FACC AG: Arbitration ruling leads to unexpected 2021 losses

Aerospace technology firm FACC AG has reported unexpected and significant losses for its 2021 fiscal year following an arbitration decision in London. The ruling, first disclosed in November 2021, has forced the company to revise its Earnings Before Interest and Taxes (EBIT) guidance for 2021, now projecting a range of EUR -25 million to EUR -30 million.

The dispute originated from contracts signed between 2008 and 2011 related to the localization of work packages in the United Arab Emirates. FACC stated that a program transfer guarantee was in place for one of the four planned manufacturing programs in the UAE. While FACC believes it fulfilled its obligations, the Abu Dhabi-based supplier ultimately did not sign the contract and instead invoked the guarantee.

Negotiations to resolve the issue amicably failed in 2019, leading the supplier to initiate arbitration proceedings. FACC indicated that it had received legal advice suggesting a favorable outcome, making the adverse ruling a surprise. The company has characterized the financial impact as a one-off event affecting 2021 EBIT and cash flow, with no expected future repercussions after the claims are settled.

As a consequence of the ruling, FACC is now in negotiations with its core banks regarding covenant waivers for its syndicated loan facilities for year-end 2021 testing and beyond. The company is also assessing the impact on its 2022 cash flow and liquidity, asserting that its current cash reserves are robust and sufficient to support ongoing operations and planned growth investments.

FACC expressed deep regret over the negative impact of the unexpected arbitration outcome on its profits and cash flow, noting the decision comes at a critical time as the company works to recover from a severe crisis in the aerospace sector. The management board has committed to continuing the company's recovery path.