AvCraft Technical Services, the company touted as the first major success of Horry County’s retooled industry recruitment agency, cannot meet its job creation promises and is working with county officials to negotiate a new incentives deal, according to county leaders and a company official.
Nearly three years ago, the aircraft maintenance firm announced it would hire 150 employees in exchange for $200,000 in state and local grants. The news marked the first jobs announcement from the latest version of the Myrtle Beach Regional Economic Development Corporation (EDC), which reorganized in 2011 after years of subpar performance. The EDC also received a boost of more than $1 million in annual county funding to spur its efforts.
More than halfway through its five-year contract, AvCraft has hired few workers and the company is more than $36,000 behind on rent payments for county hangar facilities at Myrtle Beach International Airport, according to public records. But the firm also hasn’t touched the grant money, a decision AvCraft President Mike Hill said stems from his concerns about meeting the terms of the incentives agreement.
“The offer was there,” he said. “But knowing the hardship of the market after all that was negotiated and the downturn in some of the business, we just realized that it probably was something that would be against the better interests of the county and the state.”
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Hill said he cannot meet the 150-job goal and has already informed the county of his situation.
“It’s not something that’s even possible here in the next year and a half,” he said.
A history of struggling
When the AvCraft agreement was initially approved in December 2011, most Horry County Council members didn’t know which company they were awarding incentives to. They trusted the new EDC’s guidance and didn’t ask questions until AvCraft was announced as the group’s first job creation project. The news raised some eyebrows because the company had a history of not reaching its hiring goals.
AvCraft originally moved to the beach from Tyler, Texas, in 2003 when the Myrtle Beach Air Force Base Redevelopment Authority agreed to reimburse the company up to $750,000 for upgrades at several hangars at the airport. The county also agreed to cut its hangar rent from $5 per square foot to $2 per square foot and S.C. officials chipped in tax credits and job creation credits worth up to $281,600 annually if AvCraft hired 80 workers within its first year.
At the time, AvCraft announced plans to create 280 jobs within five years.
After one year, however, AvCraft had failed to meet its projections. The company hired 65 workers instead of the 80 required under the incentives agreement. In response, the county canceled the initial deadline and gave AvCraft another six months to reach the goal. When that new deadline rolled around, AvCraft’s employee count had dropped to 53, and the company’s German production plant had filed for bankruptcy protection.
The company didn’t receive the full $750,000 local reimbursement and wound up losing the state incentives because it didn’t create the number of jobs it had promised.
Then, Ben Bartel – AvCraft’s former chief executive – was arrested in Germany in 2005 on charges of tax evasion. The charges were later dropped and Bartel was never convicted of any crime.
AvCraft announced another job expansion – this one for 50 new jobs – in 2009, but the promise didn’t pan out and the company came back to Horry County Council the following year asking for a reduction in its hangar rent as the company was on the verge of going out of business.
In 2010, KNH Aviation Services Inc., a group of investors led by Hill, bought all of the company’s assets. Hill has said that AvCraft was in poor financial shape shortly after he arrived, but he worked with creditors who wanted to shut down the company and was able to revive the business with a new investment group.
When county council members criticized the latest incentives deal with AvCraft, Hill stressed that his operation was a completely different company. Council members eventually signed off on a $100,000 grant for AvCraft, which had already been awarded a $100,000 package from the state’s Commerce Department to help upgrade two county hangar facilities.
County officials said AvCraft has never drawn any money from those grants.
Rent, hiring challenges
At the time of the announcement, Hill said he was optimistic about his business plan. But he said the market never grew the way he thought it would. AvCraft has nearly 60 employees, which is about the company’s average workforce since it moved to Myrtle Beach.
“We have actually hired a couple people, but obviously we had to look at some of the downturn in the business that didn’t allow us to fill some positions,” Hill said. “So it’s just trying to work through the current market conditions with airlines and everything else. It’s definitely a challenge.”
Horry officials track hiring at all companies that have local incentives contracts. County spokeswoman Lisa Bourcier said AvCraft officials had reported hiring nine workers at one time, but the county only has documentation for two new employees.
The company has also struggled to pay its rent in recent months. As of Oct. 7, AvCraft owed the county $56,686.24, said Kirk Lovell, spokesman for the county’s Department of Airports. Of that total, more than $36,000 was past due. However, AvCraft has since submitted an $18,018.45 check for August’s rent, Lovell said in an email.
County Councilman Harold Worley said county leaders talked about the AvCraft situation in a closed-door meeting earlier this month. Because the conversation was in executive session, he said he couldn’t elaborate beyond the council’s final decision.
“My understanding is that the legal department is going to go back to them and tell them to basically pay up or get out,” he said. “[It’s] that simple.”
When asked about the late rent payments, Hill stressed that he is working that out with the county.
“We’re all good,” he said. “It’s got to go back before [county council], but I think we’ve got it all worked out.”
Hill also said he’s begun discussions with the county and the state Department of Commerce about AvCraft’s facility needs. He said the company wants more space to accommodate larger airplanes and he’s hoping incentives money can help pay for that expansion.
If he can add the infrastructure, Hill said he can hire more workers.
“My limitation with the current hangar is I can only get up to a certain size of aircraft,” he said. “We’re seeing the market move more and more to larger regional aircraft. And so it’s limiting my ability to bring business here because of space limitations.”
Horry County Council Chairman Mark Lazarus confirmed that he’s begun discussions with AvCraft about a new incentives agreement. He said the deal would involve adjusting the rent the company pays and the number of workers AvCraft would have to hire to receive grant money, though he declined to provide specifics.
“There’s a lot of things on the table,” he said.
Despite the company’s struggles, Lazarus said there are some positive signs coming from AvCraft.
“They’ve got some pretty substantial contracts coming,” he said. “Everything’s pretty solid over there. … They’ve gone through a slow time, but I think everything’s going to be just fine.”
Lazarus also said he’s not sure what other business would locate in the hangars AvCraft rents if the company left. He added that AvCraft pays workers an average wage of $19 per hour and he doesn’t want to see those jobs go elsewhere.
At the council’s first meeting in November, the chairman said he plans to present a new agreement to county council in an an effort “to salvage the deal.”
“We need to look at what we can do,” he said. “We need to look at what the market values of our facilities are. Are there other suitors out there? At the same time, you’ve got an operating business. … [Hill] has got his life invested in this thing. And you’ve got 50 employees that live in Horry County, spend their money in Horry County. It’s a huge economic impact. You’re talking about way above average salaries that he pays. … It would be hard to have them sit in the audience and look them in the eye and just try to run them out.”