1019-00001 · Haber Reinhardt Schlosser Partners · Correspondence/Client

strategy-update-pre-hearing.docx DOCUMENT M&A / Corporate

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Contract analysis Extract to table

CALDERWOOD & HARKNESS LLP Attorneys at Law

600 Lexington Avenue New York, New York 10022

Telephone: (212) 554-7000 Facsimile: (212) 554-7001 www.calderwoodharkness.com

December 15, 2023

VIA EMAIL AND Sundial Data Systems

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT

Dana Prescott, Esq. Vice President & General Counsel Whitmore Aerospace LLC 4200 Wilson Boulevard, Suite 1100 Arlington, Virginia 22203

Re: Pre-Hearing Strategy Update — ICC Case No. 27914/MHM, Kestrel Dynamics GmbH v. Whitmore Aerospace LLC

Engagement No.: 1019-00001

Dear Dana:

We write to provide you with a comprehensive pre-hearing strategy update in advance of the evidentiary hearing currently scheduled for January 8 through 12, 2024, at the ICC International Court of Arbitration Hearing Centre in New York, New York. As you are aware, the Tribunal in this matter comprises Prof. Dame Eleanor Fitzwilliam (Presiding Arbitrator), Dr. Hans-Ulrich Perren (Claimant's nominee), and the Honorable Robert A. Castillo (Ret.) (Respondent's nominee). The arbitration is governed by the ICC Rules of Arbitration (2021 edition), with the seat of arbitration in New York, New York, and the language of the arbitration being English.

This letter is intended to serve as a consolidated briefing covering the following topics: (I) the current status of pleadings and procedural matters; (II) a summary of the expert evidence exchanged; (III) the anticipated hearing schedule and witness order; (IV) an assessment of Whitmore Aerospace LLC's ("WAL" or "Respondent") principal strengths; (V) a candid assessment of risks and vulnerabilities; (VI) highlights of our cross-examination strategy for the Claimant's witnesses and experts; (VII) preparation steps and action items in advance of the hearing; (VIII) a budget update; and (IX) a note regarding covenant compliance considerations. We encourage you to review this letter carefully and to schedule a call with us at your earliest convenience to discuss any questions or concerns.

I. STATUS OF PLEADINGS

A. Summary of Written Submissions Exchanged

The written pleading phase in this arbitration is now complete. We provide below a summary of the submissions exchanged by the parties.

Claimant's Statement of Claim (filed April 28, 2023). Kestrel Dynamics GmbH ("Kestrel" or "Claimant") filed its Statement of Claim asserting that WAL committed a material breach of the Master Supply Agreement dated June 15, 2018 (the "MSA"), as amended by Amendment No. 1 dated February 10, 2020 and Amendment No. 2 dated September 3, 2021. Kestrel alleges that WAL wrongfully terminated the MSA by applying an "unpublished" porosity tolerance standard of ≤0.15% to incoming inspection of Ti-6Al-4V ELI titanium alloy turbine housings supplied by Kestrel, rather than the contractually stipulated tolerance of ≤0.25%. Kestrel characterizes WAL's termination as pretextual and commercially motivated, asserting that WAL sought to replace Kestrel with a lower-cost domestic supplier, Valkyr Precision Components Inc. ("Valkyr").

Kestrel seeks total damages of approximately €47.3 million, broken down as follows:

Respondent's Statement of Defense and Counterclaim (filed June 30, 2023). WAL denied all of Kestrel's allegations of material breach. WAL's defense rests on two principal pillars. First, WAL asserted that its termination of the MSA was procedurally and substantively proper under Section 14.2(b) of the MSA, which permits termination upon the occurrence of a "Persistent Quality Failure" — defined in Section 8.4 as three or more uncured quality rejections within any rolling twelve-month period. WAL demonstrated that Kestrel incurred seven uncured rejections during the twelve-month period from March 7, 2022 through September 19, 2022, far exceeding the contractual threshold. Second, WAL asserted that the porosity tolerance applied during incoming inspection was at all times the contractually specified ≤0.25% standard set forth in WAL-SPEC-TH-401, Appendix C, Table 3, and that Kestrel's allegation of an "unpublished" ≤0.15% standard is factually unfounded.

WAL also filed a counterclaim in the amount of €5.17 million, representing the incremental costs incurred by WAL in sourcing replacement Ti-6Al-4V ELI titanium alloy turbine housings from Valkyr Precision Components Inc. following Kestrel's quality failures and the resulting termination of the MSA.

Claimant's Reply and Defense to Counterclaim (filed August 11, 2023). In its Reply, Kestrel maintained its position that WAL applied an unpublished porosity tolerance of ≤0.15% rather than the contractual ≤0.25% standard. Kestrel argued that certain rejected lots exhibited porosity levels between 0.15% and 0.25% and therefore should have been accepted under the express terms of the MSA. Kestrel further argued that WAL's true motive for the termination was a cost-driven desire to replace Kestrel with a domestic supplier, pointing to the timeline of WAL's engagement of Valkyr. In its Defense to the Counterclaim, Kestrel argued that WAL's replacement costs are not recoverable because the termination itself was wrongful, and alternatively, that WAL failed to mitigate by not seeking competitive bids from multiple alternative suppliers.

Respondent's Rejoinder (filed September 29, 2023). In our Rejoinder, we demonstrated — with reference to the underlying documentary evidence — that the ≤0.25% porosity standard is expressly stated in WAL-SPEC-TH-401, Appendix C, Table 3, which is incorporated by reference into the MSA at Section 5.1(a). We further rebutted Kestrel's defense to the counterclaim by establishing the commercial reasonableness of WAL's decision to engage Valkyr and the timeline of that engagement. We also challenged Kestrel's claimed gross margin of 22.4%, presenting evidence derived from Kestrel's own disclosed financial statements indicating that actual margins were materially lower.

B. Document Production

Document production in this arbitration was completed pursuant to the schedule established in Procedural Order No. 2, dated March 17, 2023. The Tribunal directed the parties to exchange documents in accordance with the Redfern Schedule format, and both parties complied with the Tribunal's directives.

Several categories of documents obtained from Kestrel during the production phase are of particular importance to our defense:

• Internal quality testing records. These records document Kestrel's own internal porosity measurements for the rejected lots and confirm that Kestrel's quality assurance personnel were aware of porosity exceedances prior to shipment.

• AS9100 Rev D audit records. The audit records reveal deficiencies in Kestrel's casting-process controls, which are relevant to Dr. Chow's expert opinion regarding systemic quality assurance failures.

• Financial projections underlying the damages claim. These documents are critical to challenging the assumptions in Prof. Langfeld's damages model, including the disputed 22.4% margin figure.

• Communications with other customers regarding quality issues. Kestrel's correspondence with at least two other aerospace customers regarding porosity-related quality concerns during the 2021–2022 period is relevant to demonstrating a broader pattern of quality control deficiencies.

We note that the Tribunal sustained Kestrel's objections to certain categories of WAL's document requests. Specifically, certain internal WAL communications relating to supplier diversification strategy were excluded from production on grounds of legal privilege. While we would have preferred access to these documents for completeness, the exclusion does not materially affect our defense posture, as the relevant communications between WAL and Valkyr regarding the onboarding timeline are already in the record through other production requests.

C. Procedural Orders

The Tribunal has issued two Procedural Orders to date:

• Procedural Order No. 1 (dated February 14, 2023): Established the procedural calendar for the arbitration, including deadlines for the exchange of written submissions, document production, and expert reports. Also set forth the Terms of Reference, which were signed by both parties and the Tribunal.

• Procedural Order No. 2 (dated March 17, 2023): Established the document production schedule and format. Directed the parties to submit document requests in the Redfern Schedule format and set a timeline for objections and Tribunal rulings on disputed requests.

Additionally, the Respondent filed its Pre-Hearing Organizational Submissions in December 2023, addressing hearing logistics, the proposed order of witnesses, and related administrative matters. We anticipate that the Tribunal will issue a procedural direction or order confirming the hearing schedule and witness order in the coming days.

II. SUMMARY OF EXPERT EVIDENCE

A. Metallurgical / Technical Evidence

The technical expert evidence in this arbitration is central to the merits of WAL's defense and is, in our assessment, among the strongest elements of our case.

Respondent's Expert — Dr. Raymond Chow, Principal Engineer, Arclight Materials Science Inc. (McLean, Virginia). Dr. Chow submitted his expert report on October 16, 2023, and his rebuttal report on November 13, 2023. Dr. Chow is a highly credentialed metallurgist with over twenty-five years of experience in aerospace-grade titanium alloys, including extensive work with Ti-6Al-4V ELI specifications. He has served as a technical expert in multiple international arbitrations involving aerospace component quality disputes.

Dr. Chow conducted an independent metallurgical analysis of all fourteen rejected lots — designated Lot KDG-2022-0307 through Lot KDG-2022-0919, totaling 1,680 individual turbine housing units. His analysis employed high-resolution industrial computed tomography (CT) scanning of representative samples from each lot, supplemented by standard metallographic cross-sectioning and optical microscopy. His principal findings are as follows:

• Porosity levels in the rejected lots ranged from 0.19% to 0.38%, with the majority of lots exhibiting porosity significantly in excess of the ≤0.25% contractual specification set forth in WAL-SPEC-TH-401, Appendix C, Table 3.

• Of the fourteen rejected lots, seven exhibited porosity levels above 0.25%, and seven exhibited porosity levels between 0.19% and 0.25%. With respect to the latter category, Dr. Chow noted that even if one were to assume these lots technically met the porosity specification (a point we do not concede, as discussed below), the remaining seven lots with porosity levels above 0.25% independently satisfy the Persistent Quality Failure threshold under Section 8.4 of the MSA.

• Kestrel's quality assurance processes exhibited systemic deficiencies in casting-process control, including inadequate degassing procedures and inconsistent mold preheat temperatures, inconsistent with the requirements of AS9100 Rev D.

• Dr. Chow effectively rebutted Kestrel's central contention — that WAL applied an "unpublished" ≤0.15% porosity standard — by analyzing WAL's incoming inspection records maintained pursuant to WAL-QCP-100 (WAL's Quality Control Procedure for incoming component inspection). His analysis demonstrated that WAL's incoming inspection consistently applied the ≤0.25% threshold specified in WAL-SPEC-TH-401, and that no lot was rejected solely on the basis of a ≤0.15% standard.

Dr. Chow's evidence is, in our estimation, the single most important element of our technical defense. His comprehensive CT-scan methodology, which analyzed every lot in question, is significantly more rigorous than the approach employed by Claimant's expert (discussed below), and we expect it to carry considerable weight with the Tribunal.

Claimant's Expert — Dr. Martina Kessler, Director, Albrecht Prüftechnik GmbH (Leonberg, Germany). Dr. Kessler submitted her expert report on October 16, 2023, and her rebuttal report on November 13, 2023. Dr. Kessler is a materials scientist with expertise in non-destructive testing of aerospace components. Her principal opinions are as follows:

• She argued that certain lots with porosity levels between 0.19% and 0.25% met the ≤0.25% contractual specification and therefore should not have been rejected by WAL.

• She contended that WAL's testing methodology under WAL-QCP-100 was inconsistently applied and that WAL's incoming inspectors applied criteria beyond the specifications expressly published in WAL-SPEC-TH-401.

• She opined that Kestrel's casting processes were generally consistent with industry standards and that any quality deviations were within the normal range for investment-cast Ti-6Al-4V ELI components.

Our internal review of Dr. Kessler's reports, memorialized in the November 2023 memorandum circulated to the team, has identified the following weaknesses that we intend to exploit during cross-examination:

• Dr. Kessler did not independently test or analyze the rejected lots. Instead, she relied entirely on Kestrel's own internal testing data — the very data generated by the quality assurance processes that Dr. Chow has identified as systemically deficient. This reliance on the party's own data, without independent verification, is a significant methodological vulnerability.

• Dr. Kessler's methodology for assessing porosity levels employed a statistical sampling approach, examining only a subset of units from each lot, rather than the comprehensive CT-scan analysis conducted by Dr. Chow across all lots. The Tribunal is likely to view Dr. Chow's more exhaustive approach as more reliable.

• Most critically, Dr. Kessler failed to address in either her initial report or her rebuttal report why seven of the fourteen rejected lots were not cured by Kestrel within the 45-calendar-day amended cure period established in Amendment No. 2 (dated September 3, 2021). This omission is particularly damaging because the failure to cure within the contractual cure period is an independent ground for rejecting Kestrel's defense.

B. Damages / Quantum Evidence

Respondent's Expert — Dr. Nadia Ostrovsky, Managing Director, Ridgeline Economic Consulting LLC (New York, New York). Dr. Ostrovsky submitted her expert report on October 16, 2023, and her rebuttal report on November 13, 2023. Dr. Ostrovsky is a leading damages economist with extensive experience in international arbitration, having served as a quantum expert in over forty ICC, LCIA, and ICSID proceedings. Her analysis addresses each category of Kestrel's claimed damages and supports WAL's counterclaim.

Dr. Ostrovsky's principal opinions and conclusions are as follows:

Consequential Damages Waiver (§ 8.7). As a threshold matter, Dr. Ostrovsky demonstrated that several categories of Kestrel's claimed damages — including lost profits, loss of business opportunities, and reputational damages — are barred by the mutual consequential damages waiver set forth in Section 8.7 of the MSA. Section 8.7 provides, in relevant part, that "[n]either Party shall be liable to the other for any indirect, incidental, consequential, special, or punitive damages arising out of or related to this Agreement, including but not limited to loss of profits, loss of revenue, and loss of business opportunity." Dr. Ostrovsky concluded that the claimed lost profits and reputational damages fall squarely within the scope of this waiver.

Lost Profits — Remaining MSA Term (€12.83 million). Dr. Ostrovsky challenged both the volume and margin assumptions underlying Kestrel's calculation. Specifically, Kestrel assumed a maximum annual volume of 3,600 units per year for the remaining contract year, whereas the MSA establishes a contractual minimum of only 2,400 units per year. WAL's historical ordering pattern during Contract Years 1 through 4 shows that actual orders ranged from 2,640 to 3,120 units per year — well below the 3,600-unit maximum that Kestrel assumes. Additionally, Dr. Ostrovsky challenged Kestrel's claimed gross margin of 22.4% (discussed further below).

Lost Profits — Renewal Periods (€27.15 million). Dr. Ostrovsky concluded that Kestrel's claim for lost profits during the two optional one-year renewal periods is speculative and legally unsupportable. The MSA provides in Section 3.2 that "[t]he Purchaser shall have the option, exercisable in its sole discretion, to renew this Agreement for up to two (2) additional periods of one (1) year each." This language confers upon WAL a unilateral option, not a bilateral obligation. There is no legally cognizable expectation interest in the exercise of a discretionary option by the counterparty, and no evidence in the record suggests that WAL had committed to exercising the renewal options. Dr. Ostrovsky further noted that, even if the renewal periods were considered, Kestrel's volume and margin assumptions for those periods suffer from the same deficiencies as its assumptions for the remaining MSA term.

Unreimbursed Rework Costs (€3.42 million). Dr. Ostrovsky opined that Kestrel's claimed rework costs represent costs that Kestrel incurred in its own (unsuccessful) efforts to cure defective products, and that such costs are not properly recoverable as breach damages from WAL. To the contrary, these costs were incurred as a direct consequence of Kestrel's own quality failures and are properly borne by Kestrel.

Reputational Damages / Loss of Business Opportunities (€3.90 million). Dr. Ostrovsky concluded that Kestrel's reputational damages claim of €3.90 million is speculative, unsupported by objective or verifiable evidence, and in any event barred by the consequential damages waiver in Section 8.7. Kestrel has not identified any specific contract or business opportunity that it lost as a direct result of WAL's termination, and the €3.90 million figure appears to be a rough estimate based on unsubstantiated assumptions.

WAL's Counterclaim (€5.17 million). Dr. Ostrovsky verified and supported WAL's counterclaim for replacement-component costs. Following Kestrel's quality failures and the termination of the MSA, WAL was required to source replacement Ti-6Al-4V ELI titanium alloy turbine housings from Valkyr Precision Components Inc. at a significantly higher per-unit cost. Dr. Ostrovsky calculated the counterclaim as follows:

Dr. Ostrovsky also verified the MSA's pricing structure: the base unit price was €4,850.00 in Contract Year 1 (CY1), subject to a 2.5% annual compounded escalation. Under this escalation formula, the CY4 price was €5,222.92, and the CY5 price would have been €5,353.49.

Claimant's Expert — Prof. Dieter Langfeld, Partner, Rheinsberg Advisory AG (Glenrock Assurance, Switzerland). Prof. Langfeld submitted his expert report on October 16, 2023, and his rebuttal report on November 13, 2023. Prof. Langfeld quantified Kestrel's total damages at approximately €47.3 million, consistent with Kestrel's pleaded claim.

Our review of Prof. Langfeld's reports has identified the following critical weaknesses:

• Inflated margin assumption. Prof. Langfeld applies a claimed Kestrel gross margin of 22.4% to his lost-profits calculations. Our forensic accountant, Sandra Gillespie of Canfield & Thorpe LLP, has conducted a detailed analysis of Kestrel's financial statements (including audited accounts for fiscal years 2019 through 2022 and management accounts produced during document production) and has determined that Kestrel's actual margins on the WAL contract were in the range of 14% to 16%. This discrepancy is material and, if accepted by the Tribunal, would significantly reduce any damages award even if liability were established.

• Unsupported renewal-term profits. Prof. Langfeld's inclusion of €27.15 million in renewal-period lost profits is predicated on the assumption that WAL would have exercised both optional one-year renewal periods. This assumption is legally unsupported given the expressly discretionary nature of the renewal options under Section 3.2 of the MSA. Prof. Langfeld provides no economic or factual basis for the assumption that WAL would have exercised these options, and could not do so, as the decision was WAL's alone.

• Failure to account for mitigation. Prof. Langfeld failed to account for Kestrel's duty to mitigate its own losses. There is no evidence in the record that Kestrel made any meaningful effort to replace the WAL contract with new customers or to redeploy its manufacturing capacity following the termination.

• Unsupported reputational damages. Prof. Langfeld's reputational damages figure of €3.90 million lacks any independent corroboration. He does not identify specific lost contracts or quantifiable business opportunities, and his methodology for arriving at the €3.90 million figure is opaque.

III. ANTICIPATED HEARING SCHEDULE AND WITNESS ORDER

A. Hearing Logistics

The evidentiary hearing is scheduled to take place over five consecutive days, from Monday, January 8 through Friday, January 12, 2024, at the ICC Hearing Centre in New York, New York. The Tribunal will comprise Prof. Dame Eleanor Fitzwilliam (Presiding Arbitrator), Dr. Hans-Ulrich Perren, and the Honorable Robert A. Castillo (Ret.). Simultaneous interpretation services (German-English) have been arranged for witnesses who may testify in German, although the language of the arbitration is English and all documents of record are in English or accompanied by certified English translations.

B. Proposed Witness Order

Based on the Respondent's Pre-Hearing Organizational Submissions filed in December 2023 and discussions with Claimant's counsel (Brackoven Reinhardt Becker, Frankfurt/New York), we anticipate the following hearing schedule:

Day 1 — Monday, January 8, 2024:

• Opening statements by both parties. We anticipate approximately two hours per side.

• Commencement of Claimant's fact witness testimony (time permitting).

Days 1–2 — Monday, January 8 through Tuesday, January 9, 2024 — Claimant's Fact Witnesses:

• Friedrich Brenner, Managing Director, Kestrel Dynamics GmbH. Mr. Brenner is expected to testify on the history of the commercial relationship between Kestrel and WAL, the circumstances surrounding the termination, and Kestrel's perspective on WAL's alleged motives. Cross-examination will be conducted by Calderwood & Harkness.

• Luisa Erdmann, Commercial Director, Kestrel Dynamics GmbH. Ms. Erdmann is expected to testify on the negotiation of the MSA and its amendments, including pricing terms and the incorporation of the WAL-SPEC-TH-401 specifications. Cross-examination will be conducted by Calderwood & Harkness.

• Dr. Stefan Voss, Head of Quality Assurance, Kestrel Dynamics GmbH. Dr. Voss is expected to testify on the quality of the rejected lots, Kestrel's internal quality assurance processes, and the cure efforts undertaken by Kestrel following each lot rejection. Cross. Voss is the primary technical fact witness for the Claimant and will be a key target for cross-examination by Calderwood & Harkness.

Days 2–3 — Tuesday, January 9 through Wednesday, January 10, 2024 — Respondent's Fact Witnesses:

• Gerald Huang, Vice President, Global Supply Chain Operations, Whitmore Aerospace LLC. Mr. Huang will testify regarding the lot rejection process, WAL's communications with Kestrel regarding cure opportunities and cure failures, the operational impact of Kestrel's quality failures on WAL's production schedule, and the decision-making process leading to the engagement of Valkyr as an alternative supplier. Mr. Huang's testimony is critical to rebutting Kestrel's narrative that the termination was pretextual and motivated by a desire to engage a domestic supplier at a lower cost.

• Dr. Ingrid Vollmer, Senior Vice President, Engineering & Manufacturing, Whitmore Aerospace LLC. Dr. Vollmer will testify regarding WAL's quality-control inspection procedures under WAL-QCP-100, the porosity standards set forth in WAL-SPEC-TH-401 (Appendix C, Table 3), and the technical justification for each of the fourteen lot rejections. Dr. Vollmer's testimony will directly corroborate Dr. Chow's expert analysis and establish that WAL consistently applied the contractual ≤0.25% porosity standard throughout the relevant period.

Days 4–5 — Thursday, January 11 through Friday, January 12, 2024 — Expert Witnesses:

• Technical experts: Dr. Raymond Chow (Respondent) and Dr. Martina Kessler (Claimant). The Tribunal has indicated a preference for concurrent examination ("hot-tubbing") of the technical experts, although sequential examination remains an option depending on the Tribunal's procedural direction. We are prepared for either format.

• Damages experts: Dr. Nadia Ostrovsky (Respondent) and Prof. Dieter Langfeld (Claimant). The Tribunal has similarly indicated a preference for concurrent examination of the damages experts.

Day 5 — Friday, January 12, 2024: Closing statements, if time permits. If closing statements cannot be accommodated within the hearing schedule, the Tribunal has indicated that the parties will be directed to file simultaneous post-hearing briefs. The current deadline for post-hearing briefs, as set forth in Procedural Order No. 1, is February 9, 2024.

C. Witness Preparation Status

We are pleased to report that witness preparation is well advanced:

• Detailed witness preparation memoranda have been completed for both Gerald Huang and Dr. Ingrid Vollmer. These memoranda, dated December 2023, address anticipated direct examination topics, likely areas of cross-examination by Claimant's counsel, and key documents that each witness should be prepared to address. The memoranda have been circulated to Mr. Huang and Dr. Vollmer under separate cover.

• Comprehensive cross-examination outlines have been prepared for all three of Claimant's fact witnesses: Friedrich Brenner, Luisa Erdmann, and Dr. Stefan Voss. These outlines have been circulated to the C&H hearing team under separate cover.

• Both of our expert witnesses — Dr. Raymond Chow and Dr. Nadia Ostrovsky — have been briefed on the anticipated areas of examination and cross-examination and are aware of the potential for concurrent examination (hot-tubbing) with their counterpart experts. Additional preparation sessions are planned for early January 2024.

IV. ASSESSMENT OF STRENGTHS

Based on our comprehensive review of the pleadings, the evidentiary record, and the expert reports, we assess WAL's overall position as strong heading into the evidentiary hearing. The following is a summary of the principal strengths of our case.

A. Factual and Technical Strengths

The factual and technical foundation of WAL's defense is robust. The key strengths are as follows:

1. Dr. Chow's metallurgical evidence is strong and comprehensive. Dr. Chow's independent CT-scan analysis of all fourteen rejected lots establishes porosity levels ranging from 0.19% to 0.38%. Multiple lots — indeed, seven of the fourteen — exhibited porosity levels exceeding the ≤0.25% contractual specification set forth in WAL-SPEC-TH-401, Appendix C, Table 3. Dr. Chow's methodology is rigorous, his findings are well-documented, and his conclusions are internally consistent. His analysis is significantly more comprehensive than the sampling approach employed by Dr. Kessler, and we expect the Tribunal to give his evidence substantial weight.

2. The Persistent Quality Failure threshold was unambiguously exceeded. WAL documented seven uncured lot rejections within a rolling twelve-month period — from March 7, 2022 (the first rejected lot, KDG-2022-0307) through September 19, 2022 (the final rejected lot, KDG-2022-0919). The Persistent Quality Failure threshold under Section 8.4 of the MSA is three uncured rejections within any rolling twelve-month period. WAL exceeded this threshold by a factor of more than two, providing a clear contractual basis for termination.

3. WAL's termination was procedurally proper. WAL's termination notice, dated October 3, 2022, was issued in accordance with the procedural requirements of Section 14.2(b) of the MSA, which permits termination upon the occurrence of a Persistent Quality Failure. The termination notice was issued after the final uncured rejection and after WAL had provided Kestrel with multiple opportunities to cure the defective lots within the contractually specified cure periods.

4. The porosity specification is expressly documented. The ≤0.25% porosity specification is expressly stated in WAL-SPEC-TH-401, Appendix C, Table 3, which is incorporated by reference into the MSA at Section 5.1(a). This directly refutes Kestrel's central allegation that WAL applied an "unpublished" ≤0.15% standard. There is no documentary evidence in the record to support the existence of a ≤0.15% standard, and Dr. Chow's analysis of WAL's incoming inspection records under WAL-QCP-100 confirms that the ≤0.25% threshold was consistently applied.

5. Kestrel failed to cure within the contractual cure period. For five of the seven uncured rejections, Kestrel failed to cure the defective lots within the 45-calendar-day amended cure period established in Amendment No. 2 (dated September 3, 2021). This failure to cure is independently dispositive of Kestrel's defense, as the MSA requires that a rejection be "cured" (i.e., that replacement units meeting the applicable specifications be delivered) within the cure period in order to avoid being counted as an "uncured rejection" for purposes of the Persistent Quality Failure analysis.

B. Legal Strengths

WAL's legal position is equally strong on several key issues:

1. Enforceability of the consequential damages waiver (§ 8.7). The mutual consequential damages waiver in Section 8.7 of the MSA is enforceable under New York law, which governs the MSA. New York courts have consistently upheld consequential damages waivers in commercial contracts between sophisticated parties, and there is no basis in the record for Kestrel to argue unconscionability, fraud, or any other ground for invalidating the waiver. This firm's legal memoranda dated January 2023 and February 2023, which analyzed the enforceability of the waiver in detail, concluded that the waiver bars Kestrel's claims for lost profits, loss of business opportunities, and reputational damages. If the Tribunal agrees, this would eliminate the vast majority of Kestrel's €47.3 million claim.

2. The renewal-period lost profits claim is legally unsupported. Kestrel's claim for €27.15 million in renewal-period lost profits — which represents more than 57% of its total claimed damages — is predicated on the assumption that WAL would have exercised both optional one-year renewal periods under Section 3.2 of the MSA. As demonstrated in this firm's April 2023 option-versus-obligation analysis, the renewal options were exercisable solely at WAL's discretion, and WAL had no obligation to renew. Under established principles of New York law and international commercial arbitration, a party cannot recover lost profits for a period that was contingent upon the counterparty's discretionary exercise of an option. This claim is speculative as a matter of law and should be rejected by the Tribunal.

3. The reputational damages claim is speculative and barred. Kestrel's claim for €3.90 million in reputational damages is both speculative — lacking any specific identification of lost contracts or verifiable business opportunities — and barred by the consequential damages waiver in Section 8.7.

C. Counterclaim Strength

WAL's counterclaim of €5.17 million for replacement-component costs sourced from Valkyr is well-documented and presents a straightforward damages calculation:

• WAL onboarded Valkyr only after Kestrel's quality failures became persistent and after WAL had exhausted its contractual cure mechanisms with Kestrel. The timeline of Valkyr's engagement post-dates the lot rejections, refuting Kestrel's narrative that the termination was a pretext for a pre-planned supplier switch.

• The per-unit cost premium is clearly established: Valkyr's unit price of €8,432.92 compared to Kestrel's CY4 price of €5,222.92 yields a per-unit premium of €3,210.00. Across 1,680 replacement units, and net of Valkyr's 4.2% introductory discount, the total counterclaim amount is €5,166,342.40 (rounded in the pleadings to €5.17 million).

• The counterclaim is properly characterized as direct damages arising from Kestrel's breach, not consequential damages, and is therefore not subject to the mutual consequential damages waiver in Section 8.7.

V. ASSESSMENT OF RISKS

While we are confident in the overall strength of WAL's position, professional responsibility requires us to provide a candid assessment of the risks and vulnerabilities that the Tribunal may consider. We address these below.

A. Technical Risks

The most significant technical risk relates to the treatment of the lots with porosity levels between 0.19% and 0.25%. Dr. Kessler may credibly argue that these lots fell within the contractual specification of ≤0.25% and therefore should not have been rejected. If the Tribunal accepts this argument for some or all of these lots, the number of valid rejections could be reduced from fourteen to as few as seven.

However, we emphasize that even under this most conservative scenario, WAL would still have well over three uncured rejections with porosity levels above 0.25% — the Persistent Quality Failure threshold under Section 8.4. During cross-examination of Dr. Kessler, we intend to drive this point home: even accepting her position on the borderline lots, the number of clear-cut exceedances independently satisfies the contractual termination standard.

A secondary technical risk is that the Tribunal may question whether WAL's incoming inspection methodology under WAL-QCP-100 was applied consistently across all fourteen lots. If the Tribunal perceives any inconsistency in how inspections were conducted — for example, differences in sampling protocols or equipment calibration between lots — it could undermine the credibility of certain individual lot rejections. Dr. Vollmer's testimony will be critical to addressing this risk by establishing the consistency and rigor of WAL's inspection procedures.

B. Commercial Motive Risk

Kestrel's "pretextual termination" narrative — that WAL's true motive was to replace Kestrel with Valkyr as a lower-cost domestic supplier — is, in our assessment, factually unsupported but may nonetheless have some emotional resonance with the Tribunal. Kestrel will likely press this narrative aggressively at the hearing, particularly during the direct examination of Friedrich Brenner and Luisa Erdmann.

To counter this narrative, it is essential that Gerald Huang's testimony clearly and convincingly establish the following points:

• Valkyr was not contacted until after the quality failures became persistent — specifically, not until after the fifth uncured rejection in or around July 2022.

• The timeline of Valkyr's engagement post-dates the lot rejections and was a commercially necessary response to Kestrel's quality failures, not a premeditated strategy.

• WAL's decision to engage Valkyr was driven by operational necessity — the need to maintain continuity of supply for WAL's own production commitments to its end customers — and not by a desire to obtain components at a lower price. Indeed, as demonstrated by the counterclaim, Valkyr's unit price is significantly higher than Kestrel's, making a "cost-saving" motive implausible.

During cross-examination of Friedrich Brenner and Luisa Erdmann, we will seek to elicit concessions on Kestrel's awareness of quality failures and the inadequacy of its cure efforts. If Brenner and Erdmann acknowledge that Kestrel was aware of recurring porosity issues and failed to take effective remedial action, the "pretextual termination" narrative will be significantly weakened.

C. Damages Quantum Risk

If the Tribunal were to find even a partial breach by WAL — for example, by concluding that the termination was improper with respect to the borderline lots — the exposure could be significant depending on which categories of damages the Tribunal admits. While we are confident that the consequential damages waiver and the discretionary nature of the renewal options substantially limit WAL's exposure, we must acknowledge the following risks:

• Prof. Langfeld's damages report, while inflated in our view, presents a superficially credible narrative that will require effective cross-examination to dismantle. The €47.3 million total, if credited, would represent a material adverse outcome for WAL. Even a significantly reduced award could have meaningful financial implications.

• The 22.4% margin assumption is the linchpin of Prof. Langfeld's lost-profits calculation. Sandra Gillespie's forensic analysis at Canfield & Thorpe LLP supports a margin range of 14% to 16%, which would reduce Kestrel's lost-profits claims by approximately 30% to 37% even before the legal bars to recovery are applied. It is imperative that we challenge the 22.4% figure vigorously during cross-examination of Prof. Langfeld and present Ms. Gillespie's analysis to the Tribunal through Dr. Ostrovsky's testimony.

• Even if the Tribunal rejects the renewal-period profits (€27.15 million) and the reputational damages (€3.90 million), the remaining categories — lost profits for the remaining MSA term (€12.83 million, subject to margin and volume adjustments) and rework costs (€3.42 million) — represent potential exposure in the range of €8 million to €16 million, depending on the Tribunal's assessment of damages methodology and applicable legal bars.

D. Counterclaim Mitigation Risk

The Tribunal may reduce the counterclaim award if it finds that WAL did not move with sufficient speed to seek competitive bids from alternative suppliers, thereby failing to mitigate its own losses. Kestrel raised this argument in its Defense to the Counterclaim, contending that WAL's decision to engage Valkyr without soliciting bids from other qualified suppliers resulted in an unnecessarily high replacement cost.

To address this risk, we intend to present evidence — primarily through Gerald Huang's testimony — that WAL acted within commercially reasonable timeframes given the highly specialized nature of Ti-6Al-4V ELI titanium alloy turbine housings. The number of qualified suppliers capable of manufacturing investment-cast titanium turbine housings to WAL-SPEC-TH-401 specifications is extremely limited, and WAL's engagement of Valkyr reflected the urgency of maintaining production continuity, not a failure to mitigate. We will also present documentary evidence of WAL's supplier qualification process, which demonstrates that Valkyr was the most readily available qualified alternative.

VI. CROSS-EXAMINATION STRATEGY HIGHLIGHTS

We provide below a summary of the principal objectives and key lines of questioning for our cross-examination of each of Claimant's witnesses and experts. Detailed cross-examination outlines have been circulated separately under attorney work product protection.

Friedrich Brenner (Managing Director, Kestrel Dynamics GmbH). Our cross-examination of Mr. Brenner will focus on establishing that he was aware of recurring porosity failures in the lots shipped to WAL and that Kestrel's internal quality control processes were inadequate to prevent those failures. We will seek to elicit admissions regarding Kestrel's awareness of quality control shortfalls, including any internal communications or meeting minutes reflecting management-level discussions of the porosity issues. We will also challenge his testimony on the purported "domestic supplier replacement" theory by confronting him with the timeline of events, which demonstrates that Valkyr was not contacted until after the quality failures had become persistent. Additionally, we will probe his understanding of the contractual specifications, including the porosity tolerance set forth in WAL-SPEC-TH-401, to establish that the ≤0.25% standard was known to Kestrel at the time of contract execution and throughout the performance period.

Luisa Erdmann (Commercial Director, Kestrel Dynamics GmbH). Our cross-examination of Ms. Erdmann will focus on the contract negotiations and pricing terms, with the objective of reinforcing the express nature of the porosity specification and the incorporation of WAL-SPEC-TH-401 into the MSA. We will walk Ms. Erdmann through the relevant contractual provisions — Section 5.1(a), WAL-SPEC-TH-401 (Appendix C, Table 3), and Amendment No. 2 — to establish that the ≤0.25% porosity standard and the 45-calendar-day cure period were clearly understood and agreed upon by both parties. We will also challenge her knowledge of the cure timeline for each rejected lot, seeking admissions that Kestrel failed to deliver conforming replacement units within the cure period for the majority of the rejected lots.

Dr. Stefan Voss (Head of Quality Assurance, Kestrel Dynamics GmbH). Dr. Voss is our primary technical cross-examination target and arguably the most important Claimant witness for the purposes of our defense. We will challenge his claim that the rejected lots met the contractual specifications by confronting him with Kestrel's own internal test data, which in several instances show porosity measurements exceeding the ≤0.25% threshold. We will explore the circumstances under which lots with known quality concerns were nonetheless shipped to WAL, including whether Dr. Voss or his quality assurance team authorized the shipment of lots that Kestrel's own testing had flagged as potentially non-conforming. We will also establish the inadequacy of Kestrel's cure efforts within the 45-calendar-day period, focusing on the specific steps (or lack thereof) that Kestrel took to address each rejected lot. Finally, we will explore the systemic deficiencies in Kestrel's casting-process controls — including degassing procedures and mold preheat temperatures — that Dr. Chow has identified, seeking admissions from Dr. Voss that these issues were known within Kestrel's quality assurance department.

Dr. Martina Kessler (Claimant's Technical Expert). Our cross-examination of Dr. Kessler will target three principal vulnerabilities. First, we will expose her reliance on Kestrel's own internal test data rather than independent testing, questioning the reliability of her conclusions given the systemic deficiencies in Kestrel's quality assurance processes. Second, we will contrast her statistical sampling methodology with Dr. Chow's comprehensive CT-scan analysis of all lots, demonstrating that Dr. Chow's approach provides a more complete and reliable picture of the porosity levels in the rejected lots. Third, we will challenge her failure to address the cure-period defaults — specifically, why seven of the fourteen rejected lots were not cured within the 45-calendar-day period — which is a central factual issue that she entirely omitted from her expert reports.

Prof. Dieter Langfeld (Claimant's Damages Expert). Our cross-examination of Prof. Langfeld will focus on dismantling the key assumptions underlying his €47.3 million damages calculation. The primary target is the 22.4% margin assumption, which we will challenge using the financial data from Canfield & Thorpe LLP's forensic analysis demonstrating that Kestrel's actual margins were in the range of 14% to 16%. We will also demonstrate the speculative nature of the renewal-period profits by establishing that the renewal options were exercisable solely at WAL's discretion and that Prof. Langfeld has no factual or economic basis for assuming that WAL would have exercised them. Finally, we will highlight the absence of evidence supporting the €3.90 million reputational damages figure, pressing Prof. Langfeld to identify any specific lost contracts or business opportunities, which we expect he will be unable to do.

VII. PREPARATION AND NEXT STEPS

In light of the foregoing analysis, we recommend the following preparation steps in the weeks leading up to the evidentiary hearing:

1. Witness preparation sessions. Final witness preparation sessions for Gerald Huang and Dr. Ingrid Vollmer are to be scheduled and completed during the last week of December 2023 and the first week of January 2024. These sessions will include mock cross-examination exercises and detailed reviews of the key documents that each witness is likely to be examined on.

2. Pre-hearing conference call. We recommend scheduling a final pre-hearing conference call with WAL management — including Marcus J. Whitmore III (CEO), Dana Prescott (VP & General Counsel), Gerald Huang (VP Global Supply Chain Operations), and Dr. Ingrid Vollmer (SVP Engineering & Manufacturing) — for early January 2024, ideally during the week of January 1–5. This call will serve as a final strategy alignment session and an opportunity to address any remaining questions or concerns from WAL's leadership.

3. Expert witness preparation. Dr. Raymond Chow and Dr. Nadia Ostrovsky will be briefed in early January 2024 on anticipated lines of examination and cross-examination, as well as the hot-tubbing protocol that the Tribunal has indicated it may employ for the concurrent examination of opposing experts. Both experts are experienced in arbitral proceedings, but additional preparation tailored to this Tribunal's anticipated approach will be beneficial.

4. C&H hearing team. The Calderwood & Harkness hearing team will comprise Theodore Langston (lead counsel), Vivienne St. Claire (co-lead, with primary responsibility for expert witness examination), Simone Laroche (senior associate, with responsibility for document management and witness preparation support), and Jeffrey Park (associate, with responsibility for real-time transcript review, exhibit management, and hearing logistics). All four members of the team will be present at the ICC Hearing Centre for the full five-day hearing.

5. Witness availability. We respectfully request that WAL ensure the full availability of Gerald Huang and Dr. Ingrid Vollmer for the entire hearing period (January 8–12, 2024). While we currently anticipate that their testimony will be completed on Days 2–3 (January 9–10), it is possible that the schedule may shift, and their availability throughout the hearing week will provide flexibility in the event of unanticipated scheduling changes.

6. Post-hearing briefs. Simultaneous post-hearing briefs are currently due on February 9, 2024. We will begin drafting the post-hearing brief during the hearing itself, based on the testimony and evidence presented, and will circulate a draft to WAL for review prior to filing.

VIII. BUDGET UPDATE

As you are aware, this engagement is governed by the fee arrangement set forth in our engagement letter dated November 14, 2022. We are pleased to report that fees billed to date are consistent with the estimates previously provided to WAL and remain within the parameters discussed during our quarterly budget reviews.

The hourly rates for the members of the Calderwood & Harkness hearing team are as follows:

We anticipate incurring additional costs in connection with the following items in the period leading up to and including the evidentiary hearing:

• Final witness preparation sessions (attorney time for preparation and conduct of sessions);

• Expert witness fees for Dr. Chow (Arclight Materials Science Inc.) and Dr. Ostrovsky (Ridgeline Economic Consulting LLC) for hearing preparation and attendance;

• Hearing-related travel and accommodation expenses for the C&H hearing team;

• Real-time transcript services and transcript costs for the five-day hearing; and

• Post-hearing brief preparation.

We will provide a more detailed cost estimate for these items under separate cover. We also note that total legal costs — including attorneys' fees and disbursements — will factor into our cost-recovery request from the Tribunal in our post-hearing submissions. Under Article 38(5) of the ICC Rules, the Tribunal has discretion to allocate costs between the parties, and a favorable outcome on the merits would support WAL's request for recovery of a substantial portion of its legal costs.

IX. COVENANT COMPLIANCE NOTE

We wish to briefly address two ancillary matters that have arisen in the context of this dispute and that are relevant to WAL's broader corporate considerations.

Credit facility. As you are aware, WAL is party to a senior secured revolving credit facility in the amount of $350 million with Veltrano National Bank, N.A. as administrative agent. Certain financial covenants under that facility could theoretically be impacted by a material adverse arbitral award. Based on our current assessment of the case, we believe that the favorable posture of WAL's defense and counterclaim substantially reduces the concern regarding potential covenant compliance issues that could have arisen had Kestrel's full €47.3 million claim been sustained. We will continue to monitor this issue as the arbitration progresses and will coordinate with your treasury team as appropriate.

Insurance. We note that Pinnacle Continental Insurance Co. issued a coverage reservation letter in connection with Policy No. PCE-GL-2021-08854 early in this dispute. As we have previously advised, Pinnacle has taken the position that it has no defense obligation under the commercial-supply exclusion in the policy, and our review of the policy language supports this conclusion. Accordingly, no further action is required with Pinnacle at this stage. We will re-evaluate the insurance posture if circumstances change materially.

X. CLOSING

In sum, we are confident that WAL is well-positioned heading into the evidentiary hearing. The combination of Dr. Chow's comprehensive metallurgical evidence, the clear contractual basis for termination under the Persistent Quality Failure provisions, the enforceability of the consequential damages waiver, and the legal deficiencies in Kestrel's renewal-period and reputational damages claims provide WAL with a strong defense on the merits and a well-supported counterclaim.

While we have identified certain risks — particularly with respect to the borderline lots, the commercial-motive narrative, and the quantum exposure in the event of a partial adverse finding — we believe that these risks are manageable and that our cross-examination strategy and expert evidence are well-suited to address them effectively.

We invite you to schedule a call at your earliest convenience to discuss any questions or concerns arising from this letter. We are available to meet in person in Arlington or New York, or by videoconference, as your schedule permits.

Following the conclusion of the evidentiary hearing on January 12, 2024, we will provide WAL with a full post-hearing report summarizing the testimony, our assessment of the Tribunal's reactions, and our strategy for the post-hearing briefs.

We thank you for your continued confidence in Calderwood & Harkness, and we look forward to working with you and your team in the weeks ahead.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Theodore Langston Partner

Direct Dial: (212) 554-7148

Email: t.langston@calderwoodharkness.com

cc: Marcus J. Whitmore III, Chief Executive Officer, Whitmore Aerospace LLC Vivienne St. Claire, Partner, Calderwood & Harkness LLP Simone Laroche, Senior Associate, Calderwood & Harkness LLP Jeffrey Park, Associate, Calderwood & Harkness LLP

Enclosures: None. Cross-examination outlines and witness preparation memoranda have been circulated separately under separate cover.

Category	Amount	Reference
Lost profits for the remaining MSA term (Contract Year 5)	€12.83 million	Claimant's SOC ¶ 87
Lost profits for two optional one-year renewal periods	€27.15 million	Claimant's SOC ¶ 92
Unreimbursed rework costs on rejected lots	€3.42 million	Claimant's SOC ¶ 96
Reputational damages / loss of business opportunities	€3.90 million	Claimant's SOC ¶ 101
Total	€47.30 million
Element	Amount / Detail
Valkyr unit price	€8,432.92
Kestrel CY4 price	€5,222.92
Per-unit premium	€3,210.00
Units requiring replacement	1,680
Gross replacement cost premium	€5,392,800.00
Less: Valkyr 4.2% introductory discount (factor of 0.958)	—
Net counterclaim amount	€5,166,342.40
Team Member	Title	Rate
Theodore Langston	Partner	$1,475/hr
Vivienne St. Claire	Partner	$1,425/hr
Simone Laroche	Senior Associate	$895/hr
Jeffrey Park	Associate	$625/hr

CALDERWOOD & HARKNESS LLP Attorneys at Law
600 Lexington Avenue New York, New York 10022
Telephone: (212) 554-7000 Facsimile: (212) 554-7001 www.calderwoodharkness.com
December 15, 2023
VIA EMAIL AND Sundial Data Systems
PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT
Dana Prescott, Esq. Vice President & General Counsel Whitmore Aerospace LLC 4200 Wilson Boulevard, Suite 1100 Arlington, Virginia 22203
Re: Pre-Hearing Strategy Update — ICC Case No. 27914/MHM, Kestrel Dynamics GmbH v. Whitmore Aerospace LLC
Engagement No.: 1019-00001
Dear Dana:
We write to provide you with a comprehensive pre-hearing strategy update in advance of the evidentiary hearing currently scheduled for January 8 through 12, 2024, at the ICC International Court of Arbitration Hearing Centre in New York, New York. As you are aware, the Tribunal in this matter comprises Prof. Dame Eleanor Fitzwilliam (Presiding Arbitrator), Dr. Hans-Ulrich Perren (Claimant's nominee), and the Honorable Robert A. Castillo (Ret.) (Respondent's nominee). The arbitration is governed by the ICC Rules of Arbitration (2021 edition), with the seat of arbitration in New York, New York, and the language of the arbitration being English.
This letter is intended to serve as a consolidated briefing covering the following topics: (I) the current status of pleadings and procedural matters; (II) a summary of the expert evidence exchanged; (III) the anticipated hearing schedule and witness order; (IV) an assessment of Whitmore Aerospace LLC's ("WAL" or "Respondent") principal strengths; (V) a candid assessment of risks and vulnerabilities; (VI) highlights of our cross-examination strategy for the Claimant's witnesses and experts; (VII) preparation steps and action items in advance of the hearing; (VIII) a budget update; and (IX) a note regarding covenant compliance considerations. We encourage you to review this letter carefully and to schedule a call with us at your earliest convenience to discuss any questions or concerns.
I. STATUS OF PLEADINGS
A. Summary of Written Submissions Exchanged
The written pleading phase in this arbitration is now complete. We provide below a summary of the submissions exchanged by the parties.
Claimant's Statement of Claim (filed April 28, 2023). Kestrel Dynamics GmbH ("Kestrel" or "Claimant") filed its Statement of Claim asserting that WAL committed a material breach of the Master Supply Agreement dated June 15, 2018 (the "MSA"), as amended by Amendment No. 1 dated February 10, 2020 and Amendment No. 2 dated September 3, 2021. Kestrel alleges that WAL wrongfully terminated the MSA by applying an "unpublished" porosity tolerance standard of ≤0.15% to incoming inspection of Ti-6Al-4V ELI titanium alloy turbine housings supplied by Kestrel, rather than the contractually stipulated tolerance of ≤0.25%. Kestrel characterizes WAL's termination as pretextual and commercially motivated, asserting that WAL sought to replace Kestrel with a lower-cost domestic supplier, Valkyr Precision Components Inc. ("Valkyr").
Kestrel seeks total damages of approximately €47.3 million, broken down as follows:
Respondent's Statement of Defense and Counterclaim (filed June 30, 2023). WAL denied all of Kestrel's allegations of material breach. WAL's defense rests on two principal pillars. First, WAL asserted that its termination of the MSA was procedurally and substantively proper under Section 14.2(b) of the MSA, which permits termination upon the occurrence of a "Persistent Quality Failure" — defined in Section 8.4 as three or more uncured quality rejections within any rolling twelve-month period. WAL demonstrated that Kestrel incurred seven uncured rejections during the twelve-month period from March 7, 2022 through September 19, 2022, far exceeding the contractual threshold. Second, WAL asserted that the porosity tolerance applied during incoming inspection was at all times the contractually specified ≤0.25% standard set forth in WAL-SPEC-TH-401, Appendix C, Table 3, and that Kestrel's allegation of an "unpublished" ≤0.15% standard is factually unfounded.
WAL also filed a counterclaim in the amount of €5.17 million, representing the incremental costs incurred by WAL in sourcing replacement Ti-6Al-4V ELI titanium alloy turbine housings from Valkyr Precision Components Inc. following Kestrel's quality failures and the resulting termination of the MSA.
Claimant's Reply and Defense to Counterclaim (filed August 11, 2023). In its Reply, Kestrel maintained its position that WAL applied an unpublished porosity tolerance of ≤0.15% rather than the contractual ≤0.25% standard. Kestrel argued that certain rejected lots exhibited porosity levels between 0.15% and 0.25% and therefore should have been accepted under the express terms of the MSA. Kestrel further argued that WAL's true motive for the termination was a cost-driven desire to replace Kestrel with a domestic supplier, pointing to the timeline of WAL's engagement of Valkyr. In its Defense to the Counterclaim, Kestrel argued that WAL's replacement costs are not recoverable because the termination itself was wrongful, and alternatively, that WAL failed to mitigate by not seeking competitive bids from multiple alternative suppliers.
Respondent's Rejoinder (filed September 29, 2023). In our Rejoinder, we demonstrated — with reference to the underlying documentary evidence — that the ≤0.25% porosity standard is expressly stated in WAL-SPEC-TH-401, Appendix C, Table 3, which is incorporated by reference into the MSA at Section 5.1(a). We further rebutted Kestrel's defense to the counterclaim by establishing the commercial reasonableness of WAL's decision to engage Valkyr and the timeline of that engagement. We also challenged Kestrel's claimed gross margin of 22.4%, presenting evidence derived from Kestrel's own disclosed financial statements indicating that actual margins were materially lower.
B. Document Production
Document production in this arbitration was completed pursuant to the schedule established in Procedural Order No. 2, dated March 17, 2023. The Tribunal directed the parties to exchange documents in accordance with the Redfern Schedule format, and both parties complied with the Tribunal's directives.
Several categories of documents obtained from Kestrel during the production phase are of particular importance to our defense:
• Internal quality testing records. These records document Kestrel's own internal porosity measurements for the rejected lots and confirm that Kestrel's quality assurance personnel were aware of porosity exceedances prior to shipment.
• AS9100 Rev D audit records. The audit records reveal deficiencies in Kestrel's casting-process controls, which are relevant to Dr. Chow's expert opinion regarding systemic quality assurance failures.
• Financial projections underlying the damages claim. These documents are critical to challenging the assumptions in Prof. Langfeld's damages model, including the disputed 22.4% margin figure.
• Communications with other customers regarding quality issues. Kestrel's correspondence with at least two other aerospace customers regarding porosity-related quality concerns during the 2021–2022 period is relevant to demonstrating a broader pattern of quality control deficiencies.
We note that the Tribunal sustained Kestrel's objections to certain categories of WAL's document requests. Specifically, certain internal WAL communications relating to supplier diversification strategy were excluded from production on grounds of legal privilege. While we would have preferred access to these documents for completeness, the exclusion does not materially affect our defense posture, as the relevant communications between WAL and Valkyr regarding the onboarding timeline are already in the record through other production requests.
C. Procedural Orders
The Tribunal has issued two Procedural Orders to date:
• Procedural Order No. 1 (dated February 14, 2023): Established the procedural calendar for the arbitration, including deadlines for the exchange of written submissions, document production, and expert reports. Also set forth the Terms of Reference, which were signed by both parties and the Tribunal.
• Procedural Order No. 2 (dated March 17, 2023): Established the document production schedule and format. Directed the parties to submit document requests in the Redfern Schedule format and set a timeline for objections and Tribunal rulings on disputed requests.
Additionally, the Respondent filed its Pre-Hearing Organizational Submissions in December 2023, addressing hearing logistics, the proposed order of witnesses, and related administrative matters. We anticipate that the Tribunal will issue a procedural direction or order confirming the hearing schedule and witness order in the coming days.
II. SUMMARY OF EXPERT EVIDENCE
A. Metallurgical / Technical Evidence
The technical expert evidence in this arbitration is central to the merits of WAL's defense and is, in our assessment, among the strongest elements of our case.
Respondent's Expert — Dr. Raymond Chow, Principal Engineer, Arclight Materials Science Inc. (McLean, Virginia). Dr. Chow submitted his expert report on October 16, 2023, and his rebuttal report on November 13, 2023. Dr. Chow is a highly credentialed metallurgist with over twenty-five years of experience in aerospace-grade titanium alloys, including extensive work with Ti-6Al-4V ELI specifications. He has served as a technical expert in multiple international arbitrations involving aerospace component quality disputes.
Dr. Chow conducted an independent metallurgical analysis of all fourteen rejected lots — designated Lot KDG-2022-0307 through Lot KDG-2022-0919, totaling 1,680 individual turbine housing units. His analysis employed high-resolution industrial computed tomography (CT) scanning of representative samples from each lot, supplemented by standard metallographic cross-sectioning and optical microscopy. His principal findings are as follows:
• Porosity levels in the rejected lots ranged from 0.19% to 0.38%, with the majority of lots exhibiting porosity significantly in excess of the ≤0.25% contractual specification set forth in WAL-SPEC-TH-401, Appendix C, Table 3.
• Of the fourteen rejected lots, seven exhibited porosity levels above 0.25%, and seven exhibited porosity levels between 0.19% and 0.25%. With respect to the latter category, Dr. Chow noted that even if one were to assume these lots technically met the porosity specification (a point we do not concede, as discussed below), the remaining seven lots with porosity levels above 0.25% independently satisfy the Persistent Quality Failure threshold under Section 8.4 of the MSA.
• Kestrel's quality assurance processes exhibited systemic deficiencies in casting-process control, including inadequate degassing procedures and inconsistent mold preheat temperatures, inconsistent with the requirements of AS9100 Rev D.
• Dr. Chow effectively rebutted Kestrel's central contention — that WAL applied an "unpublished" ≤0.15% porosity standard — by analyzing WAL's incoming inspection records maintained pursuant to WAL-QCP-100 (WAL's Quality Control Procedure for incoming component inspection). His analysis demonstrated that WAL's incoming inspection consistently applied the ≤0.25% threshold specified in WAL-SPEC-TH-401, and that no lot was rejected solely on the basis of a ≤0.15% standard.
Dr. Chow's evidence is, in our estimation, the single most important element of our technical defense. His comprehensive CT-scan methodology, which analyzed every lot in question, is significantly more rigorous than the approach employed by Claimant's expert (discussed below), and we expect it to carry considerable weight with the Tribunal.
Claimant's Expert — Dr. Martina Kessler, Director, Albrecht Prüftechnik GmbH (Leonberg, Germany). Dr. Kessler submitted her expert report on October 16, 2023, and her rebuttal report on November 13, 2023. Dr. Kessler is a materials scientist with expertise in non-destructive testing of aerospace components. Her principal opinions are as follows:
• She argued that certain lots with porosity levels between 0.19% and 0.25% met the ≤0.25% contractual specification and therefore should not have been rejected by WAL.
• She contended that WAL's testing methodology under WAL-QCP-100 was inconsistently applied and that WAL's incoming inspectors applied criteria beyond the specifications expressly published in WAL-SPEC-TH-401.
• She opined that Kestrel's casting processes were generally consistent with industry standards and that any quality deviations were within the normal range for investment-cast Ti-6Al-4V ELI components.
Our internal review of Dr. Kessler's reports, memorialized in the November 2023 memorandum circulated to the team, has identified the following weaknesses that we intend to exploit during cross-examination:
• Dr. Kessler did not independently test or analyze the rejected lots. Instead, she relied entirely on Kestrel's own internal testing data — the very data generated by the quality assurance processes that Dr. Chow has identified as systemically deficient. This reliance on the party's own data, without independent verification, is a significant methodological vulnerability.
• Dr. Kessler's methodology for assessing porosity levels employed a statistical sampling approach, examining only a subset of units from each lot, rather than the comprehensive CT-scan analysis conducted by Dr. Chow across all lots. The Tribunal is likely to view Dr. Chow's more exhaustive approach as more reliable.
• Most critically, Dr. Kessler failed to address in either her initial report or her rebuttal report why seven of the fourteen rejected lots were not cured by Kestrel within the 45-calendar-day amended cure period established in Amendment No. 2 (dated September 3, 2021). This omission is particularly damaging because the failure to cure within the contractual cure period is an independent ground for rejecting Kestrel's defense.
B. Damages / Quantum Evidence
Respondent's Expert — Dr. Nadia Ostrovsky, Managing Director, Ridgeline Economic Consulting LLC (New York, New York). Dr. Ostrovsky submitted her expert report on October 16, 2023, and her rebuttal report on November 13, 2023. Dr. Ostrovsky is a leading damages economist with extensive experience in international arbitration, having served as a quantum expert in over forty ICC, LCIA, and ICSID proceedings. Her analysis addresses each category of Kestrel's claimed damages and supports WAL's counterclaim.
Dr. Ostrovsky's principal opinions and conclusions are as follows:
Consequential Damages Waiver (§ 8.7). As a threshold matter, Dr. Ostrovsky demonstrated that several categories of Kestrel's claimed damages — including lost profits, loss of business opportunities, and reputational damages — are barred by the mutual consequential damages waiver set forth in Section 8.7 of the MSA. Section 8.7 provides, in relevant part, that "[n]either Party shall be liable to the other for any indirect, incidental, consequential, special, or punitive damages arising out of or related to this Agreement, including but not limited to loss of profits, loss of revenue, and loss of business opportunity." Dr. Ostrovsky concluded that the claimed lost profits and reputational damages fall squarely within the scope of this waiver.
Lost Profits — Remaining MSA Term (€12.83 million). Dr. Ostrovsky challenged both the volume and margin assumptions underlying Kestrel's calculation. Specifically, Kestrel assumed a maximum annual volume of 3,600 units per year for the remaining contract year, whereas the MSA establishes a contractual minimum of only 2,400 units per year. WAL's historical ordering pattern during Contract Years 1 through 4 shows that actual orders ranged from 2,640 to 3,120 units per year — well below the 3,600-unit maximum that Kestrel assumes. Additionally, Dr. Ostrovsky challenged Kestrel's claimed gross margin of 22.4% (discussed further below).
Lost Profits — Renewal Periods (€27.15 million). Dr. Ostrovsky concluded that Kestrel's claim for lost profits during the two optional one-year renewal periods is speculative and legally unsupportable. The MSA provides in Section 3.2 that "[t]he Purchaser shall have the option, exercisable in its sole discretion, to renew this Agreement for up to two (2) additional periods of one (1) year each." This language confers upon WAL a unilateral option, not a bilateral obligation. There is no legally cognizable expectation interest in the exercise of a discretionary option by the counterparty, and no evidence in the record suggests that WAL had committed to exercising the renewal options. Dr. Ostrovsky further noted that, even if the renewal periods were considered, Kestrel's volume and margin assumptions for those periods suffer from the same deficiencies as its assumptions for the remaining MSA term.
Unreimbursed Rework Costs (€3.42 million). Dr. Ostrovsky opined that Kestrel's claimed rework costs represent costs that Kestrel incurred in its own (unsuccessful) efforts to cure defective products, and that such costs are not properly recoverable as breach damages from WAL. To the contrary, these costs were incurred as a direct consequence of Kestrel's own quality failures and are properly borne by Kestrel.
Reputational Damages / Loss of Business Opportunities (€3.90 million). Dr. Ostrovsky concluded that Kestrel's reputational damages claim of €3.90 million is speculative, unsupported by objective or verifiable evidence, and in any event barred by the consequential damages waiver in Section 8.7. Kestrel has not identified any specific contract or business opportunity that it lost as a direct result of WAL's termination, and the €3.90 million figure appears to be a rough estimate based on unsubstantiated assumptions.
WAL's Counterclaim (€5.17 million). Dr. Ostrovsky verified and supported WAL's counterclaim for replacement-component costs. Following Kestrel's quality failures and the termination of the MSA, WAL was required to source replacement Ti-6Al-4V ELI titanium alloy turbine housings from Valkyr Precision Components Inc. at a significantly higher per-unit cost. Dr. Ostrovsky calculated the counterclaim as follows:
Dr. Ostrovsky also verified the MSA's pricing structure: the base unit price was €4,850.00 in Contract Year 1 (CY1), subject to a 2.5% annual compounded escalation. Under this escalation formula, the CY4 price was €5,222.92, and the CY5 price would have been €5,353.49.
Claimant's Expert — Prof. Dieter Langfeld, Partner, Rheinsberg Advisory AG (Glenrock Assurance, Switzerland). Prof. Langfeld submitted his expert report on October 16, 2023, and his rebuttal report on November 13, 2023. Prof. Langfeld quantified Kestrel's total damages at approximately €47.3 million, consistent with Kestrel's pleaded claim.
Our review of Prof. Langfeld's reports has identified the following critical weaknesses:
• Inflated margin assumption. Prof. Langfeld applies a claimed Kestrel gross margin of 22.4% to his lost-profits calculations. Our forensic accountant, Sandra Gillespie of Canfield & Thorpe LLP, has conducted a detailed analysis of Kestrel's financial statements (including audited accounts for fiscal years 2019 through 2022 and management accounts produced during document production) and has determined that Kestrel's actual margins on the WAL contract were in the range of 14% to 16%. This discrepancy is material and, if accepted by the Tribunal, would significantly reduce any damages award even if liability were established.
• Unsupported renewal-term profits. Prof. Langfeld's inclusion of €27.15 million in renewal-period lost profits is predicated on the assumption that WAL would have exercised both optional one-year renewal periods. This assumption is legally unsupported given the expressly discretionary nature of the renewal options under Section 3.2 of the MSA. Prof. Langfeld provides no economic or factual basis for the assumption that WAL would have exercised these options, and could not do so, as the decision was WAL's alone.
• Failure to account for mitigation. Prof. Langfeld failed to account for Kestrel's duty to mitigate its own losses. There is no evidence in the record that Kestrel made any meaningful effort to replace the WAL contract with new customers or to redeploy its manufacturing capacity following the termination.
• Unsupported reputational damages. Prof. Langfeld's reputational damages figure of €3.90 million lacks any independent corroboration. He does not identify specific lost contracts or quantifiable business opportunities, and his methodology for arriving at the €3.90 million figure is opaque.
III. ANTICIPATED HEARING SCHEDULE AND WITNESS ORDER
A. Hearing Logistics
The evidentiary hearing is scheduled to take place over five consecutive days, from Monday, January 8 through Friday, January 12, 2024, at the ICC Hearing Centre in New York, New York. The Tribunal will comprise Prof. Dame Eleanor Fitzwilliam (Presiding Arbitrator), Dr. Hans-Ulrich Perren, and the Honorable Robert A. Castillo (Ret.). Simultaneous interpretation services (German-English) have been arranged for witnesses who may testify in German, although the language of the arbitration is English and all documents of record are in English or accompanied by certified English translations.
B. Proposed Witness Order
Based on the Respondent's Pre-Hearing Organizational Submissions filed in December 2023 and discussions with Claimant's counsel (Brackoven Reinhardt Becker, Frankfurt/New York), we anticipate the following hearing schedule:
Day 1 — Monday, January 8, 2024:
• Opening statements by both parties. We anticipate approximately two hours per side.
• Commencement of Claimant's fact witness testimony (time permitting).
Days 1–2 — Monday, January 8 through Tuesday, January 9, 2024 — Claimant's Fact Witnesses:
• Friedrich Brenner, Managing Director, Kestrel Dynamics GmbH. Mr. Brenner is expected to testify on the history of the commercial relationship between Kestrel and WAL, the circumstances surrounding the termination, and Kestrel's perspective on WAL's alleged motives. Cross-examination will be conducted by Calderwood & Harkness.
• Luisa Erdmann, Commercial Director, Kestrel Dynamics GmbH. Ms. Erdmann is expected to testify on the negotiation of the MSA and its amendments, including pricing terms and the incorporation of the WAL-SPEC-TH-401 specifications. Cross-examination will be conducted by Calderwood & Harkness.
• Dr. Stefan Voss, Head of Quality Assurance, Kestrel Dynamics GmbH. Dr. Voss is expected to testify on the quality of the rejected lots, Kestrel's internal quality assurance processes, and the cure efforts undertaken by Kestrel following each lot rejection. Cross. Voss is the primary technical fact witness for the Claimant and will be a key target for cross-examination by Calderwood & Harkness.
Days 2–3 — Tuesday, January 9 through Wednesday, January 10, 2024 — Respondent's Fact Witnesses:
• Gerald Huang, Vice President, Global Supply Chain Operations, Whitmore Aerospace LLC. Mr. Huang will testify regarding the lot rejection process, WAL's communications with Kestrel regarding cure opportunities and cure failures, the operational impact of Kestrel's quality failures on WAL's production schedule, and the decision-making process leading to the engagement of Valkyr as an alternative supplier. Mr. Huang's testimony is critical to rebutting Kestrel's narrative that the termination was pretextual and motivated by a desire to engage a domestic supplier at a lower cost.
• Dr. Ingrid Vollmer, Senior Vice President, Engineering & Manufacturing, Whitmore Aerospace LLC. Dr. Vollmer will testify regarding WAL's quality-control inspection procedures under WAL-QCP-100, the porosity standards set forth in WAL-SPEC-TH-401 (Appendix C, Table 3), and the technical justification for each of the fourteen lot rejections. Dr. Vollmer's testimony will directly corroborate Dr. Chow's expert analysis and establish that WAL consistently applied the contractual ≤0.25% porosity standard throughout the relevant period.
Days 4–5 — Thursday, January 11 through Friday, January 12, 2024 — Expert Witnesses:
• Technical experts: Dr. Raymond Chow (Respondent) and Dr. Martina Kessler (Claimant). The Tribunal has indicated a preference for concurrent examination ("hot-tubbing") of the technical experts, although sequential examination remains an option depending on the Tribunal's procedural direction. We are prepared for either format.
• Damages experts: Dr. Nadia Ostrovsky (Respondent) and Prof. Dieter Langfeld (Claimant). The Tribunal has similarly indicated a preference for concurrent examination of the damages experts.
Day 5 — Friday, January 12, 2024: Closing statements, if time permits. If closing statements cannot be accommodated within the hearing schedule, the Tribunal has indicated that the parties will be directed to file simultaneous post-hearing briefs. The current deadline for post-hearing briefs, as set forth in Procedural Order No. 1, is February 9, 2024.
C. Witness Preparation Status
We are pleased to report that witness preparation is well advanced:
• Detailed witness preparation memoranda have been completed for both Gerald Huang and Dr. Ingrid Vollmer. These memoranda, dated December 2023, address anticipated direct examination topics, likely areas of cross-examination by Claimant's counsel, and key documents that each witness should be prepared to address. The memoranda have been circulated to Mr. Huang and Dr. Vollmer under separate cover.
• Comprehensive cross-examination outlines have been prepared for all three of Claimant's fact witnesses: Friedrich Brenner, Luisa Erdmann, and Dr. Stefan Voss. These outlines have been circulated to the C&H hearing team under separate cover.
• Both of our expert witnesses — Dr. Raymond Chow and Dr. Nadia Ostrovsky — have been briefed on the anticipated areas of examination and cross-examination and are aware of the potential for concurrent examination (hot-tubbing) with their counterpart experts. Additional preparation sessions are planned for early January 2024.
IV. ASSESSMENT OF STRENGTHS
Based on our comprehensive review of the pleadings, the evidentiary record, and the expert reports, we assess WAL's overall position as strong heading into the evidentiary hearing. The following is a summary of the principal strengths of our case.
A. Factual and Technical Strengths
The factual and technical foundation of WAL's defense is robust. The key strengths are as follows:
1. Dr. Chow's metallurgical evidence is strong and comprehensive. Dr. Chow's independent CT-scan analysis of all fourteen rejected lots establishes porosity levels ranging from 0.19% to 0.38%. Multiple lots — indeed, seven of the fourteen — exhibited porosity levels exceeding the ≤0.25% contractual specification set forth in WAL-SPEC-TH-401, Appendix C, Table 3. Dr. Chow's methodology is rigorous, his findings are well-documented, and his conclusions are internally consistent. His analysis is significantly more comprehensive than the sampling approach employed by Dr. Kessler, and we expect the Tribunal to give his evidence substantial weight.
2. The Persistent Quality Failure threshold was unambiguously exceeded. WAL documented seven uncured lot rejections within a rolling twelve-month period — from March 7, 2022 (the first rejected lot, KDG-2022-0307) through September 19, 2022 (the final rejected lot, KDG-2022-0919). The Persistent Quality Failure threshold under Section 8.4 of the MSA is three uncured rejections within any rolling twelve-month period. WAL exceeded this threshold by a factor of more than two, providing a clear contractual basis for termination.
3. WAL's termination was procedurally proper. WAL's termination notice, dated October 3, 2022, was issued in accordance with the procedural requirements of Section 14.2(b) of the MSA, which permits termination upon the occurrence of a Persistent Quality Failure. The termination notice was issued after the final uncured rejection and after WAL had provided Kestrel with multiple opportunities to cure the defective lots within the contractually specified cure periods.
4. The porosity specification is expressly documented. The ≤0.25% porosity specification is expressly stated in WAL-SPEC-TH-401, Appendix C, Table 3, which is incorporated by reference into the MSA at Section 5.1(a). This directly refutes Kestrel's central allegation that WAL applied an "unpublished" ≤0.15% standard. There is no documentary evidence in the record to support the existence of a ≤0.15% standard, and Dr. Chow's analysis of WAL's incoming inspection records under WAL-QCP-100 confirms that the ≤0.25% threshold was consistently applied.
5. Kestrel failed to cure within the contractual cure period. For five of the seven uncured rejections, Kestrel failed to cure the defective lots within the 45-calendar-day amended cure period established in Amendment No. 2 (dated September 3, 2021). This failure to cure is independently dispositive of Kestrel's defense, as the MSA requires that a rejection be "cured" (i.e., that replacement units meeting the applicable specifications be delivered) within the cure period in order to avoid being counted as an "uncured rejection" for purposes of the Persistent Quality Failure analysis.
B. Legal Strengths
WAL's legal position is equally strong on several key issues:
1. Enforceability of the consequential damages waiver (§ 8.7). The mutual consequential damages waiver in Section 8.7 of the MSA is enforceable under New York law, which governs the MSA. New York courts have consistently upheld consequential damages waivers in commercial contracts between sophisticated parties, and there is no basis in the record for Kestrel to argue unconscionability, fraud, or any other ground for invalidating the waiver. This firm's legal memoranda dated January 2023 and February 2023, which analyzed the enforceability of the waiver in detail, concluded that the waiver bars Kestrel's claims for lost profits, loss of business opportunities, and reputational damages. If the Tribunal agrees, this would eliminate the vast majority of Kestrel's €47.3 million claim.
2. The renewal-period lost profits claim is legally unsupported. Kestrel's claim for €27.15 million in renewal-period lost profits — which represents more than 57% of its total claimed damages — is predicated on the assumption that WAL would have exercised both optional one-year renewal periods under Section 3.2 of the MSA. As demonstrated in this firm's April 2023 option-versus-obligation analysis, the renewal options were exercisable solely at WAL's discretion, and WAL had no obligation to renew. Under established principles of New York law and international commercial arbitration, a party cannot recover lost profits for a period that was contingent upon the counterparty's discretionary exercise of an option. This claim is speculative as a matter of law and should be rejected by the Tribunal.
3. The reputational damages claim is speculative and barred. Kestrel's claim for €3.90 million in reputational damages is both speculative — lacking any specific identification of lost contracts or verifiable business opportunities — and barred by the consequential damages waiver in Section 8.7.
C. Counterclaim Strength
WAL's counterclaim of €5.17 million for replacement-component costs sourced from Valkyr is well-documented and presents a straightforward damages calculation:
• WAL onboarded Valkyr only after Kestrel's quality failures became persistent and after WAL had exhausted its contractual cure mechanisms with Kestrel. The timeline of Valkyr's engagement post-dates the lot rejections, refuting Kestrel's narrative that the termination was a pretext for a pre-planned supplier switch.
• The per-unit cost premium is clearly established: Valkyr's unit price of €8,432.92 compared to Kestrel's CY4 price of €5,222.92 yields a per-unit premium of €3,210.00. Across 1,680 replacement units, and net of Valkyr's 4.2% introductory discount, the total counterclaim amount is €5,166,342.40 (rounded in the pleadings to €5.17 million).
• The counterclaim is properly characterized as direct damages arising from Kestrel's breach, not consequential damages, and is therefore not subject to the mutual consequential damages waiver in Section 8.7.
V. ASSESSMENT OF RISKS
While we are confident in the overall strength of WAL's position, professional responsibility requires us to provide a candid assessment of the risks and vulnerabilities that the Tribunal may consider. We address these below.
A. Technical Risks
The most significant technical risk relates to the treatment of the lots with porosity levels between 0.19% and 0.25%. Dr. Kessler may credibly argue that these lots fell within the contractual specification of ≤0.25% and therefore should not have been rejected. If the Tribunal accepts this argument for some or all of these lots, the number of valid rejections could be reduced from fourteen to as few as seven.
However, we emphasize that even under this most conservative scenario, WAL would still have well over three uncured rejections with porosity levels above 0.25% — the Persistent Quality Failure threshold under Section 8.4. During cross-examination of Dr. Kessler, we intend to drive this point home: even accepting her position on the borderline lots, the number of clear-cut exceedances independently satisfies the contractual termination standard.
A secondary technical risk is that the Tribunal may question whether WAL's incoming inspection methodology under WAL-QCP-100 was applied consistently across all fourteen lots. If the Tribunal perceives any inconsistency in how inspections were conducted — for example, differences in sampling protocols or equipment calibration between lots — it could undermine the credibility of certain individual lot rejections. Dr. Vollmer's testimony will be critical to addressing this risk by establishing the consistency and rigor of WAL's inspection procedures.
B. Commercial Motive Risk
Kestrel's "pretextual termination" narrative — that WAL's true motive was to replace Kestrel with Valkyr as a lower-cost domestic supplier — is, in our assessment, factually unsupported but may nonetheless have some emotional resonance with the Tribunal. Kestrel will likely press this narrative aggressively at the hearing, particularly during the direct examination of Friedrich Brenner and Luisa Erdmann.
To counter this narrative, it is essential that Gerald Huang's testimony clearly and convincingly establish the following points:
• Valkyr was not contacted until after the quality failures became persistent — specifically, not until after the fifth uncured rejection in or around July 2022.
• The timeline of Valkyr's engagement post-dates the lot rejections and was a commercially necessary response to Kestrel's quality failures, not a premeditated strategy.
• WAL's decision to engage Valkyr was driven by operational necessity — the need to maintain continuity of supply for WAL's own production commitments to its end customers — and not by a desire to obtain components at a lower price. Indeed, as demonstrated by the counterclaim, Valkyr's unit price is significantly higher than Kestrel's, making a "cost-saving" motive implausible.
During cross-examination of Friedrich Brenner and Luisa Erdmann, we will seek to elicit concessions on Kestrel's awareness of quality failures and the inadequacy of its cure efforts. If Brenner and Erdmann acknowledge that Kestrel was aware of recurring porosity issues and failed to take effective remedial action, the "pretextual termination" narrative will be significantly weakened.
C. Damages Quantum Risk
If the Tribunal were to find even a partial breach by WAL — for example, by concluding that the termination was improper with respect to the borderline lots — the exposure could be significant depending on which categories of damages the Tribunal admits. While we are confident that the consequential damages waiver and the discretionary nature of the renewal options substantially limit WAL's exposure, we must acknowledge the following risks:
• Prof. Langfeld's damages report, while inflated in our view, presents a superficially credible narrative that will require effective cross-examination to dismantle. The €47.3 million total, if credited, would represent a material adverse outcome for WAL. Even a significantly reduced award could have meaningful financial implications.
• The 22.4% margin assumption is the linchpin of Prof. Langfeld's lost-profits calculation. Sandra Gillespie's forensic analysis at Canfield & Thorpe LLP supports a margin range of 14% to 16%, which would reduce Kestrel's lost-profits claims by approximately 30% to 37% even before the legal bars to recovery are applied. It is imperative that we challenge the 22.4% figure vigorously during cross-examination of Prof. Langfeld and present Ms. Gillespie's analysis to the Tribunal through Dr. Ostrovsky's testimony.
• Even if the Tribunal rejects the renewal-period profits (€27.15 million) and the reputational damages (€3.90 million), the remaining categories — lost profits for the remaining MSA term (€12.83 million, subject to margin and volume adjustments) and rework costs (€3.42 million) — represent potential exposure in the range of €8 million to €16 million, depending on the Tribunal's assessment of damages methodology and applicable legal bars.
D. Counterclaim Mitigation Risk
The Tribunal may reduce the counterclaim award if it finds that WAL did not move with sufficient speed to seek competitive bids from alternative suppliers, thereby failing to mitigate its own losses. Kestrel raised this argument in its Defense to the Counterclaim, contending that WAL's decision to engage Valkyr without soliciting bids from other qualified suppliers resulted in an unnecessarily high replacement cost.
To address this risk, we intend to present evidence — primarily through Gerald Huang's testimony — that WAL acted within commercially reasonable timeframes given the highly specialized nature of Ti-6Al-4V ELI titanium alloy turbine housings. The number of qualified suppliers capable of manufacturing investment-cast titanium turbine housings to WAL-SPEC-TH-401 specifications is extremely limited, and WAL's engagement of Valkyr reflected the urgency of maintaining production continuity, not a failure to mitigate. We will also present documentary evidence of WAL's supplier qualification process, which demonstrates that Valkyr was the most readily available qualified alternative.
VI. CROSS-EXAMINATION STRATEGY HIGHLIGHTS
We provide below a summary of the principal objectives and key lines of questioning for our cross-examination of each of Claimant's witnesses and experts. Detailed cross-examination outlines have been circulated separately under attorney work product protection.
Friedrich Brenner (Managing Director, Kestrel Dynamics GmbH). Our cross-examination of Mr. Brenner will focus on establishing that he was aware of recurring porosity failures in the lots shipped to WAL and that Kestrel's internal quality control processes were inadequate to prevent those failures. We will seek to elicit admissions regarding Kestrel's awareness of quality control shortfalls, including any internal communications or meeting minutes reflecting management-level discussions of the porosity issues. We will also challenge his testimony on the purported "domestic supplier replacement" theory by confronting him with the timeline of events, which demonstrates that Valkyr was not contacted until after the quality failures had become persistent. Additionally, we will probe his understanding of the contractual specifications, including the porosity tolerance set forth in WAL-SPEC-TH-401, to establish that the ≤0.25% standard was known to Kestrel at the time of contract execution and throughout the performance period.
Luisa Erdmann (Commercial Director, Kestrel Dynamics GmbH). Our cross-examination of Ms. Erdmann will focus on the contract negotiations and pricing terms, with the objective of reinforcing the express nature of the porosity specification and the incorporation of WAL-SPEC-TH-401 into the MSA. We will walk Ms. Erdmann through the relevant contractual provisions — Section 5.1(a), WAL-SPEC-TH-401 (Appendix C, Table 3), and Amendment No. 2 — to establish that the ≤0.25% porosity standard and the 45-calendar-day cure period were clearly understood and agreed upon by both parties. We will also challenge her knowledge of the cure timeline for each rejected lot, seeking admissions that Kestrel failed to deliver conforming replacement units within the cure period for the majority of the rejected lots.
Dr. Stefan Voss (Head of Quality Assurance, Kestrel Dynamics GmbH). Dr. Voss is our primary technical cross-examination target and arguably the most important Claimant witness for the purposes of our defense. We will challenge his claim that the rejected lots met the contractual specifications by confronting him with Kestrel's own internal test data, which in several instances show porosity measurements exceeding the ≤0.25% threshold. We will explore the circumstances under which lots with known quality concerns were nonetheless shipped to WAL, including whether Dr. Voss or his quality assurance team authorized the shipment of lots that Kestrel's own testing had flagged as potentially non-conforming. We will also establish the inadequacy of Kestrel's cure efforts within the 45-calendar-day period, focusing on the specific steps (or lack thereof) that Kestrel took to address each rejected lot. Finally, we will explore the systemic deficiencies in Kestrel's casting-process controls — including degassing procedures and mold preheat temperatures — that Dr. Chow has identified, seeking admissions from Dr. Voss that these issues were known within Kestrel's quality assurance department.
Dr. Martina Kessler (Claimant's Technical Expert). Our cross-examination of Dr. Kessler will target three principal vulnerabilities. First, we will expose her reliance on Kestrel's own internal test data rather than independent testing, questioning the reliability of her conclusions given the systemic deficiencies in Kestrel's quality assurance processes. Second, we will contrast her statistical sampling methodology with Dr. Chow's comprehensive CT-scan analysis of all lots, demonstrating that Dr. Chow's approach provides a more complete and reliable picture of the porosity levels in the rejected lots. Third, we will challenge her failure to address the cure-period defaults — specifically, why seven of the fourteen rejected lots were not cured within the 45-calendar-day period — which is a central factual issue that she entirely omitted from her expert reports.
Prof. Dieter Langfeld (Claimant's Damages Expert). Our cross-examination of Prof. Langfeld will focus on dismantling the key assumptions underlying his €47.3 million damages calculation. The primary target is the 22.4% margin assumption, which we will challenge using the financial data from Canfield & Thorpe LLP's forensic analysis demonstrating that Kestrel's actual margins were in the range of 14% to 16%. We will also demonstrate the speculative nature of the renewal-period profits by establishing that the renewal options were exercisable solely at WAL's discretion and that Prof. Langfeld has no factual or economic basis for assuming that WAL would have exercised them. Finally, we will highlight the absence of evidence supporting the €3.90 million reputational damages figure, pressing Prof. Langfeld to identify any specific lost contracts or business opportunities, which we expect he will be unable to do.
VII. PREPARATION AND NEXT STEPS
In light of the foregoing analysis, we recommend the following preparation steps in the weeks leading up to the evidentiary hearing:
1. Witness preparation sessions. Final witness preparation sessions for Gerald Huang and Dr. Ingrid Vollmer are to be scheduled and completed during the last week of December 2023 and the first week of January 2024. These sessions will include mock cross-examination exercises and detailed reviews of the key documents that each witness is likely to be examined on.
2. Pre-hearing conference call. We recommend scheduling a final pre-hearing conference call with WAL management — including Marcus J. Whitmore III (CEO), Dana Prescott (VP & General Counsel), Gerald Huang (VP Global Supply Chain Operations), and Dr. Ingrid Vollmer (SVP Engineering & Manufacturing) — for early January 2024, ideally during the week of January 1–5. This call will serve as a final strategy alignment session and an opportunity to address any remaining questions or concerns from WAL's leadership.
3. Expert witness preparation. Dr. Raymond Chow and Dr. Nadia Ostrovsky will be briefed in early January 2024 on anticipated lines of examination and cross-examination, as well as the hot-tubbing protocol that the Tribunal has indicated it may employ for the concurrent examination of opposing experts. Both experts are experienced in arbitral proceedings, but additional preparation tailored to this Tribunal's anticipated approach will be beneficial.
4. C&H hearing team. The Calderwood & Harkness hearing team will comprise Theodore Langston (lead counsel), Vivienne St. Claire (co-lead, with primary responsibility for expert witness examination), Simone Laroche (senior associate, with responsibility for document management and witness preparation support), and Jeffrey Park (associate, with responsibility for real-time transcript review, exhibit management, and hearing logistics). All four members of the team will be present at the ICC Hearing Centre for the full five-day hearing.
5. Witness availability. We respectfully request that WAL ensure the full availability of Gerald Huang and Dr. Ingrid Vollmer for the entire hearing period (January 8–12, 2024). While we currently anticipate that their testimony will be completed on Days 2–3 (January 9–10), it is possible that the schedule may shift, and their availability throughout the hearing week will provide flexibility in the event of unanticipated scheduling changes.
6. Post-hearing briefs. Simultaneous post-hearing briefs are currently due on February 9, 2024. We will begin drafting the post-hearing brief during the hearing itself, based on the testimony and evidence presented, and will circulate a draft to WAL for review prior to filing.
VIII. BUDGET UPDATE
As you are aware, this engagement is governed by the fee arrangement set forth in our engagement letter dated November 14, 2022. We are pleased to report that fees billed to date are consistent with the estimates previously provided to WAL and remain within the parameters discussed during our quarterly budget reviews.
The hourly rates for the members of the Calderwood & Harkness hearing team are as follows:
We anticipate incurring additional costs in connection with the following items in the period leading up to and including the evidentiary hearing:
• Final witness preparation sessions (attorney time for preparation and conduct of sessions);
• Expert witness fees for Dr. Chow (Arclight Materials Science Inc.) and Dr. Ostrovsky (Ridgeline Economic Consulting LLC) for hearing preparation and attendance;
• Hearing-related travel and accommodation expenses for the C&H hearing team;
• Real-time transcript services and transcript costs for the five-day hearing; and
• Post-hearing brief preparation.
We will provide a more detailed cost estimate for these items under separate cover. We also note that total legal costs — including attorneys' fees and disbursements — will factor into our cost-recovery request from the Tribunal in our post-hearing submissions. Under Article 38(5) of the ICC Rules, the Tribunal has discretion to allocate costs between the parties, and a favorable outcome on the merits would support WAL's request for recovery of a substantial portion of its legal costs.
IX. COVENANT COMPLIANCE NOTE
We wish to briefly address two ancillary matters that have arisen in the context of this dispute and that are relevant to WAL's broader corporate considerations.
Credit facility. As you are aware, WAL is party to a senior secured revolving credit facility in the amount of $350 million with Veltrano National Bank, N.A. as administrative agent. Certain financial covenants under that facility could theoretically be impacted by a material adverse arbitral award. Based on our current assessment of the case, we believe that the favorable posture of WAL's defense and counterclaim substantially reduces the concern regarding potential covenant compliance issues that could have arisen had Kestrel's full €47.3 million claim been sustained. We will continue to monitor this issue as the arbitration progresses and will coordinate with your treasury team as appropriate.
Insurance. We note that Pinnacle Continental Insurance Co. issued a coverage reservation letter in connection with Policy No. PCE-GL-2021-08854 early in this dispute. As we have previously advised, Pinnacle has taken the position that it has no defense obligation under the commercial-supply exclusion in the policy, and our review of the policy language supports this conclusion. Accordingly, no further action is required with Pinnacle at this stage. We will re-evaluate the insurance posture if circumstances change materially.
X. CLOSING
In sum, we are confident that WAL is well-positioned heading into the evidentiary hearing. The combination of Dr. Chow's comprehensive metallurgical evidence, the clear contractual basis for termination under the Persistent Quality Failure provisions, the enforceability of the consequential damages waiver, and the legal deficiencies in Kestrel's renewal-period and reputational damages claims provide WAL with a strong defense on the merits and a well-supported counterclaim.
While we have identified certain risks — particularly with respect to the borderline lots, the commercial-motive narrative, and the quantum exposure in the event of a partial adverse finding — we believe that these risks are manageable and that our cross-examination strategy and expert evidence are well-suited to address them effectively.
We invite you to schedule a call at your earliest convenience to discuss any questions or concerns arising from this letter. We are available to meet in person in Arlington or New York, or by videoconference, as your schedule permits.
Following the conclusion of the evidentiary hearing on January 12, 2024, we will provide WAL with a full post-hearing report summarizing the testimony, our assessment of the Tribunal's reactions, and our strategy for the post-hearing briefs.
We thank you for your continued confidence in Calderwood & Harkness, and we look forward to working with you and your team in the weeks ahead.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Theodore Langston Partner
Direct Dial: (212) 554-7148
Email: t.langston@calderwoodharkness.com
cc: Marcus J. Whitmore III, Chief Executive Officer, Whitmore Aerospace LLC Vivienne St. Claire, Partner, Calderwood & Harkness LLP Simone Laroche, Senior Associate, Calderwood & Harkness LLP Jeffrey Park, Associate, Calderwood & Harkness LLP
Enclosures: None. Cross-examination outlines and witness preparation memoranda have been circulated separately under separate cover.
Category | Amount | Reference
Lost profits for the remaining MSA term (Contract Year 5) | €12.83 million | Claimant's SOC ¶ 87
Lost profits for two optional one-year renewal periods | €27.15 million | Claimant's SOC ¶ 92
Unreimbursed rework costs on rejected lots | €3.42 million | Claimant's SOC ¶ 96
Reputational damages / loss of business opportunities | €3.90 million | Claimant's SOC ¶ 101
Total | €47.30 million
Element | Amount / Detail
Valkyr unit price | €8,432.92
Kestrel CY4 price | €5,222.92
Per-unit premium | €3,210.00
Units requiring replacement | 1,680
Gross replacement cost premium | €5,392,800.00
Less: Valkyr 4.2% introductory discount (factor of 0.958) | —
Net counterclaim amount | €5,166,342.40
Team Member | Title | Rate
Theodore Langston | Partner | $1,475/hr
Vivienne St. Claire | Partner | $1,425/hr
Simone Laroche | Senior Associate | $895/hr
Jeffrey Park | Associate | $625/hr