Contract analysis

1. Respondent Whitmore Aerospace LLC ("WAL" or "Respondent") respectfully submits this Answer to the Request for Arbitration filed by Kestrel Dynamics GmbH ("Kestrel" or "Claimant") on November 7, 2022, pursuant to Article 5 of the Rules of Arbitration of the International Chamber of Commerce (2021 edition) (the "ICC Rules"). Simultaneously with this Answer, WAL asserts a Counterclaim against Kestrel, as set forth in

2. WAL is a Delaware limited liability company headquartered at 4200 Wilson Boulevard, Suite 1100, Arlington, Virginia 22203. WAL is a leading aerospace and defense manufacturer specializing in propulsion systems and structural airframe components for both military and commercial aviation applications. In fiscal year 2022, WAL generated annual revenue of approximately $1.87 billion and employed approximately 6,400 in

3. Kestrel is a German limited liability company (Gesellschaft mit beschränkter Haftung) registered in Stuttgart, Germany, under German Trade Register Number HRB 745621 (Amtsgericht Stuttgart), with its registered office at Industriestraße 88, 70565 Stuttgart, Germany. Kestrel is a precision-machined aerospace components supplier, specializing in the manufacture of titanium and nickel-alloy turbine housings and high-

4. WAL categorically denies that it committed any material breach of the Master Supply Agreement for Titanium Alloy Turbine Housings dated June 15, 2018 (the "MSA"), as alleged in the Request for Arbitration. The allegations set forth by Kestrel fundamentally mischaracterize the factual record and distort the contractual framework governing the parties' relationship. WAL's conduct throughout the performance of the MS

5. On the contrary, it was Kestrel — not WAL — that repeatedly and persistently failed to deliver products conforming to the agreed-upon engineering specifications. Between March and September 2022, WAL rejected fourteen (14) separate lots of titanium alloy turbine housings manufactured by Kestrel, each of which failed to meet the express porosity specification of ≤0.25% set forth in WAL-SPEC-TH-401, Appendix C, Tabl

6. WAL's termination of the MSA on October 3, 2022, by issuance of a written Notice of Termination for Cause, was procedurally and substantively proper under Section 14.2(b) of the MSA. WAL exercised its termination right only after Kestrel's quality failures became persistent and systemic, and only after exhausting the contractual cure mechanisms available to Kestrel. WAL's decision to terminate was not pretextual,

7. As a direct result of Kestrel's persistent delivery of non-conforming products, WAL has suffered material harm. WAL was compelled to source 1,680 replacement units of Ti-6Al-4V ELI titanium alloy turbine housings from an alternative supplier, Valkyr Precision Components Inc. ("Valkyr"), at a significant cost premium. WAL's Counterclaim seeks recovery of €5.17 million, representing the direct and foreseeable cost d

8. WAL respectfully requests that the Tribunal dismiss Kestrel's Request for Arbitration in its entirety, deny all relief sought by Kestrel, and award WAL the damages and costs set forth in its Counterclaim and in Section VIII of this Answer.

II. JURISDICTIONAL AND PROCEDURAL MATTERS A. Arbitration Agreement

9. Section 22.3 of the MSA contains the arbitration agreement governing this dispute. That provision states, in relevant part: "Any dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity, or termination, shall be referred to and finally resolved by arbitration under the Rules of Arbitration of the International Chamber of Commerce (2021 edition) by three

10. WAL confirms the existence and validity of the arbitration agreement set forth in Section 22.3 of the MSA. WAL acknowledges that this dispute falls within the scope of the arbitration clause and consents to the jurisdiction of the Tribunal constituted pursuant to the ICC Rules. WAL further confirms that the arbitration is properly to be conducted before a three-member tribunal, with the seat of arbitration in New

11. WAL does not raise any objection to the jurisdiction of the Tribunal or to the admissibility of Kestrel's Request for Arbitration at this time. WAL reserves all rights, however, to raise jurisdictional or admissibility objections with respect to any particular claim or counterclaim, or any aspect thereof, as the proceedings develop. B. Governing Law

12. Section 22.1 of the MSA provides that the MSA is governed by the laws of the State of New York, United States of America, without regard to principles of conflict of laws that would direct the application of the laws of any other jurisdiction. That provision states: "This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to any choice or confl

13. WAL confirms that the MSA is governed by New York law and that the substantive rights and obligations of the parties, including all questions of contractual interpretation, breach, and remedy, are to be determined in accordance with New York law. WAL reserves all rights and defenses available to it under New York law, including, without limitation, rights and defenses arising under the Uniform Commercial Code as

14. Pursuant to Article 12(4) of the ICC Rules, WAL has nominated the Honorable Robert A. Castillo, retired judge of the United States District Court for the Southern District of New York, as Respondent's co-arbitrator. WAL's nomination is set forth in WAL's separate letter to the ICC Secretariat dated December 19, 2022, which includes Judge Castillo's curriculum vitae, statement of independence and impartiality, and

15. WAL notes that, pursuant to Section 22.3 of the MSA and Article 12(5) of the ICC Rules, the Presiding Arbitrator (chair of the Tribunal) is to be appointed by agreement of the two party-nominated co-arbitrators, or, failing such agreement within thirty (30) days of the confirmation of the second co-arbitrator, by the ICC Court. WAL is prepared to cooperate with Claimant and the co-arbitrators in the selection of

16. WAL is represented in this arbitration by Calderwood & Harkness LLP, a full-service international law firm with offices at 600 Lexington Avenue, New York, NY 10022 and 1750 K Street NW, Washington, DC 20006. The attorneys responsible for this matter are as follows: • Responsible Partner: Theodore Langston • Billing Partner: Vivienne St. Claire • Lead Associate: Simone Laroche, Senior Associate • Working Associate

17. All communications regarding this arbitration should be directed to Theodore Langston at Calderwood & Harkness LLP, 600 Lexington Avenue, New York, NY 10022, telephone: +1 (212) 558-4000, email: t.langston@calderwoodharkness.com. Copies of all filings and correspondence should also be transmitted to Simone Laroche at s.laroche@calderwoodharkness.com and Jeffrey Park at j.park@calderwoodharkness.com.

III. THE PARTIES A. Respondent — Whitmore Aerospace LLC

18. Whitmore Aerospace LLC is a limited liability company organized and existing under the laws of the State of Delaware, with its principal office and headquarters located at 4200 Wilson Boulevard, Suite 1100, Arlington, Virginia 22203, United States of America. WAL's registered agent for service of process in Delaware is Penmark Industries, located at 1209 Orange Street, Wilmington, Delaware 19801.

19. WAL is engaged in the design, engineering, manufacture, and sale of aerospace and defense products, with a particular focus on propulsion systems and structural airframe components for military and commercial aviation platforms. WAL's products are incorporated into a range of fixed-wing aircraft, rotary-wing aircraft, and unmanned aerial systems operated by the United States Department of Defense, allied foreign

20. The key personnel relevant to this arbitration include: • Marcus J. Whitmore III — Chief Executive Officer. Mr. Whitmore has served as CEO of WAL since 2012 and is responsible for the overall strategic direction and management of the company. • Dana Prescott — Vice President and General Counsel. Ms. Prescott oversees WAL's legal affairs, including all commercial contracting, litigation, and regulatory compliance

21. Based on publicly available information and WAL's own records, Kestrel Dynamics GmbH is a limited liability company (Gesellschaft mit beschränkter Haftung) organized and existing under the laws of the Federal Republic of Germany, with its registered office at Industriestraße 88, 70565 Stuttgart, Germany. Kestrel is registered with the Stuttgart Commercial Register (Handelsregister) under number HRB 745621 (Amtsge

22. Kestrel is engaged in the manufacture and sale of precision-machined aerospace components, specializing in titanium and nickel-alloy turbine housings and high-temperature exhaust assemblies for the aerospace industry. Kestrel operates manufacturing facilities in Stuttgart and Friedrichshafen, Germany, and supplies components to aerospace manufacturers and integrators in Europe, North America, and Asia.

23. The key personnel relevant to this arbitration include: • Friedrich Brenner — Managing Director (Geschäftsführer). Mr. Brenner is the principal executive officer of Kestrel and is responsible for the company's overall management and operations. • Luisa Erdmann — Commercial Director. Ms. Erdmann oversees Kestrel's commercial relationships, including the negotiation and administration of supply agreements with cust

IV. FACTUAL BACKGROUND A. The Master Supply Agreement

24. On June 15, 2018, WAL and Kestrel entered into a Master Supply Agreement for Titanium Alloy Turbine Housings (reference number WAL-KDG-MSA-2018-0615) (the "MSA"). Under the MSA, WAL engaged Kestrel as a supplier of Ti-6Al-4V ELI (Extra Low Interstitials) titanium alloy turbine housings (the "Products"), to be manufactured by Kestrel in accordance with WAL's engineering specifications designated WAL-SPEC-TH-401 th

25. The MSA was negotiated over a period of approximately five months, from January through May 2018, by experienced commercial and technical representatives of both parties. WAL's negotiating team was led by Gerald Huang (then Director of Strategic Sourcing) and included representatives from WAL's engineering, quality assurance, and legal departments. Kestrel's negotiating team was led by Luisa Erdmann and included

26. The principal terms of the MSA are as follows: (a) Term. The initial term of the MSA was five (5) years, commencing on June 15, 2018 and expiring on June 14, 2023. The MSA provided for two (2) optional one-year renewal periods, each exercisable solely at WAL's discretion upon written notice to Kestrel not later than ninety (90) days prior to the expiration of the then-current term. (b) Scope and Products. Kestrel

27. Several provisions of the MSA are of particular importance to this dispute and warrant detailed discussion.

28. Section 8.4 — Rejection and Cure. Section 8.4 of the MSA established the procedures governing WAL's right to reject non-conforming lots of Products and Kestrel's corresponding right and obligation to cure. Under Section 8.4, if WAL rejected a lot for non-conformance with the applicable engineering specifications, Kestrel was required to replace or rework the rejected lot within a specified cure period. As origina

29. Section 8.7 — Exclusive Remedy / Consequential Damages Waiver. Section 8.7 of the MSA addressed the remedies available to WAL in the event of quality failures and contained a mutual waiver of consequential damages. Specifically, upon a quality failure, WAL's remedies were limited to (i) replacement of the non-conforming Products, (ii) credit against future orders, or (iii) upon a Persistent Quality Failure, termi

30. Section 14.2 — Termination for Cause. Section 14.2 of the MSA set forth the grounds and procedures for termination of the MSA for cause. Under Section 14.2(a), either party could terminate the MSA upon a material breach by the other party that remained uncured for sixty (60) days following written notice specifying the nature of the breach and demanding cure. Under Section 14.2(b), WAL had the specific right to t

31. Porosity Specification. WAL-SPEC-TH-401, Appendix C, Table 3 expressly states that the maximum permissible porosity level in each turbine housing unit is ≤0.25% by volume. This porosity specification was a critical quality requirement, as excessive porosity in titanium alloy turbine housings can compromise the structural integrity and fatigue life of the component, creating an unacceptable safety risk in propulsi

32. During the term of the MSA, the parties entered into two formal amendments, each executed in accordance with the MSA's amendment procedures.

33. Amendment No. 1 (February 10, 2020). Amendment No. 1 to the MSA was executed on February 10, 2020. This amendment had two principal purposes. First, it added a new engineering specification, WAL-SPEC-TH-410, covering a high-temperature variant of the turbine housing designed for WAL's next-generation military turbofan engine program. Second, Amendment No. 1 increased the maximum annual purchase volume from 3,600

34. Amendment No. 2 (September 3, 2021). Amendment No. 2 to the MSA was executed on September 3, 2021. This amendment was negotiated and agreed upon in response to the global supply chain disruptions caused by the COVID-19 pandemic, which had created significant logistics challenges for both parties. Amendment No. 2 extended the cure period under Section 8.4 of the MSA from thirty (30) calendar days to forty-five (45

35. WAL notes that the extension of the cure period from thirty (30) to forty-five (45) calendar days was a significant concession by WAL, made in good faith to accommodate Kestrel's operational difficulties during the pandemic. The extended cure period gave Kestrel substantially more time to address any quality deficiencies in its products. Despite this accommodation, Kestrel still failed to cure seven (7) of fourte

36. Between March 7, 2022 and September 19, 2022, WAL's incoming inspection team identified and rejected fourteen (14) separate lots of Products delivered by Kestrel, totaling 1,680 units. Each rejected lot was inspected in accordance with WAL Quality Control Procedure WAL-QCP-100, which prescribes standardized metallurgical testing protocols, including microstructural analysis, radiographic inspection, and quantitat

37. WAL's incoming inspection under WAL-QCP-100 identified porosity levels in the rejected lots ranging from 0.19% to 0.38% by volume. While certain individual sample measurements within some lots fell at or below the 0.25% threshold, the lot-level porosity determinations — which are the operative measure under WAL-SPEC-TH-401, Appendix C, Table 3 — exceeded the contractual maximum of ≤0.25% in each of the fourteen (

38. WAL's internal findings were independently corroborated by metallurgical testing conducted by Meridian Materials Testing Laboratories, Inc. ("Meridian Labs"), an independent, ISO/IEC 17025-accredited testing laboratory located in Gaithersburg, Maryland. Meridian Labs tested representative samples from each of the fourteen rejected lots and confirmed that porosity levels exceeded the ≤0.25% contractual specificati

39. Following each lot rejection, WAL provided Kestrel with written notice of rejection in accordance with Section 8.4 of the MSA, identifying the specific non-conformance (i.e., excess porosity), the applicable specification, the measured porosity levels, and the deadline for cure. Copies of the fourteen lot rejection notices are annexed hereto as Exhibit R-6.

40. Of the fourteen (14) rejected lots, Kestrel failed to cure seven (7) within the 45-calendar-day amended cure period prescribed by Section 8.4 of the MSA, as modified by Amendment No. 2. In certain instances, Kestrel provided replacement units that themselves failed to meet the porosity specification upon re-inspection; in other instances, Kestrel simply failed to deliver replacement units within the cure period.

41. The seven (7) uncured rejections within the rolling twelve-month period from March 7, 2022 through September 19, 2022 far exceeded the Persistent Quality Failure threshold of three (3) uncured rejections in any rolling twelve-month period, as defined in Section 8.4 of the MSA. WAL submits that there can be no genuine dispute that a Persistent Quality Failure occurred under the MSA. E. WAL's Notice of Termination

42. On October 3, 2022, WAL issued a written Notice of Termination for Cause to Kestrel, pursuant to Section 14.2(b) of the MSA. The Notice of Termination was addressed to Mr. Friedrich Brenner, Managing Director of Kestrel, and was delivered by international courier with signature confirmation and by electronic mail to Mr. Brenner, Ms. Luisa Erdmann, and Dr. Stefan Voss. A true and complete copy of the Notice of Ter

43. The Notice of Termination specifically cited the occurrence of a Persistent Quality Failure under Section 8.4 of the MSA, identified the seven (7) uncured lot rejections giving rise to the Persistent Quality Failure, and stated that the MSA was terminated effective as of the date of the notice, October 3, 2022, in accordance with Section 14.2(b). The termination was based on the documented record of Kestrel's qua

44. WAL rejects in the strongest terms Kestrel's allegation that the termination was pretextual, manufactured, or motivated by any purpose other than the protection of WAL's legitimate business interests in the face of a persistent pattern of quality non-conformance. The factual record demonstrates beyond any reasonable dispute that Kestrel's quality failures were real, documented, independently verified, and of a ma

45. Following Kestrel's persistent quality failures, and in order to maintain continuity of supply for its propulsion system programs, WAL undertook a commercially reasonable search for an alternative supplier of Ti-6Al-4V ELI titanium alloy turbine housings. After evaluating several potential suppliers, WAL engaged Valkyr Precision Components Inc. ("Valkyr"), a precision machining company based at 4401 East Irvingto

46. WAL's engagement of Valkyr was a commercially reasonable mitigation step taken after and in response to Kestrel's quality failures — not, as Kestrel has alleged, a pretext for termination. WAL did not begin negotiations with Valkyr until after the fifth uncured lot rejection, at which point it had become apparent that Kestrel's quality problems were systemic and unlikely to be resolved in the near term. WAL's sup

47. WAL incurred significant premium costs in sourcing replacement components from Valkyr, as a consequence of Valkyr's need to undertake qualification activities, tooling procurement, and expedited production scheduling to meet WAL's urgent requirements. The details of WAL's replacement costs and the resulting damages are set forth in the Counterclaim below in Section VII.

V. ANSWER TO CLAIMANT'S REQUEST FOR ARBITRATION A. General Denial

48. WAL denies each and every allegation contained in the Request for Arbitration filed by Kestrel on November 7, 2022, except to the extent that any allegation is expressly admitted herein. To the extent that any allegation of the Request for Arbitration is not specifically addressed in this Answer, such allegation is deemed denied. WAL specifically and unequivocally denies that it committed any material breach of t

1. Denial of Wrongful Rejection.

49. WAL denies that it wrongfully rejected the fourteen (14) lots of Products identified in the Request for Arbitration. Each rejection was based on objective, documented, and independently verified non-conformance with the contractual porosity specification of ≤0.25% as expressly stated in WAL-SPEC-TH-401, Appendix C, Table 3. The porosity specification is a clearly defined, quantitative standard that leaves no room

50. WAL's incoming inspections were conducted in strict accordance with WAL-QCP-100, which sets forth standardized, repeatable testing protocols consistent with ASTM E2109 and ASTM B311 methodologies. The inspections were performed by qualified metallurgical technicians under the supervision of WAL's Quality Assurance Engineering group, and the results were documented in contemporaneous inspection reports that will b

51. WAL categorically denies Kestrel's allegation that WAL applied any unpublished, extraneous, or undisclosed quality criteria in its inspections or rejection decisions. The ≤0.25% porosity standard is expressly stated in the contractual specifications that were incorporated by reference into the MSA, were provided to Kestrel at the time of contract execution, and were the subject of detailed technical discussions b

52. WAL further denies any allegation that its testing methodology was flawed, biased, or improperly calibrated. WAL's internal test results were independently confirmed by Meridian Materials Testing Laboratories, Inc., an ISO/IEC 17025-accredited laboratory with no affiliation to WAL or any interest in the outcome of this dispute.

2. Denial of Wrongful Termination.

53. WAL denies that its Notice of Termination for Cause dated October 3, 2022 was wrongful, pretextual, or based on fabricated or exaggerated quality deficiencies. The termination was proper under Section 14.2(b) of the MSA, which confers upon WAL the express right to terminate the MSA upon the occurrence of a Persistent Quality Failure as defined in Section 8.4.