Kestrel Aircraft may build plant in Berlin, N.H., not Brunswick
BRUNSWICK — In July 2010, Maine rolled out the red carpet to welcome Kestrel Aircraft to the former Brunswick Naval Air Station.
"The international appeal and worldwide demand we foresee for the Kestrel airplane will benefit jobs throughout the state, boost Maine's economic competitiveness and showcase Maine's world-class innovation economy," former Gov. John Baldacci told a crowd that included U.S. Rep. Chellie Pingree, D-Maine, and other dignitaries.
But now, because of difficulties obtaining financing, Kestrel may not build the composites for its turboprop airplanes in Brunswick after all.
In a worst-case scenario, Kestrel Chief Executive Officer Alan Klapmeier said Wednesday, the company won't assemble the planes in Brunswick either, leaving only a maintenance and repair operation at Brunswick Landing.
Although Klapmeier said he was initially drawn to the area because of the concentration of composite companies and an experienced labor pool, he said Kestrel has been unable to secure the financing to keep the entire aircraft production arm of the company in town.
Now the company is looking at places including Berlin, N.H., to do what Klapmeier in September 2010 told the Town Council he would do in Brunswick: build composites.
Trouble with tax credits
Working through Coastal Enterprises, a Wiscasset-based private, nonprofit community development institution, the company was hoping to fund its $100 million project through the federal New Market Tax Credit program. The program helps bring jobs and investments into low-income or distressed areas, as identified in the U.S. Census.
If awarded the full amount, Kestrel would have received $39 million in tax credits that CEI could turn around and sell at a discount to investors.
But Kestrel has only received a fifth of the amount it was seeking. In April, the company was allocated $7.8 million in tax credits, enough to get Kestrel Aeroworks – the maintenance and repair operation – off the ground, but not enough to start manufacturing airplanes.
According to Charles Spies, chief executive of CEI Capital Management, there are no more tax credits available at CEI until January 2012. But even then, Spies isn't sure CEI will receive any more credits to allocate because the New Markets program is so competitive.
That's bad news for Kestrel.
"The financing we've gotten to date is not the amount or the schedule we'd originally anticipated," Klapmeier said.
As a result, he has started looking around to see if other states may be able to provide more funding to get the project off the ground.
What makes Berlin attractive is that, like the former BNAS census tract, it qualifies for New Market. But because it is more rural than Brunswick, and 20 percent of New Market's allocations must go to non-metropolitan areas, Klapmeier said Kestrel would have a better chance of receiving the rest of its tax credits.
Moreover, Berlin is designated a severely distressed area, while the census tract in Brunswick is merely eligible for the tax credits. Additionally, there may be other funding opportunities in New Hampshire separate from New Market, Klapmeier said.
Berlin also has a new biomass energy plant that could supply cheap heat and power to Kestrel. Because building composites is the most energy-intensive part of the airplane construction process, Klapmeier said it makes sense to consider putting a plant close to the energy source in Berlin.
"We're looking at New Hampshire, (and) we're looking at several other locations" where there are tax credits available that are not available in Brunswick, Klapmeier said, although he wouldn't say where.
Some is better than none
Even if Kestrel builds composites in Berlin, Klapmeier said he intends to transport the finished parts to Brunswick for assembly – a geographically dispersed business model he said is common in the aircraft industry. He said he also expects to utilize Southern Maine Community College's composite program to train employees.
"Part of our view of Berlin is that it's close to (Brunswick), 67 nautical miles in the airplane," he said. "We would still be training people here, moving people back and forth, we would see this as being relatively co-located."
But he acknowledged that building a composites plant in Berlin would mean fewer jobs in Brunswick.
"There are jobs that would end up in Berlin that could have been in Brunswick if all of the financing had worked," Klapmeier said, but "getting part of the jobs or most of the jobs is still better than getting none of the jobs."
He said there is a possibility, although not a certainty, that more than 300 jobs would still be created in Brunswick. If Berlin falls through, however, Kestrel could move not only its composite plant, but its entire aircraft manufacturing company out of Brunswick Landing.
Steve Levesque, executive director of the Midcoast Regional Redevelopment Authority, the public municipal corporation created to redevelop the former air base, doesn't believe that will happen.
In an Oct. 14 email to Town Manager Gary Brown, Levesque said "this doesn’t affect the final assembly facility in Brunswick." The message was a response to Brown, who previously sent Levesque the text of a New Hampshire Public Radio story reporting that Kestrel was considering Berlin. Brown sent Levesque's four-line response to the entire Town Council the next day.
But Klapmeier said the company has been wooed by several states in addition to New Hampshire, and all options are on the table if the Berlin deal doesn't work out – a result that he admitted is undesirable, but not out of the question.
The Berlin deal "is clearly our first choice," Klapmeier said. "We're not going to say it's our only choice and we're not going to go out of business if we can't get the financing."
Klapmeier admitted that he may have been naive to think the company could do everything at Brunswick Landing. Now that he realizes he can't, he said he's trying to find the next best possible deal for Brunswick, which he believes would be a plant in Berlin.
"What nobody understands or believes is, we're committed to Maine because this is where we want to be," he said.
At the very least, Kestrel Aeroworks has to stay at Brunswick Landing for seven years under the conditions of the New Market tax credits already received. Klapmeier has also signed a 20-year lease for half of Hangar 6 at the former air base.
Even so, MRRA may end up owing hundreds of thousands of dollars if Kestrel pulls part of its company out of Brunswick Landing.
Impact on MRRA
Last year, the town helped Kestrel apply for a $300,000 community development block grant that was awarded in July.
According to a Feb. 23 memo from the town's economic development specialist, Brian Dancause, the grant was supposed to fund Kestrel's plan to "design, develop, certify and manufacture 6 to 8 passenger carbon composite turbo-prop aircraft at Hangar 6, Brunswick Landing" – specifically, the installation of a paint booth, electrical and plumbing upgrades, and compliance with the Americans with Disabilities Act.
Part of the agreement is that Kestrel must create 10 more full-time jobs before June 30, 2013, in addition to the 16 in place as of July. Six of the additional jobs have to go to people from low-income households. As of Sept. 20, the company employed 21 people, according to MRRA.
If the company fails to comply, normally the town would have to repay the full amount of the grant to the state. But because MRRA and Brunswick signed an indemnification agreement, MRRA is on the hook for the $300,000, not Brunswick.
Klapmeier estimated that even if Kestrel Aircraft (the aircraft manufacturing company) pulls out, leaving only Kestrel Aeroworks behind, an additional 25 jobs will still be created.
Levesque said the grant has not been used and none of the scheduled work at Hangar 6 has been done.
"If they're not going to go forward," he said, "we're going to use money for other projects.
Mobilizing to keep Kestrel
According to state Sen. Stan Gerzofsky, D-Brunswick, Maine's congressional delegation and state officials are mobilizing to try and keep all of Kestrel in Maine.
"We're not losing jobs to New Hampshire, period," Gerzofsky said Wednesday.
Gerzofsky has proposed that Kestrel put its satellite manufacturing facilities in more rural parts of Maine, in order to take advantage of the rural preference under the New Market Tax Credit program.
"I've been working hard these past couple of weeks to try and make sure we can be in a position to offer them anything anybody else can," he said. "If they're having trouble with these tax credits in Maine and not New Hampshire, I want to know why."
U.S. Rep. Chellie Pingree, D-Maine, has also recently met with Kestrel representatives. In a statement issued by a spokesman Wednesday she said she will "continue to work with them to do everything we can to make it possible for them to locate those jobs here in Maine. Brunswick has the people and the facilities to support the kind of work Kestrel wants to do and I think this is the right place for those manufacturing jobs."
But Klapmeier, whose prototype airplane and leased Hangar 6 were the backdrop for last January's ceremonial first transfer of U.S. Navy property to MRRA, emphasized that he doesn't want anyone to have false hope that it will be possible for Kestrel to keep all branches of its company in Brunswick, or in Maine.
"I'm not sure that, given the learning process that all of us have gone through on this," he said, "that there's a rabbit in the hat that could be pulled out."