Kansas to Sell $33 Million of Taxable Bonds to Aid New Cessna Aircraft Plant

DALLAS - Kansas will tap into an authorization of $150 million of taxable bonds for aviation projects in the state with a $33 million issue to help Cessna Aircraft Co. finance the expansion of an aircraft assembly plant in Wichita.

To obtain the financing, Cessna executives said the company would spend $778 million in the state to develop its newest and largest private jet aircraft.

The state Legislature passed a measure in April that authorized the Kansas Development Finance Authority to issue a total of $150 million of the aircraft project bonds through July 2013, with each project eligible for up to $33 million of bonds.

The bonds will be supported by the state income tax on Cessna employees. If those revenues are not sufficient, the company must meet debt service requirements with its funds.

The bonds will be issued as a taxable series in early to mid-November, said Rebecca Floyd, KDFA's executive vice president and general counsel.

"The bonds will be issued as taxable debt because all the benefits go to Cessna, which has the sole responsibility to pay the debt service," she said. "The law allows Cessna to capture the state withholding taxes for the debt service, but the debt is the obligation of Cessna even if that revenue is inadequate."

Floyd said Cessna is expected to purchase the bonds in a private placement deal.

The state bonds are part of a larger, $70 million incentive package for Cessna that includes $10 million in forgivable loans from Wichita and Sedgwick County, state training dollars, and consolidation by the Wichita Airport Authority of 11 leases at the city-owned Col. James Jabara Airport into a single 50-year lease.

On Tuesday, the State Finance Council, which includes Gov. Kathleen Sebelius and top legislative leaders, approved the agreement between Commerce Secretary Dave Kerr and Joe Pelton, chief executive officer of Cessna Aircraft. The council's approval was the final legal impediment to the sale of the bonds.

Cessna agreed to hire an additional 1,010 workers, with an estimated annual payroll of $74 million, for the project.

Pelton said the passage of HB 2006 in the 2008 Legislature was essential to keeping the company's operations in Kansas. The bill was passed less than a week after its introduction when the company said it was considering attractive offers from economic development officials in other states.

"We needed to make this decision quickly and the Kansas Legislature was very proactive in its response," Pelton said. "This is a perfect example of our partners at the state level understanding and responding quickly to a very competitive global business environment."

Pelton said every job created in the state's aviation industry results in the creation of 2.9 jobs.

Before seeking the legislation authorizing the bonds, Cessna had asked for $25 million in cash from the state.

The company will build the new twin-jet Citation Columbus at the Wichita facility.

The new plant will house engineering offices and final assembly of the airplane. Preliminary plans call for the construction of more than 800,000 square feet of buildings and 14 acres of airfield pavement.

The eight- to 10-passenger, intercontinental-capable business jet will have a range of 4,000 miles and a top speed of 562 mph. The aircraft is expected to cost $27 million when commercial deliveries begin in 2014.

Aircraft manufacturers in the Wichita area account for 40% of the general aviation airplanes produced each year in the United States, according to the Greater Wichita Economic Development Coalition.

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