Supplier Dispute & London Arbitration Results
As already reported via an ad hoc release on Tuesday, 9th November 2021, an arbitration decision in London leads to unexpected and significant negative fiscal year 2021 losses for the FACC Group. Despite the fact that FACC’s operational performance and business turn-around is progressing as planned, the arbitration decision led to an adaption of our fiscal year 2021 EBIT guidance to a range of EUR -25 million to EUR -30 million.
By means of this letter and with consternation, disappointment and deep regret, we would like to inform all FACC AG stakeholders about the history of the legal case and the damage, which came as a surprise to us and was unforeseeable.
The cases originated from various contracts signed during a period from 2008 to 2011 in the context of OEMs promoting localization of work-packages to the United Arab Emirates. For one of the four programs planned for contract manufacturing in the UAE, a so-called program transfer guarantee was signed at the very first beginning of the engagement. We are of the opinion that all obligations have been met by FACC and the package was offered based on terms and conditions as pre-agreed. A contract was provided for signature and work transfer kick-off. The Abu Dhabi based supplier, however, ultimately did not enter into the agreement. Instead, the supplier decided after a period of time to call the guarantee claiming he had the choice to either accept the contract or call the guarantee.
In the following years negotiations between FACC and the UAE supplier were conducted with the intent to resolve the dispute amicably. When these negotiations finally failed in summer 2019, the supplier initiated an arbitration litigation – which was contractually agreed - by filing a complaint end of 2019. As we informed the public in our ad hoc release, we had sophisticated legal opinions during the entire phase of the ongoing case, which fully backed our view of an overall positive outcome of the arbitration.
We were devastated when we were informed about the negative outcome of the arbitration process. Together with our British lawyers, FACC investigated possibilities of a potential appeal. After a careful review of the arbitration results and the potentials for appeal, the Management Board of FACC saw no other option than to change the EBIT-guidance for the fiscal year 2021.
What does the decision mean for the FACC Group?
The decision is resulting in an one-off impact to FACC in terms of EBIT and Cash-Flow in FY 2021. Once the related claims are provided for and settled, no further impacts to FACC’s business will persist in the future.
The following next steps are put in place and are progressing:
- Due to the magnitude of the impact on EBITDA and Net Debt, the Syndicated Loan covenant incurs an equally severe negative impact. Negotiations with our core banks are progressing in order to agree terms and conditions for a new waiver for year-end 2021 testing and beyond.
- We will further review the cash-flow and liquidity impact on the 2022 fiscal year. FACC cash reserves are high and our liquidity position will fully support FACC ongoing business and growth investments as planned.
We are deeply sorry that this unexpected and unforeseeable arbitration result negatively impacted FACC’s profit and cashflow. This decision comes at a point in time when our employees are putting all their efforts into recovering successfully from the deepest Aerospace crisis in history and when we see the first fruits of their hard work. The tremendous operational progress in turning the company around as the recent quarterly results of 2021 are proving, show the huge dedication everyone is contributing into increasing the stakeholder value of FACC.
We want to commit to you that the Management Board of FACC will do everything it can to further execute the successful recovery path we are on.
Robert Machtlinger Aleš Stárek