A Boeing jet at the 2023 Paris Air Show.
Mustafa Yalcin/Anadolu Agency via Getty Images
Ten Oaks Management accused Boeing of “conning” it into buying a failing supplier, in a counterclaim.The legal dispute has seen both sides accuse the other of fraud.It comes as Boeing faces scrutiny over quality-assurance issues with its 737 Max 9 aircraft.
A North Carolina company accused Boeing of “conning” it into buying a failing supplier, in a lawsuit filed last Friday, seen by Business Insider.
Ten Oaks Management is a family office with around 50 staff that acts like a private equity fund by investing generational wealth. In March 2022, it bought Astech, which was a key supplier for the Boeing 767 and KC-46 Pegasus — a military tanker developed from the airliner.
According to a filing in the Delaware Bankruptcy Court, Astech was worth $25 million. Boeing has a market capitalization of $127 billion.
Astech filed for bankruptcy in July 2022 and then that September terminated its supplier contract with Boeing — sparking a legal contest that has seen both sides accuse each other of fraud.
A week after the contract was terminated, Boeing brought its case against Ten Oaks, saying it was tricked into approving its purchase of Astech.
It alleged Ten Oaks said it would improve the quality of the aircraft parts, and use an $18 million line of credit to keep Astech afloat.
But when it assumed control of Astech, Boeing alleges it was “held hostage” by the family office and subject to a “bait and switch.”
That’s because Ten Oaks gave it an “ultimatum” to pay three-fold more for the parts, or the contract would end, per Boeing’s suit.
However, Ten Oaks hit back with a counterclaim last Friday, saying it was duped into buying Astech by Boeing. It says Boeing’s claim is “exactly backward.”
“It is only Boeing that benefitted as a result of that purchase,” it added.
The complaint says Boeing’s contract with Astech was “lopsided” and leading it into bankruptcy because the pricing didn’t even cover manufacturing costs.
The contract was agreed by Astech’s previous owner, GKN, in 2012 and was set to last until 2028 with prices changing over time.
By 2022, Astech was losing $120,000 on each exhaust kit it sold to Boeing, the suit adds.
“To avoid losing this sweetheart deal, Boeing fraudulently induced Counterclaimants into buying that supplier,” the complaint alleges.
It also claimed that Boeing “hoodwinked” the family office into “purchasing the assets of the failing Astech Business by concealing from [Ten Oaks] the distressed nature of the Astech Business with Boeing and by promising financial assistance that it had no intention of actually providing.”
The Boeing KC-46 is a military tanker that can refuel fighter jets in midair.
US Air Force
Ten Oaks alleges that Boeing said it would give Astech financial support and help it invest in its equipment.
It also accuses Boeing of “intentionally” concealing that Astech’s previous owner threatened to close the business if Boeing didn’t agree to price increases.
Boeing was already looking into alternative suppliers in case Astech went bankrupt, the complaint adds.
“Boeing was able to keep its preposterously low-price supply chain for many months longer than it would have as a direct result of the acquisition,” the suit said.
Boeing did not respond to a request for comment from BI.
The counterclaim comes at a pivotal moment for Boeing, as it deals with the fall out from January’s Alaska Airlines blowout.
In its preliminary report released Tuesday, the National Transportation Safety Board said the 737 Max 9 left Boeing’s factory without key bolts designed to secure the door plug.
Mike Whitaker, administrator of the Federal Aviation Administration, said: “The quality-assurance issues we have seen are unacceptable.”
Another Boeing supplier, Spirit AeroSystems, is also facing scrutiny because it builds the Max 9 fuselage.
Ten Oaks’ lawsuit alleges Boeing has suffered problems with suppliers due to “a relentless drive to cut costs at the expense of quality and reliability.”