Boeing wants higher ranking claim in aircraft case

By Dow Jones Newswires
Posted March 22 at 5:34 p.m.

Citing unfulfilled promises from Alabama Aircraft Industries Inc. to finish up work on four military jets, Boeing Co. is asking a Delaware bankruptcy judge for some financial reassurance, requesting that the court put its $8 million claim against the Birmingham aircraft maintenance company ahead of other major creditors.

The Chicago-based Boeing said that it should be among the first in line — before Alabama Aircraft’s main lender and the Pension Benefit Guaranty Corp. — to recover money from the company’s Chapter 11 case.

Boeing hired Alabama Aircraft to work on the U.S. Air Force’s aging fleet of refueling jets as part of a $1.1 billion government contract. But a handful of Alabama Aircraft missteps — including a rag left in one jet’s fuel vent tube–have both cost Boeing millions of dollars and delayed work “on a critical military aircraft in the United States war efforts,” the company said in court filings.

The rag incident alone triggered $91,736 in additional inspections.

Alabama Aircraft’s unreliable past performance and tenuous financial health — as detailed by its executives in bankruptcy court filings — has Boeing worried about other costs it may have to pay as the four unfinished jets sit in limbo.

“By 1/8 Alabama Aircraft’s 3/8 own admission, they are unable to bid for work competitively and profitably and are unable to adequately finance and capitalize their business,” Boeing said in court documents filed with the U.S. Bankruptcy Court in Wilmington, Del.

Alabama Aircraft Chief Financial Officer Randall Shealy didn’t return calls for comment.

Alabama Aircraft filed for bankruptcy protection in February, blaming pension obligations it couldn’t afford and a nasty battle with union leaders that kept it from cutting back on those obligations.

Boeing says it is owed $8 million in damages, largely because of government fees related to Alabama Aircraft’s work, according to court filings.

Late work has put Alabama Aircraft in breach of its contract, which set a deadline of 220 days for the company to finish work on each plane, according to Boeing. It also forced Boeing to modify its contract with the Air Force to the additional cost of $586,501 — an amount that could grow if Alabama Aircraft continues its delays.

Boeing pointed to other costly errors, saying that Alabama Aircraft improperly billed it and couldn’t account for certain parts that Boeing purchased for the work. A U.S. Department of Defense audit found that Alabama Aircraft was improperly overcharging for its quality control work, triggering an additional $6.9 million expense.

Those concerns, coupled with the broader labor issues, has Boeing officials “rightfully…concerned about the 1/8 company’s 3/8 ability to operate as a going concern,” Boeing said in filings.

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