Dana,
I am writing to confirm that we have received and completed an initial review of the Request for Arbitration filed today, November 7, 2022, by Kestrel Dynamics GmbH with the Secretariat of the International Court of Arbitration of the International Chamber of Commerce. The matter has been assigned ICC Case No. 27914/MHM.
Kestrel is represented by Haber Reinhardt Schlosser Partnerschaft mbB, with Dr. Maximilian Haber (Stuttgart/London) serving as lead partner. The core of Kestrel's claims centers on allegations of material breach of the Master Supply Agreement dated June 15, 2018 (ref: WAL-KDG-MSA-2018-0615), specifically the wrongful rejection of delivered lots and the improper issuance of a termination for cause on October 3, 2022. Kestrel claims damages totaling approximately €47.3 million. The arbitration is seated in New York, New York, governed by the ICC Rules of Arbitration (2021 edition), with English as the language of the arbitration and New York law as the governing law of the MSA.
**Engagement Formalities**
As you will recall, we transmitted a draft engagement letter on November 2, 2022, which is still awaiting your countersignature. I would appreciate it if you could execute and return the letter at your earliest convenience so that we may formally open this matter under engagement number 1019-00001. For the record, the team staffing is as follows: I will serve as responsible partner, Vivienne St. Claire as billing partner, Simone Laroche as lead associate, and Jeffrey Park as working associate. The hourly rate structure is set out in the engagement letter, and I will not repeat it here — please refer back to that document for details.
**Immediate Next Steps**
Given the filing today, we need to move quickly on several fronts. I have set out the priority action items below.
*1. Litigation Hold*
Simone will prepare and issue a formal litigation hold notice to Whitmore Aerospace tomorrow, November 8, 2022. Dana, I need you to ensure that all relevant custodians are promptly notified and understand their preservation obligations. Gerald Huang (VP Global Supply Chain Operations) and Dr. Ingrid Vollmer (SVP Engineering & Manufacturing) are the most critical custodians, but the hold should extend to anyone with potentially responsive materials. The scope of the hold must cover, at a minimum:
- All documents, communications, and electronic data relating to the MSA and its amendments (Amendment No. 1, dated February 10, 2020, and Amendment No. 2, dated September 3, 2021); - Lot inspection records and quality control reports generated under WAL-QCP-100; - Engineering specifications WAL-SPEC-TH-401 through WAL-SPEC-TH-410; - All correspondence with Kestrel personnel, including Friedrich Brenner, Luisa Erdmann, and Dr. Stefan Voss; - Records relating to each of the 14 rejected lots between March and September 2022 (Lot KDG-2022-0307 through Lot KDG-2022-0919); and - All documents relating to the identification, qualification, and onboarding of Valkyr Precision Components Inc. as the replacement supplier.
Please do not wait for the formal notice to begin communicating preservation obligations internally. Time is of the essence.
*2. MSA and Amendments Review*
The team will immediately undertake a thorough review of the MSA and both amendments. Our initial focus will be on the following provisions:
- § 8.4 — Rejection and Cure provisions, including the Persistent Quality Failure threshold (three or more uncured rejections in a rolling 12-month period); - § 8.7 — Exclusive Remedy and the consequential damages waiver; - § 14.2 — Termination for Cause, both subsection (a) (material breach with a 60-day cure period) and subsection (b) (Persistent Quality Failure); - § 22.1 (New York governing law) and § 22.3 (ICC arbitration clause); and - The amended cure period of 45 calendar days introduced by Amendment No. 2.
We will need to map each of Kestrel's specific allegations against the contractual framework to identify precisely where the disputes lie.
*3. Preliminary Case Assessment*
Simone and Jeffrey will prepare an internal preliminary case assessment memorandum over the next several days. This will evaluate the strength of WAL's defenses to each of Kestrel's claims, as well as the viability of a counterclaim for the replacement-component costs WAL has incurred through Valkyr. Our preliminary estimate of counterclaim damages is approximately €5.17 million, based on the per-unit pricing premium of Valkyr (€8,432.92 per unit versus Kestrel's CY4 contract price of €5,222.92 per unit), applied across 1,680 replacement units and net of Valkyr's introductory discount. We will refine this figure as we receive the underlying documentation.
*4. Answer and Counterclaim*
Under the ICC Rules, WAL must file its Answer to the Request for Arbitration within 30 days of receipt. I am targeting preparation of a draft Answer and Counterclaim for filing by mid-December 2022, which will give us adequate time for internal review and your sign-off. To support this timeline, I need you to begin assembling the key factual record as soon as possible. Priority documents include:
- The Notice of Termination for Cause dated October 3, 2022; - The rejection notices for all 14 lots; - Incoming inspection data showing the porosity levels for the rejected lots (our understanding is that measured porosity ranged from 0.19% to 0.38%, against the contractual limit of ≤0.25% per WAL-SPEC-TH-401, Appendix C, Table 3); and - All cure correspondence exchanged between WAL and Kestrel during the March–September 2022 period.
*5. Arbitrator Selection*
WAL will need to nominate a co-arbitrator. The Claimant will separately nominate its own co-arbitrator, and the presiding arbitrator will be appointed either by agreement of the parties or, failing agreement, by the ICC Court. We are already developing a short list of candidates with the appropriate subject-matter expertise and will provide our recommendations to you shortly.
*6. Insurance Notification*
We will prepare and send a notification letter to Pinnacle Continental Insurance Co. regarding this arbitration, under Policy No. PCE-GL-2021-08854. I will note candidly that this is largely precautionary — a commercial-supply exclusion likely applies — but proper and timely notice is important to preserve any potential coverage arguments.
*7. Lender Notification*
Dana, please check whether WAL's credit agreement with Veltrano National Bank, N.A. — the $350 million senior secured revolving credit facility — contains any arbitration or litigation reporting covenants that would require notice of this proceeding. If Kestrel's €47.3 million claim were to succeed in full (which I view as highly unlikely, and the claim amount is, in my judgment, significantly overstated), it could implicate financial covenant compliance. We should get ahead of any notification requirements now rather than later.
**Initial Document Collection**
In addition to the priority documents referenced above, I would ask that you coordinate with Gerald Huang and Dr. Vollmer to begin collecting and transmitting to us copies of the following:
- The fully executed MSA and both amendments; - The October 3, 2022 Notice of Termination for Cause; - All lot rejection notices and cure correspondence from March through September 2022; - WAL's incoming inspection reports and porosity testing data for each of the 14 rejected lots; - The Valkyr supply agreement and all related pricing documentation; and - AS9100 Rev D certification records for Kestrel.
We will set up a secure document review platform for this matter and will provide you and your team with access credentials once it is configured.
**Scheduling**
I would like to schedule a kickoff call for later this week — either Wednesday, November 9, or Thursday, November 10 — with you, Gerald Huang, and Dr. Vollmer. The purpose of that call will be to walk through the factual chronology in detail and begin identifying the key witnesses we will need to prepare. Please let me know which date works best for your team, and we will send a calendar invitation.
At an appropriate point, Marcus will need to be briefed on the arbitration and the strategic posture. For now, however, I think our initial focus should remain on the operational and legal teams so that we can build the factual foundation efficiently.
**Closing Thoughts**
I want to assure you that I am confident in WAL's position. The termination was supported by well-documented quality failures across multiple lots and was procedurally proper under the MSA. Moreover, the consequential damages waiver in § 8.7 should significantly limit Kestrel's recoverable damages even in the event that any breach were found — and a substantial portion of the €47.3 million claim appears to consist of precisely the types of damages that provision was designed to exclude.
The team is fully mobilized. Going forward, we will provide you with a formal monthly status report to keep you and the broader WAL leadership informed of all material developments.
Please do not hesitate to call me with any questions. I am available on my direct line or mobile at any time.
Best regards,
Theodore Langston
Theodore Langston
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