Aircraft firm thousands of dollars behind on lease payments to Cape Girardeau

In 2005, Cape Girardeau was stuck with a multimillion-dollar problem -- the city had borrowed $2.8 million to build an aircraft manufacturing facility at Cape Girardeau Regional Airport but the tenant, Renaissance Aircraft, had closed.

Then what appeared to be a blessing arrived. A group of investors had bought the inventory and name from another failed company, Commander Aircraft, and signed a lease in October 2005 on the 52,000-square-foot building. The new owners, under the name Commander Premier, said they would begin building airplanes within a few months. The city, already stuck with payments on the debt, agreed to a favorable lease that gave the company the building at no cost for six months.

But since the lease payments started coming due, Commander Premier has made only eight payments, totaling $94,000, out of the $448,000 the city is owed. The last payment, $13,000, was made in December 2007.

During that same period, the city has paid $803,547 to bondholders. In all, the city has paid $1.2 million and owes another $2.2 million in principal and interest over the next 12 years.

After that initial period, Commander Premier was to pay $11,000 a month beginning in July 2006. The lease payment was scheduled to increase gradually. By Jan. 1, 2010, the payment is set to reach $21,016 per month, enough to make bond payments without taking money from other city taxes.

The missed lease payments are a major reason the city has depleted its operating reserves over the past five years. As the city faces its toughest budget year in memory, with a $661,000 shortfall in the coming fiscal year, it is becoming insistent that Commander Premier meet its obligations.

On July 1, 2004, the city's unobligated operating reserve stood at a record $1.4 million. "The unreserved fund balance of the general fund may be fully depleted by the end of this year," city finance director John Richbourg warned in a Monday memo to the Cape Girardeau City Council.

At a discussion of Commander's future April 13, interim city manager Ken Eftink, along with Mayor Jay Knudtson, Richbourg and city attorney Eric Cunningham told Commander president and chief executive officer Gregory Walker that the city was running short of patience. While Eftink commended Walker for responding to the city's request for a meeting, he said the meeting didn't settle anything.

"We needed to resolve the issue as soon as possible for obvious reasons," Eftink said Wednesday. "It has a significant impact on the budget. It was set up from the beginning that we would use the general fund to cover the payments. We are no longer at a point where we can continue to do that."

Commander Premier uses the building to repair the roughly 1,000 aircraft built by the original Commander company. But it has never built a new airplane there and employs only a handful of the 100 people that had been expected to be on the payroll by the end of 2008.

During a city council budget work session Monday evening, the money owed by Commander Premier was a topic that kept popping up as the biggest hole in the spending plan. If the company makes its required payments of $213,100, it appears next year's budget will be $260,000 in the black. If not, the surplus shrinks to $47,000.

"Basically we talked to them and told them we would meet again within 30 days to resolve this problem," Eftink said.

Still plans to build planes

A resolution may not come that soon, Walker said Wednesday. He declined to offer specifics but said the company still plans to build airplanes in Cape Girardeau.

Walker became president of the company in January 2008, replacing Joel Hartstone of StoneGate Capital Group LLC. The stated reason for the change was that Hartstone would concentrate on finding capital to finance the manufacturing arm of the company.

"Probably in the next 30 to 60 days we are going to have a lot to talk about," Walker said. "But there is nothing to talk about until some events happen, and if they happen we will all be happy. The city, us and the area will be happy."

The national economic recession has interfered with the company's plans, Walker said. "We are in the same turmoil as everybody else, and that is what we are trying to overcome," he said.

One reason the city has been more lenient with Commander Premier than a private landlord might be is that the building occupied by the company must be used by a business connected to aviation. Commander fits the bill, as would an air transport company. But Federal Aviation Administration rules bar use of the building by a nonaviation business.

When Schaefer Electrical Supply was looking for a new location, the building housing Commander was considered, but the FAA rules kept the city from taking action to change the user, Eftink said.

That leaves the city waiting for action by Commander. Under the lease agreement, Commander could be declared in default now and evicted. The company would remain obligated for all lease payments under the contract, which runs through April 1, 2020. The city is hesitant to take that step.

"What I really want is the past due payments and all future payments," Eftink said. "Anything less and we would have to have some serious discussions with the city attorney."

Another unsavory option would be to stop paying the debt. The bonds are not a strict legal obligation of the city, but Cape Girardeau's reputation and A+ bond rating would be in jeopardy, Cunningham said.

"If the city walked away, we may not have to pay it, but we may never be able to borrow money again," Cunningham said.

rkeller@semissourian.com

388-3642

http://www.cityofcapegirardeau.org/

Pertinent addresses:

401 Independence St., Cape Girardeau, MO

Cape Girardeau Regional Airport, Cape Girardeau, MO