Despite Delays, Kestrel Aircraft Moves Forward in Superior

March 25, 2013
The state's delay in fulfilling its end of financial incentives package has pushed the company's plans to build a composite plant in the Winter Street Industrial Park back more than a year.

March 25--For Kestrel Aircraft, working with the city of Superior has been great. So has working with Douglas County. But the state of Wisconsin? Not so much, says company founder and CEO Alan Klapmeier.

"It's been challenging to work through the bureaucratic process," Klapmeier said in an interview Friday. "With the exception of the city and county, nothing happened in the time it was expected."

The state's delay in fulfilling its end of the city/county/state financial incentives package that helped lure Kestrel away from Maine to Superior in early 2012 has pushed the company's plans to build a composite plant in the Winter Street Industrial Park back more than a year.

Initial plans were to break ground on the plant in spring, then summer of 2012. The plant will produce the carbon fiber composite parts for the new Kestrel K-350 single-engine turboprop plane under development.

Now Klapmeier hopes to break ground on the composite plant this fall but said early 2014 also is possible. He's seeking a real estate group who would own the building and lease it back to Kestrel Aircraft.

In the meantime, the project has grown from the 35,000-square-foot plant talked about a year ago to a 60,000-square-foot facility. The estimated price tag: $6 million to $8 million.

The state's delay -- which hampered the start-up company's overall timetable -- wasn't Kestrel's fault, Superior Mayor Bruce Hagen said.

The $30 million in New Market Tax Credits in 2012 were part of the state's share of the incentives package. Those credits -- designed to help companies leverage additional private investment -- were supposed to close in early 2012 but didn't until September.

It was out of anyone's control except the state's, Hagen explained.

All total, the incentives package contained $40 million in loans, grants, tax breaks and credits from local and state government.

"The city and county's part came together quickly," Hagen said. "The state's end took some time."

The state's delay also pushed back the company's target date for getting Federal Aviation Administration certification for the plane until late 2015 or early 2016, after which the plane can go into production. It also pushed back plans to build the plane's assembly plant at the Richard I. Bong Memorial Airport and the associated plant hirings.

"When one part is delayed, people involved in other parts are affected, creating a rippling of delays along the way," Klapmeier explained.

Hagen remains confident that Kestrel, now headquartered in Superior, will do what it says -- build a composite plant and an assembly plant in Superior, creating up to 600 jobs by 2016.

And he says since day one in Superior, he's been working with Kestrel to help make that happen.

The search for capital

Klapmeier describes the task of starting an aircraft manufacturing company as dealing with a complex puzzle, with a myriad of pieces to work out.

"It's a $190 million project," he said.

So far $60 million to $70 million have been put into the effort, including contributions from strategic partners and private investors. At least $100 million more will be needed to complete the plane's development and move it to production, he said.

"What it takes is hiring people to design the airplane, to achieve certification and building prototypes," Klapmeier said. "What it takes to reach production is a whole bunch of money."

Klapmeier said he's being conservative when he estimates his company will build -- and deliver -- 50 to 60 planes a year, a level that will require hundreds of workers at the two plants.

To help supply that work force, Wisconsin Indianhead Technical College, working with Kestrel, is launching a new aviation composite technology program in August.

As a practical alternate to the small business jet, the Kestrel K-350 will be more fuel efficient and require lesser pilot skills while still able to fly at high speeds of more than 320 knots, Klapmeier said. He likened the plane -- which will seat six to eight people and sell for about $3 million -- to a luxury SUV.

"This airplane will get in and out of short runways that jets can't," he said. "That has great appeal."

The plane's most likely use will be as a corporate jet or for everyday business transportation. With a flexible interior configuration, other possible uses are air charter, air taxi, cargo package delivery, air ambulance and for government research.

It will seek to break into an established market that includes the Pilatus PC-12, which sells for about $3.3 million, and the Socata TBM 850, selling for about $3.4 million.

The search for additional private investment in the company is under way and will include company stock.

But Klapmeier, who lives with his family north of Cloquet, is finding the fundraising and the startup process easier than in the 1980s, when he and his brother, Dale, co-founded Cirrus Aircraft. Alan Klapmeier served as its chairman until 2009, while the company grew to become the leader in its class of small, single-engine personal planes. Alan Klapmeier left the company in 2009.

He said this time, it's easier with a more experienced team -- 30 to 40 percent are former Cirrus employees -- and with relationships with the FAA, suppliers and others already in place. With a reputation as an industry leader, he also is having an easier time with potential investors.

"With Cirrus, the reaction was, 'Don't you know this can't be done?' " he said. "Because it hadn't been done in a long time. This time, nobody ever tells me it can't be done."

While the first Kestrels won't have an airframe parachute system, a signature feature of Cirrus planes, Klapmeier said he wants to incorporate one into later models. But because the Kestrel is a bigger plane, its parachute system will be much heavier than Cirrus' system.

"The parachute, I believe, will add lot of value and safety to the airplane," he said.

Currently, Kestrel Aircraft has a total of 65 employees in the Twin Ports. Some are working out of Kestrel's machine shop on Michigan Street in Duluth; some out of the historic Old Post Office in downtown Superior where engineering, design, administration and marketing departments are housed.

The Old Post Office location, which was to be temporary offices, is working out so well that Klapmeier said he expects to expand their offices there.

He also is looking to fix up an old brick hangar at the Richard I. Bong Memorial Airport to use for assembly of the Kestrel for FAA certification.

"I have a soft spot for old buildings," he said.

Mayor Hagen said the city is on board with that, with the Superior City Council already approving the move.

Copyright 2013 - Duluth News Tribune