Duluth aircraft maker Cirrus Design Corp. downplayed news reports Friday that it is up for sale, saying instead that it will sign a 25-year lease for the former Northwest Airlines maintenance facility in Duluth.
"We'll sign the lease in the next 24 hours," Cirrus Vice President of Business Administration Bill King said in an interview Friday. "It's a 189,000-square-foot building ... and we are desperate for space."
King added that he already has five moving vans packed and waiting for the city to finalize the lease.
Fast-growing Cirrus plans to use the space to launch its new single-engine jet. It employs about 1,270 workers, 900 in Duluth and 370 in Grand Forks, N.D., and is the second-largest manufacturer of single-engine, piston-powered general aviation aircraft in the world behind Cessna.
The lease deal will end a long-standing headache for Duluth that began when Northwest Airlines abandoned its plans for the building shortly before filing for bankruptcy two years ago. Cirrus officials said the rent will rise over seven years from $300,000 a year to $1.16 million.
Speculation that a sale of the airplane maker was near came after a news report that Cirrus is working with two investment banks to explore strategic options because its largest investor is expected to divest its ownership. Cirrus officials said Friday that it has always been on the lookout for new merger partners and additional capital since investor Arcapita acquired its 58 percent stake in Cirrus in 2001.
Spokeswoman Kate Dougherty said that "nothing has changed" and that Bahrain-based Arcapita has not given Cirrus a timeframe in which it plans to divest its ownership stake.
Cirrus expects that will happen at some point, but it doesn't know when, she said. Officials from Arcapita in Atlanta did not return calls seeking comment.
Dougherty said Cirrus has long employed J.P. Morgan and Credit Suisse as well as the law firms Dorsey & Whitney and King & Spalding to consider merger-and-acquisition opportunities. The relationship with all four firms dates back to 2001, she said.
"Our revenue will be $350 million this year, and we have considered them advisers for whatever else Cirrus may want to do," Dougherty said. Additional capital will be needed for Cirrus to pursue its single-engine jet.
Cirrus intends to locate its research-and-development and new-jet manufacturing operations in the maintenance base and will initially use about 60,000 square feet of the 189,000-square-foot facility, said Tom Cotruvo, the Duluth Economic Development Authority's executive director. King said that Cirrus ultimately plans to use the entire building.
Cotruvo said the lease terms require Cirrus to add 100 jobs in Duluth by 2011 and 100 more by 2014. He characterized the deal with Cirrus as a major economic development achievement.
"We started this year with a vacant building and the prospect of potentially having to pay $2.5 million a year in debt service on the building," Cotruvo said. "Now we are ending the year with not having any debt service and potentially having a tenant that starts at $300,000 a year." A public hearing on the reduced-rent subsidy and lease deal is set for Jan. 3.
Dougherty of Cirrus said: "We need to expand, and we need a place in order to continue our program with the jet."
Since 1994, it has taken $70 million for the company to get its propeller planes -- the SR20 and SR22 models -- certified, she said. It will require many additional millions to build and obtain federal certification for its new pressurized, single-engine jet, she said. Cirrus has about 400 orders for the jet, which will sell for nearly $1 million each, King and Dougherty said.
Industry analysts have said Cirrus could pursue going public or might attract a number of suitors such as its larger rival Cessna or Hawker Beechcraft.
King said his concerns are much more immediate. About 100 to 125 Cirrus employees will move into the facility once the lease is signed. Up to 200 new workers will be hired over the next seven years as the company continues to expand, King said.
Northwest had used the base for maintenance work on Airbus A319s and A320s. Minnesota sold $47.6 million of state bonds in 1995 to finance the base's construction.
During the Northwest bankruptcy, a deal between the state and Northwest was reached this year that gave the state a bankruptcy claim. Sale of the claim allowed the state to pay off the debt on the bonds.
Duluth has been marketing the base, and Minnetonka-based Petters Aviation indicated in June that it wanted to use the Duluth building for a finishing facility for Airbus corporate and business jets.
Since this summer, Petters has been paying the development authority $15,000 a month to preserve an exclusive right to enter into a lease on the base.
However, Cotruvo said, Cirrus contacted Duluth city officials in November after "they realized Petters was not moving forward."
Jay Salmen, president of Petters Aviation, said Friday that he was aware of the Cirrus deal and he is still working on the Airbus finishing facility project.
Since 2002, Cirrus planes have been involved in 15 fatal crashes, according to the National Transportation Safety Board. The latest crash occurred Nov. 25 in Faribault; the wing of a Cirrus SR22 clipped the ground while landing, sending the plane cartwheeling down the runway. The pilot and all three passengers were killed.
This case is still under investigation, but Cirrus officials say that federal investigators previously have not found its planes to be the cause of crashes.
Dee DePass • 612-673-7725 • ddepass@startribune.com Liz Fedor • 612-673-7709 • lfedor@startribune.com