The U.S. Bankruptcy Court on Aug. 14 is scheduled to consider a claim by Pilatus Aircraft that it is owed at least $1 million in royalty money by Hawker Beechcraft for the production of the Pilatus-designed airframe used for the T-6/AT-6 military trainer.

The Swiss plane maker claims that Hawker Beechcraft stopped royalty payments for the aircraft after it entered Chapter 11 bankruptcy protection in May, but should be directed to catch up and continue making the payments. Hawker Beechcraft and its creditors committee, however, are disputing this claim, saying Pilatus has failed to make its case.

Based on the Pilatus PC-9, the trainer has been used as the platform for the U.S. Air Force/Navy Joint Primary Aircraft Training System (JPATS) contract, along with a number of international programs. The aircraft also is Hawker Beechcraft’s platform for the U.S. Air Force’s Light Air Support program competition.

In court documents, Pilatus says Hawker Beechcraft uses Pilatus’s intellectual property in the production of the trainer aircraft, but that restructuring plans do not recognize this as an ongoing benefit.

Pilatus claims that under a 2004 agreement, Hawker Beechcraft (then Raytheon Aircraft) was granted the exclusive right to manufacture and market the trainer or derivative aircraft based on the design of a modified Pilatus PC-9 single turboprop. That aircraft, Pilatus says, “contain[s] the intellectual property of Pilatus.”

The agreement further conveyed the rights for Raytheon to manufacturer the T-6 for the JPATS program, along with international customers. “Without the agreement, Raytheon had no product that would have permitted it to enter into such contracts, and the trainer/attack segment of the Debtors’ business would not exist,” Pilatus says.

The agreement further calls for royalty payments to be paid to Pilatus with quarterly reports, Pilatus says, adding, however, that Hawker Beechcraft was in arrears of more than $1 million.

Hawker Beechcraft continues to produce the aircraft and receive “substantial payments” for its ongoing production, Pilatus says. “From and after the [bankruptcy filings], the debtors have sold and delivered, and are continuing to sell and deliver, the T-6 Aircraft to their customers without paying any royalties to Pilatus, as required under the agreement, and without providing Pilatus with the quarterly accounting required under the agreement,” Pilatus states. “As a result of the latter failure, Pilatus lacks information concerning and is uncertain as to the number of T-6 Aircraft sold under the agreement during the post-petition period, and the customers to which T-6 Aircraft have been delivered.”

Further, Pilatus notes the production of this aircraft is an increasingly important part of Hawker Beechcraft’s business. “These sales and deliveries are part of the debtors’ lifeblood, without which these reorganization proceedings would be futile,” Pilatus says.

Pilatus is asking for the court to permit an administrative claim for royalties and order Hawker Beechcraft to make immediate payment. The court also should require their continued payment, Pilatus says.

Both Hawker Beechcraft and the “Official Committee of Unsecured Creditors,” however, have asked the court to deny the request. They believe Pilatus failed to meet its burden of proof for the claim.

In court documents, Hawker Beechcraft says the claim should not be allowed as an administrative expense. The Pilatus motion, Hawker Beechcraft says, “does not establish that Pilatus is providing an ongoing benefit.”

Hawker Beechcraft says that the October 2004 agreement granted it a “fully paid-up” license to use certain intellectual property. Subsequent payments are not tied to Hawker Beechcraft’s use of intellectual property “but rather a complex settlement of a number of commercial disputes between the parties (including, but not limited to, rights related to non-U.S. aircraft sales),” Hawker Beechcraft says.

Even if the payments to Pilatus were in exchange for an ongoing right to use Pilatus’ intellectual property, Pilatus has not shown to the court that its intellectual property is being used, the Wichita airframer adds. “Pilatus baldly asserts in its motion that the debtors are receiving money ‘for intellectual property owned by Pilatus,’ but Pilatus has not even identified the particular intellectual property the debtors are supposedly using, let alone have they met their burden of proving that the debtors are actually using such intellectual property,” Hawker Beechcraft asserts.

Hawker Beechcraft further argues that it has grounds to believe that it is not using “any of that intellectual property in [the] present aircraft production process.”

The creditors’ committee says it is continuing to explore the Pilatus assertions, but based on the facts on hand, it agrees with Hawker Beechcraft. The committee further asked that the court use the hearing simply as a “status conference” that would enable Hawker Beechcraft and Pilatus to further discuss whether intellectual property is still being used.