Cirrus is fighting for its reputation

  • Article by: SUSAN FEYDER , Star Tribune
  • Updated: March 19, 2010 - 9:28 PM

Cirrus Design Corp. of Duluth went to court to stop a supplier from spreading what Cirrus called false rumors that it was being forced into bankruptcy.

A simmering dispute between Cirrus Design Corp. and a former supplier has taken an unusual turn with Cirrus now accusing the other company of spreading false rumors about its financial health.

In a suit filed Thursday in federal court in Minneapolis, the Duluth-based aircraft maker claims L-3 Communications Avionics Systems Inc. has falsely told other suppliers that Cirrus is heading toward bankruptcy. The suit says L-3 also encouraged them to end their supply relationships with the aircraft company.

Cirrus said it believes it has weathered the worst of an industrywide downturn in sales.

"If suppliers stop their flow of inventory and goods. ... Cirrus will be unable to meet it production requirements, will not be able to deliver aircraft to its customers and will be forced to lay off hundreds of employees," the suit said.

The complaint also said customers generally will not buy aircraft from companies in bankruptcy because of concerns over warranties and parts. "Forcing Cirrus into bankruptcy would cripple Cirrus and undermine the great progress made over the past several months."

The suit asks a judge to prevent L-3 from contacting Cirrus' suppliers and seeks unspecified damages.

Attorneys for L-3, which is based in Grand Rapids, Mich., could not be reached for comment Friday.

Cirrus and other aircraft manufacturers have suffered a dramatic downturn in business in the past year because of the recession. Shipments by U.S. aircraft makers fell 48 percent in 2009, according to the General Aviation Manufacturers Association (GAMA). The decline for single-engine planes, like those made by Cirrus, was even more severe, almost 55 percent, GAMA said.

Cirrus' shipments, which peaked in 2006, fell by about 51 percent last year, GAMA said. In an interview Friday, Cirrus' vice president of marketing, Todd Simmons, said that since August 2008 the company has cut its workforce in Duluth and Grand Forks, N.D. from about 1,350 to about 550 people.

At the same time the company has taken steps to weather the tough times, including strengthening its balance sheet. Simmons said accounts payable have been reduced by more than 20 percent in the past 15 months. In its suit, the company said it has healthy business relationships with its suppliers.

The company also said earlier this week that it sees signs of improved sales this year, with aircraft deliveries for the first quarter up over the same period in 2009.

Sued and countersued

Cirrus' suit is the latest development in a legal punching match between the two companies that began last May, when L-3 sued Cirrus, claiming the aircraft manufacturer owed it $18.7 million under supply agreements dating back to 2007. The agreements covered cockpit avionics equipment Cirrus has used in some of its single-engine planes.

Cirrus has denied the claims and countersued, accusing L-3 of breaching the supply agreement. The parties have been told to be ready in December to go trial.

Cirrus says that before L-3 filed its suit, it contacted Cirrus' largest creditor and shareholder, Arcapita Capital, and told it that L-3 had been asked to participate in an involuntary bankruptcy filing against Cirrus. Cirrus said it later learned that L-3 had contacted other suppliers and told them that Arcapita planned to take Cirrus into bankruptcy.

Arcapita is a Bahrain-based private equity firm that acquired a controlling interest in Cirrus in 2001. In its suit, Cirrus said Arcapita "has no present intention to cause Cirrus to initiate voluntary bankruptcy proceedings."

Representatives of Arcapita were not available Friday to independently confirm that statement; however, Cirrus' attorney, Peter Carter, said the statement in the lawsuit is "unequivocal." Carter noted that Cirrus' suit is a verified complaint whose accuracy has been certified, under penalty of perjury, by Cirrus CEO Brent Wouters.

Susan Feyder • 612-673-1723

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