Business Cover

RENEGE OR REBOOT? It remains to be seen whether Bell Helicopter’s decision to change operations at Lafayette Regional Airport constitutes a breach of contract.

by Kailey Broussard

Photo by Robin May

It began with an agreement: Louisiana would provide Bell Helicopter with the funds and provisions to construct a $23.6 million assembly plant at Lafayette Regional Airport, where Bell would eventually begin production of its new 505 Jet Ranger X and create 115 new jobs. Former Gov. Bobby Jindal touted the agreement as a way to diversify the local economy and “make Lafayette a great place for business to locate.”

The cooperative endeavor agreement among Louisiana Economic Development, the Lafayette Airport Commission, the Lafayette Economic Development Authority and Bell aimed to ensure the establishment of a rotorcraft final assembly facility in Lafayette — a plan that promised to stimulate both the economy and the job market.

The deal was signed in December 2013. However, in May of this year — less than a year after completing the 82,000-square-foot Lafayette Assembly Center — the company shifted gears and announced it will move final production of the 505 to Quebec, Canada, and will instead build in Lafayette the Bell 525 Relentless cabin and the Northrop Grumman MQ-8C aerial vehicle, projects it is transferring from Amarillo, Texas, and Ozark, Ala., respectively. The company said it is unsure how many employees it will now need in Lafayette.

According to LED Secretary Don Pierson, Bell’s plant in Quebec has seen “hundreds of layoffs in recent years,” and Bell leadership decided moving the project north would be the best decision.

The shift in plans may create a change in outcomes — and, possibly, a change in Bell’s agreement with the Bayou State.

Pierson notes that the transfer may have violated the agreement, which requires the company to build a rotorcraft final assembly facility in Lafayette. "The new production plan envisions assembly of major components, but not complete rotorcrafts,” he says.

An agreement change is on the way, but Pierson says it is too early to tell what the changes will be.

According to the terms of the 2013 agreement, LED is providing performance-based grants for facility construction, infrastructure and equipment, relocation and facility lease. LED also is offering free workforce support through its FastStart program.

In return, the company is supposed to rack up at least $900,000 in required capital expenditures by Dec. 31 and $6.8 million by 2029. If Bell does not meet the required capital expenditures, it must reimburse the state equal to 3 percent of shortfalls. Failure to meet new payroll requirements means Bell reimburses 30.5 percent of the shortfall.

The agreement also calls for Bell to add 75 new jobs this year, with the number of jobs in its Lafayette facility eventually reaching 135 and a required total payroll of $6.3 million. According to the contract, Bell must create 115 new jobs by the end of 2018. If Bell surpasses its required new payroll, it will receive credit for the excess that can offset future shortfalls.

Although the contract states that Bell should not transfer its leasehold without LED’s consent, Bell is able to transfer assignments to affiliates without prior consent so long as it does not affect the company’s ability to carry out its obligations.

However, the agreement could still constitute a default if Bell fails to commence operation, ceases operation, fails to meet its payroll requirement, comply with audits or files for bankruptcy.

If a default occurs, Bell will have a 60-day period to make amends; if amends are not made, the agreement will be terminated, and the end result could be legal action against Bell.

If the state terminates the agreement, Bell will owe the state a reimbursement dependent on the year terminated. If terminated for any reason this year, Bell would be obligated to reimburse the state for $16.5 million, and $16.3 million in 2017.

In the last three years, Louisiana provided approximately $7 billion in tax breaks for 14 separate deals.

Bell is only the latest company to fall short of the promises made in exchange for government help. In the last three years, Louisiana provided approximately $7 billion in tax breaks for 14 separate deals, according to an April story in Bloomberg titled “Taxpayer Subsidies to Companies Fall 70% as U.S. States Pull Back.” According to the financial news source, the cost of those tax breaks and other incentives to corporations have exceeded Louisiana’s corporate income and franchise tax revenue by more than $225 million since November.

The helicopter maker’s sharp change in plans came weeks after Union Tank Car announced it would lay off 224 workers in mid-June after it received $65.2 million in incentives for bringing a $100 million plant to Alexandria that could employ 850 employees. The change also comes on the heels of German Pellets Louisiana’s Chapter 11 bankruptcy filing in February after receiving a $75 million industrial tax exemption in 2013 for capital improvements at a plant in La Salle Parish.

Gary Perilloux, communications director at LED, says it’s too early to tell whether Bell will have to reimburse Louisiana for shortfalls. “It will not be an issue until after this calendar year,” he says of the transfer’s potential impact on the contract. “Reimbursement provisions — that always is something that gets done down the road.”

However, Perilloux says Bell is still committed to the area and the new, multi-million dollar facility.

“We know that changes are happening,” he says, “We don’t know what it’s going to look like two to three years down the line.”