Boeing lawsuit blames U.K. investment company for planned closure of supplier GKN Aerospace

Boeing is suing Melrose for failing to adequately capitalize GKN Aerospace, making it insolvent.

Boeing lawsuit blames U.K. investment company for planned closure of supplier GKN Aerospace

GKN Aerospace announced in February 2022 that by the end this year, it will close its factory, which makes aircraft parts for The Boeing Co.

GKN's spokesman stated in an email that the company had invested heavily in the site in the last decade. However, the facility was struggling to be profitable in recent years despite everyone's best efforts.

The Boeing Co.'s (NYSE: BA), which filed a lawsuit in December, is presently pending before the St. Louis County Circuit Court. The suit presents a very differing account of events surrounding GKN Aerospace’s plan to close the Hazelwood Plant. This will affect about 900 employees.

Boeing has been relying on GKN Aerospace St. Louis LLC for 'essential and complex parts' since over 20 years to manufacture the F-15 and F/A-18 jet fighters that are used by the U.S. Air Force, Navy and other allies.

Melrose Industries PLC of the U.K. is accused in the lawsuit of failing to adequately capitalise GKN Aerospace St. Louis and rendering it bankrupt. Melrose Industries, headquartered in London, England is an investment firm that purchases and sells manufacturing and industrial businesses.

Boeing also claimed that Melrose used this insolvency to try and escape liability for GKN Aerospace St. Louis breaking contracts to supply Boeing – and to force Boeing into acquiring the company at 'unfavorable conditions'. McDonnell Douglas owned and operated the plant before Boeing merged in 1997. In November 2000, the facility was sold to GKN Aerospace after being spun off.

Boeing's lawsuit stated that Melrose actively turned away third parties who wanted to buy GKN Aerospace St. Louis. Boeing's lawsuit claims that when a third party expressed an interest in buying the St. Louis location, Melrose's Head of Corporate Development strongly rejected the offer, telling the party 'please desist ,'''.

GKN refused to provide an executive for an interview regarding Boeing's suit. A spokesperson from Melrose did not respond to messages seeking comment. Matthew Diehr of Husch Blackwell, representing GKN Aerospace St. Louis in Clayton, did not immediately respond to messages seeking comment. Boeing is represented by Dowd Bennett LLP's Jim Bennett in Clayton, along with Jones Day attorneys.

GKN Aerospace St. Louis and other GKN entities filed a complaint in Delaware last December that stated that Boeing had issued purchase orders which GKN Aerospace St. Louis was contractually obligated to accept, even if performance lasted beyond the agreement's terms.

The GKN Aerospace Holdings filed a complaint in the Delaware Court of Chancery stating that 'These agreements are one-sided and overwhelmingly in favor of Boeing in virtually all respects, to the extent where they have become loss-making, and eventually not performable according to their written terms, for many years. This is exacerbated due to Boeing's own uncertainty regarding its predicted capacity requirements.

GKN Aerospace St. Louis stated that it would continue to operate the Hazelwood plant until November 2021. However, the economic situation became 'unstable and unsustainable' after the facility lost two major programs from non-Boeing customers, which were expected to support the facility's cost base past 2023.

Boeing's lawsuit filed in St. Louis County Circuit Court is seeking unspecified damages against Melrose and various GKN entities. Boeing, based in Arlington County, Virginia, has also requested a permanent order requiring GKN Aerospace STL, based in Arlington County, to continue producing and delivering parts under the contracts Boeing has given to GKN.

Boeing first heard about the planned St. Louis closure in February 2022 when GKN Aerospace executives announced that the plant would cease to make parts in the third-quarter of 2023, and close by the end of the year. Boeing stated that it has contracts with GKN Aerospace St. Louis for orders to be fulfilled for parts for F/A-18 until Sept. 30 and F-15 until Dec. 31, 'even if GKN’s period of performance for fulfilling those orders extends beyond those dates'

Boeing's lawyers wrote in a court document dated April 17, 'Since Boeing announced the closure, it has diligently worked and spent a lot of money to find alternative suppliers for critical parts. For some parts, there are no alternative suppliers, while for others, there are none who can be trained, equipped and qualified in the near future.

Boeing could be unable to meet its obligations under strategic defense contracts with the U.S. Government if GKN Aerospace St. Louis delays in delivering parts. The filing also stated that the decision to shut down GKN Aerospace St. Louis, and stop its parts supply, poses risks to Boeing’s F-15 and F/A-18 program in St. Louis.

GKN Aerospace St. Louis attorneys have filed a motion for dismissal of Boeing's lawsuit. They are in support of the lawsuit filed by GKN Aerospace Holdings, and other GKN companies in December last year in the Delaware Court of Chancery. They asked for the court to determine what damages Boeing may be owed.

GKN Aerospace Holdings announced that it had agreed to continue to assume significant losses, and postpone closure of the facility until the end of 2024. This was to allow Boeing to complete all existing orders.

Boeing stated in its April 17 court filing, that GKN Aerospace Holdings made a concession to make the breach appear more reasonable to the Delaware Court. Even if the commitment is taken at face-value, it still falls far short of GKN Aerospace St. Louis contractual obligations.