taxes and its critical vendors.
The company was founded in 1969 when Ray Siegfried, Sr. bought Northeastern Oklahoma Research, Development, and Manufacturing Company, which the petition says was a struggling company. Siegfried appointed his son, Ray Siegfried, II as vice president and general manager and the younger Siegfried transformed NORDAM into a global aerospace manufacturing and repair company, the petition says.
The company has about 2,000 employees worldwide, with about 1,800 of them based in Tulsa.
Read the Chapter 11 petition: