Boeing wins legal battle with MDHI over AH-6i rights

Boeing has won an $11 million judgement against MD Helicopters Inc. (MDHI) over the rights to its AH-6i Light Attack Reconnaissance helicopter, with an arbitration panel ruling that the aerospace giant owns the intellectual property and right to produce the type, and that MDHI must stop interfering with Boeing’s attempts to do so.

An arbitration court has found that Boeing's AH-6i is a direct derivative of the Mission Enhanced Little Bird. Boeing Photo
An arbitration court has found that Boeing’s AH-6i is a direct derivative of the Mission Enhanced Little Bird. Boeing Photo
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The action was the latest in the two companies’ ongoing dispute into the legacy of a 2005 agreement, in which MDHI sold Boeing ownership of the underlying intellectual property needed to build the Mission Enhanced Little Bird (based on the MD 530F) – and the right to make and sell any aircraft derived from it. The Mission Enhanced Little Bird (MELB), also known as the AH-6M, was created in the 1990s as a vehicle for U.S. Army Special Forces. It enhanced the mission performance of the AH-6 Little Bird by adding components from the more powerful 600N to the MD 500 series airframe.

The panel was asked to resolve two primary issues: if Boeing has the right to make and sell the AH-6i Little Bird, and whether Boeing must disclose all improvements it has made to the Mission Enhanced Little Bird (MELB) to MDHI.

Finding in Boeing’s favor, the panel decided that the AH-6i was directly derived from the MELB. In addition to making MDHI pay Boeing’s $4.2 million arbitration costs (and its own $7.4 million costs), the arbitrators ordered the OEM to provide Boeing with all MELB tooling, one set of common tooling, and one set of tooling drawings by April 30.

The arbitration panel also denied MDHI’s counterclaims for an order to force Boeing to share its improvements to the MELB, and for $9.36 million in damages to cover MDHI’s costs in developing substitute technology to compete in the marketplace.

The neighboring companies, who have facilities across the street from each other in Mesa, Arizona, share substantial history. Boeing briefly owned the entity that ultimately became MDHI after merging with McDonnel Douglas in 1997, but decided to sell its commercial helicopter lines in 1999 to a Dutch holding company. That helicopter company was then purchased by Patriarch Partners in 2005, and recapitalized as MDHI.

Around this time, Boeing and MDHI made the agreement that would allow Boeing to pitch the MELB for the U.S. Army’s Advanced Reconnaissance Helicopter (ARH) program, in exchange for $15 million, a $10 million loan, and the restructuring of previous debt. However, the contract went to Bell, before the program was ultimately cancelled in 2008.

Despite the setback, Boeing worked on a new helicopter intended for sales to foreign governments – the AH-6i – and signed agreements with MDHI in 2010 and 2011 that would see the latter supply the airframes for the aircraft if Boeing secured orders.

MDHI also continued to sell armed helicopters to military customers around the world, and unveiled the MD 540F in 2012, presenting it as a contender for the Army’s Armed Aerial Scout (AAS) competition. Boeing, which was submitting the AH-6i for the same competition, claimed that the MD 540F’s development violated the 2005 agreement because it was derived from the MELB. The issue went to arbitration, with the ruling going in MDHI’s favor – the manufacturer was entitled to make and sell the MD 540F because it wasn’t derived from the MELB. The ruling was a crucial win for MDHI, ensuring it could compete for future U.S. and foreign military contracts.

MDHI is to deliver next-generation weapons and mission management capabilities to its MD 530G Block II (BII) Scout Attack Helicopter. MD Helicopters Photo
MDHI is to deliver next-generation weapons and mission management capabilities to its MD 530G Block II (BII) Scout Attack Helicopter. MD Helicopters Photo

However, the legacy of the 2005 agreement was soon felt again, after Boeing won a contract from the Saudi Arabian National Guard for 24 AH-6i helicopters in 2012. As part of the 2011 agreement between MDHI and Boeing, MDHI was to supply Boeing with the airframes for the aircraft, as well as other parts.

After the last airframe was delivered in 2017, MDHI took Boeing back to court for missing payments on the airframes. Boeing filed counterclaims, and it was this that led to the recently-decided arbitration.

In its claims, Boeing alleged that MDHI had been interfering in its ability to make and sell the AH-6i by telling the U.S. government and suppliers that it doesn’t have the right to do so. Boeing also said MDHI had failed its obligation, under the 2005 agreement, to provide written notice to its suppliers to tell them they could work with Boeing.

Indeed, in September 2016, MDHI sued Aerometals, Inc., alleging that MDHI, not Boeing, owned the rights to the parts Aerometals was selling to Boeing.

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And in 2017, MDHI made a presentation to the U.S. Special Operations Command that included a slide that stated the 2005 agreement “did not provide Boeing the right to develop and field a new aircraft like the AH-6i” and that “MDHI will not allow Boeing unfettered access to our markets.”

In the aribitrators’ Findings of Fact, they wrote: “Boeing concluded that it needed ‘to crush’ MDHI if MDHI sought to enter its space and brainstormed possible strategies, from ‘mild’ to ‘wild,’ for doing so.”

In this latest legal battle, Boeing appears to have succeeded, winning all of its claims, while MDHI won none.

In addition to the tooling and arbitration costs, the panel ordered MDHI to comply with the 2005 agreement by sending all MELB suppliers a notice to inform them of Boeing’s rights with the type.

“While MDHI disagrees with, and is disappointed in, the decision of the arbitration panel, that decision is limited in scope,” an MDHI spokesperson said when Vertical requested comment on the case. “MDHI continues to hold the Type Certificate and Type Design Data for its fleet, and will continue to develop, design, manufacture, market, sell and support the twin-engine MD 902 Explorer, the MD 530F Cayuse Warrior Light Scout Attack Helicopter, the new MD 530G Attack helicopter, and a single-engine commercial fleet that includes the MD 600N, MD 520N, MD 500E and MD 530F, as well as any further military and commercial aircraft variants.”

The spokesperson added that MDHI will continue to compete with the AH-6i and the other aircraft in the military light helicopter market, particularly with the ongoing development of the MD 530G.

As for Boeing, a company spokesperson said it “never doubted and remains confident in its right to manufacture, sell, and support the AH-6” helicopter. “We look forward to continuing to market and sell the product to customers interested in the capabilities of the AH-6,” they added.

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