Firstly please select this file to Download my A340.ON.THE.RECORD.FINAL REPORT 15TH DECEMBER 2009 This part of our fortfield.com website is at once the story of one of the lawsuits against Magellan Aerospace Corporation (MAC) and its UK subsidiary, Magellan Aerospace UK (MALUK) and the documentary record of what I believe to be the attempt of Magellan Aerospace to mislead the market on the value of its largest contract. I hope you will take the time to study the evidence I have included and form your own views. The case is important to me but I believe the issues it raises on corporate conduct and behaviour are essential to all of us, whether we are investors, employees, regulators or company directors or are just concerned about the standard of ethics in business life. To open the narrative, I asked an experienced business person uninvolved in the case to summarise the feelings that the material provoked in him. His summary follows immediately and then I ask and answer two essential questions. I hope you will then be encouraged to read on. Brian Little "WHO CAN WE TRUST? When clever, able people join their skills in a common purpose, they can achieve outstanding results - and benefits for others as well as themselves. Such is what we expect in a publicly quoted business. But when these executives do so in order to cover up an embarrassing mistake, engage in a “fraud”, and then get rid of the witness best placed to detect and expose it – their collective skills become focused on destroying that witness. Woe betide the effect of this on the business, the witness, and on the third parties involved. This is the story of Magellan Aerospace Corporation and its third highest-ranking executive, Brian Little. In the 3 years since they fired him in September 2006, during which time they have been locked in battle in a Bristol court, the stock market value of the company has indeed collapsed and he and his family have forfeited their ancestral family home to pay his legal fees. As if this were not enough, the stress in explaining his story and the facts in the case has rendered Mr Little unconscious with seizures on three occasions in court, requiring paramedic support. Indeed, he is since recovering from a nervous breakdown (Feb 2010). You may ask ‘Why should this matter to me?’ The answer is – there, but for the grace of God, go I. If Brian Little was not there to pursue justice, all of us would be worse off because, without people like him, the big corporations would not be brought to account and would simply walk over us. But, you may say, if there was a misstatement of the accounts by management the external auditors would find it and refuse to sign off the accounts. Could there ever be a situation in which they found deception and still sign off the accounts? If so, is that not something everyone should know about? Then you say, surely the shareholders would want to know all about this? Why would any shareholder want it covered up? What possible interest could that shareholder have? And even if a shareholder did have such an interest, you may then ask – by what possible means could he and/or others enlist the support of such impeccable institutions as Ernst & Young and PricewaterhouseCoopers? Because of being able to rely upon the unquestioning support and reputation of the Chairman of the company’s Audit Committee, who is an internationally recognised authority on corporate governance? And what sort of pressure could have been brought to bear on the corporation’s UK lawyers PinsentMasons LLP to retrospectively certify crucial Magellan UK written resolutions – involving Mr Little, and pivotal to his UK case as true and complete, when no such Notice of or Board meeting /resolutions took place before his dismissal? Could all of these icons of respectability have contributed to a cover-up? If our confidence in them were to be so undermined, in whom could we place our trust to regulate the world of business?
What matters if the truth doesn’t?"
Q1 A340 WAS AND IS VITALLY IMPORTANT TO MAC - Magellan Aerospace Corporation (TSE : MAL) Extract from Magellan Annual Information Form (AIF) for 2001 - from Aeronca section (page 10/11) when Mr Murray Edwards was both MAC Chairman and Chief Executive Officer – underlines are my emphasis In December, 1998 Aircelle, a limited partnership of Airbus Industrie and Hispano-Suiza, located in Harfleur, France awarded the exhaust nozzle and plug for the Airbus A340-500/600 to Aeronca and Magellan. This program is expected to provide in excess of $30 million in annual revenue at full production rate. On May 9, 2000 Magellan announced plans for the expansion of its Aeronca, Inc. Division Manufacturing Facility located in Middletown, Ohio. The expansion consists of approximately 60,000 square feet of office and manufacturing space. The total project cost is in excess of $3 million. In addition, Magellan is investing over $7 million for the engineering and development of the new exhaust system for the A340 Aircraft. and then in the Magellan Annual Information Form (AIF) for 2003 notification of substantially increased A340-500/600 Engineering and Development of over $ 20m investment: “In December, 1998 Aircelle, now owned by Hurel-Hispano, located in Harfleur, France awarded the exhaust nozzle and plug for the Airbus A340-500/600 to Aeronca and Magellan. This program is expected to provide U.S. $20.0 million in annual revenue at full production rate. Magellan has invested over U.S. $20.0 million for engineering and development of the new exhaust system for the A340 aircraft.” Even as early as 2003 the expected maximum annual revenues were reducing ($30m to $20m) whilst the MAC program investment ($7m to $20m+) was substantially higher than budgeted. To put this subject in some further context, from a TSE shareholder/financial markets analyst perspective, please listen to an important question asked by Richard Stoneman of Dundee Securities and then by a Mr Claude Proulx of BMO Capital Markets (a respected aerospace analyst in Canada) on the subject of Magellan Inventory and third party verification during 5 minutes of the Q3.2006 earnings webcast call in mid-November 2006 and answered by Mr Neill (President and CEO: shortly to retire and be promoted to Vice Chairman) and Mr Dekker , the current Magellan CFO and Corporate Secretary. For information Magellan Aerospace Corporation continued to add Labour learning costs – after 400+ nacelle sets/5 years of production (and E&Y as auditors accepted the further US $1.5m to US $8.63 added in FY2006 whilst simultaneously only a fixed amount of $30,000 per exhaust unit was amortised in FY2006 – which if continued at $30000 per unit would lead to only 65% recovery of the circa C$40m inventory on the December 2006 MAC Balance Sheet – PwC para 8.117) to their Balance Sheet inventory. With the introduction of Canadian Accounting Inventories Standard 3031 from 1 January 2008 some C$40m of inventory assets were written off against retained earnings (approx C$10m of which was for these A340 -500/600 program labour learning curves) and the reader can see Mr Dekker’s opening comments at Page 2 and then in his answer to questions regarding Magellan inventory and the new accounting standards from Mr Cameron Doerkson of Versant Partners (p6) and in more detail again by Mr Claude Proulx at Page 8 of the published transcript of that May 2008 webcast for Q1/2008 Earnings. “Mr Jim Butyniec – Magellan Aerospace - President, CEO Mr Cameron Doerkson - Versant Partners – Analyst John Dekker - Magellan Aerospace Corporation - VP-Finance John Dekker - Magellan Aerospace Corporation - VP-Finance Mr Jim Butyniec – Magellan Aerospace - President, CEO John Dekker - Magellan Aerospace Corporation - VP-Finance Mr Cameron Doerkson - Versant Partners – Analyst John Dekker - Magellan Aerospace Corporation - VP-Finance And then (p8/9) “Claude Proulx - BMO Capital Markets - Analyst John Dekker - Magellan Aerospace Corporation - VP-Finance Claude Proulx - BMO Capital Markets - Analyst John Dekker - Magellan Aerospace Corporation - VP-Finance A340-500/600 was and is vitally important to MAC. The A340-500/600 project investment/asset was the single largest financial number (>C$40m asset in FY2006) and failure to fully realize the value of the project would, inter alia, bring about the triple consequences of (1) an overstatement in the project / non-recurring costs/engineering development assets of > C$40m . (2) a program gross margin “breakeven” to actual financial losses and (3) create a future cash deficiency / non-recovery in the internal and public reporting (MAC 5 year strategic planning base - Sales revenues / cash projections of C$150m +) Q2. WHAT HAS BEEN THE PUBLICITY TO DATE? Although Magellan’s UK counsel (Mr Lynch QC) has argued that my Protected Disclosures – A340 etc /story is not in the public interest nevertheless since 19 September 2006 MAC and third parties have set out their views publicly through various channels. The following documents/articles have appeared in addition to the UK public court evidence and I include them below. Additionally, and for the first time, I am going on the public record in January 2010 through our website. My account starts in Part B of this material. 1A. Magellan Aerospace Corporation (MAC) - Q1/2007 Earnings release (public - 11 May 2007) and FY2007 Annual Report (public- 31 March 2008) “In addition, administrative and general expenses also contain legal and accounting fees of approximately $3.5m incurred by the Corporation in relation to a wrongful dismissal claim by a former employee and as a result a detailed investigation of concerns raised by a former employee regarding certain accounting issues. The concerns were thoroughly investigated by PricewaterhouseCoopers (“PWC”) who, under the direction of the Corporation’s audit committee, prepared a report for the audit committee on their findings. The Corporation’s legal counsel has advised the Board of Directors that PWC met with the audit committee and the Corporation’s external auditors, and based on the report prepared by PWC, PWC has advised the audit committee that they had not found anything that would undermine the integrity or accuracy of the Corporation’s financial statements.” This matter was also raised in the Magellan Aerospace Corporation Q1/2007 earnings webcast call by the CFO Mr Dekker (at page 4) and then in a question from Richard Stoneman (p5) “Richard Stoneman - Dundee Securities Corporation - Analyst (BL See part G - Corporate Framework & M Edwards 16th November 2009) John Dekker - Magellan Aerospace Corporation - VP of Finance, Corporate Secretary 1B. The “independent forensic” PwC Final Draft Investigative Report into Areas of Concern Raised by Mr Brian Little : Executive Summary circulated to the Board of Directors at MAC – relied on above in the Magellan Aerospace May 2007 earnings statement - at PwC paragraph 2.40 (doc 605/606) recorded
Examples of poor financial control that we identified during our work include;
Mr Dimma told the public court in his evidence, that following his own “internal investigation” and report in late 2006 --- which found “the matters you were raising were historic” and that there is “no substance to the purported concerns” --- he instructed PwC to carry out an “independent forensic investigation”, after I had met E&Y in December 2006, as in his view "auditors are extremely risk averse". This MAC conclusion on poor financial control only became public following the UK Court Order on 6 June 2007 for the disclosure of the PwC report which MAC had relied and referenced in the MAC public statement at 1A above. As a matter of record PwC also reported (para 8.58) that at the very time of Mr Dimma’s alleged “internal investigation” the senior Magellan management (Aeronca, Mr Butyniec, Mr Dekker and Mr Neill) had failed to produce a quarterly A340 Program estimate to complete (EAC) for consideration/inclusion in their Q3 published earnings statement. The reader may also wish to consider the commentary in website Part F (2) on the Boeing 737 Systems Integrator kits discounts and Revenue recognition at the same time (Q3) as Mr Dimma’s “investigation” and his report “conclusions” above. It is significant that this critical comment is totally omitted from PwC’s Final Report in August 2007, supporting my strong belief that this report was in effect an attempt to “whitewash” my concerns and vindicate the position already taken by Mr Dimma and Magellan Aerospace Corporation. 1. professional scepticism,
So, when I use the term “Forensic Deceit” in my Final Report on A340, I mean that it is not trustworthy, because either the intention of the authors PwC or the effect of their less than rigorous investigation or audit standards was to mislead the reader in the “facts” and conclusions from its work. The very next day, on Monday 18 September 2006, I was dismissed upon my arrival into Toronto Airport by Mr Neill, accompanied by Ms Jo-Ann Ball (MAC’s Vice President for Human Resources) right after my long flight from the UK. That instant dismissal decision was taken by Mr Neill (and Ms Ball?) having read the documentation they had been sent, together with the specific advice from the UK about what actions they must take immediately. As the Judge remarked in the UK case in January 2008 “It was clearly a conscious decision not to follow statutory procedure. It says quite a bit about the allegation of breach of statutory procedure. “ I had requested and expected to meet Mr Neill later that afternoon at MAC’s offices, to discuss my concerns with him. But I was surprised when Mr Neill and above all Ms Ball met me at the airport at around 3:15pm (Toronto time), just after I had cleared immigration and customs. Mr Neill told me that they wanted to have a chat with me, and led me into the Sheraton Gateway Hotel in Terminal 3 of the airport. I hoped that the reason for this impromptu chat was that they genuinely wanted to understand my whistleblowing concerns so that we could move forward together and resolve matters. As a matter of diligence I have always recorded the key events on an almost daily basis from the time of my termination , from Toronto Airport to the Magellan AGM in May 2007 and the MAC earnings statement public release on 11 May 2007 at 1A. I created a separate document - DIR64 Chronology - external - “process/timeline facts”. This document DIR 64 was provided to each MAC Director on a regular basis as the process unfolded from November 2006 to May 2007. E&Y and PwC were included in the circulation of it from January 2007 to May 2007. This chronology document is now provided by me for the first time now.
2A. Magellan Aerospace UK (MALUK) statutory financial statements for FY2005 (public 12 July 2007) UK Companies House correspondence exchanges and filings, MALUK General & Special Resolutions – 18 October 2006 and then retrospectively written by Mr Dekker on behalf of Banks/MAC and dated as 28 April 2005 – before my termination. MALUK documents submitted by Pincent Masons Extract from Directors Report “It is a source of disappointment and regret that the directors have not been able to file these accounts in accordance with the statutory reporting deadlines. The lateness of the filing is a consequence of some concerns raised by a former employee regarding the integrity of the Company’s financial statements. The concerns have been thoroughly investigated by PricewaterhouseCoopers (PwC) who, under the direction of the audit committee of Magellan Aerospace Corporation , the ultimate parent company, prepared a report for the audit committee on their findings PwC has advised the audit committee that they have not found anything that would undermine the integrity or accuracy of the Company’s financial statements. No adjustments have been required to be made to these financial statements as a result of PwC findings. Directors and their interests B.Little (removed 15 November 2006) It is in fact evident from the contemporaneous documentation at 2A that the first draft incomplete MALUK FY2005 statutory financial statements (doc 3548 – 3556) had not been prepared by Mr Smith (the MALUK CFO) and sent to E&Y UK until a few working days before the legal deadline of 31 October 2006 for the public filing of those financial statements with the UK Companies Registry. This was some seven months after the public filing of the MAC Group financial statements in March 2006 in Toronto for the same financial year. As a UK Director with equal legal responsibility for such statutory filings in the UK I asked Mr Smith about this on 17 August 2006 and he and others again on 8/16 November 2006, until I was removed as a UK Director on 17 November 2006. Also it seems that MALUK Directors Board matters of substance/ importance to ALL the Directors of MALUK were held without Notice and in legal breach of the MALUK Articles of Association para 16.5 “Notice of every meeting of the directors shall be given to each director and his alternate, including directors and alternate directors who may for the time being be absent from the United Kingdom and have given the Company an address within the United Kingdom for service” by the “Finance/ Company Secretary –only” Directors. Following my instant dismissal on 18 September 2006 one MALUK Board meeting took place on the 29 September 2006 (factoring sale of Airbus Debtors to BNP – finally implemented at end of December 2006) and the other on 18 October 2006 (Issue of Share Capital and Conversion of a £10m loan from MAC to equity). remained a MALUK Director until 17 November 2006 in both cases the ONLY attendees were Mr Dekker (MAC CFO and Corporate Secretary) and Mr Smith (MALUK CFO and Company Secretary). Minutes document ref: 20\20920346.1/LA04. PinsentMasons confirmed in August 2007 correspondence/documents disclosure that Mr Neill (MAC President and CEO) and Mr Underwood (MALUK resident director with functional responsibility for manufacturing operations) also did not receive the legally required para 16.5 Notice of either of these MALUK Board Meetings in September and October 2006 as “No Notice had been issued to MALUK Directors”. What is also noteworthy is that the Tribunal ordered (Request 22) in CMD4/June 2007 the disclosure of the relevant documents “All Notices to Directors convening and minutes of Magellan Aerospace UK Board meetings between January 2004 and 17 November 2006” for disclosure during July 2007. As these documents were being compiled in June/July 2007 PinsentMasons would / ought to be aware of the content of these Request 22 Ordinary and Special Resolutions at the “MALUK Board” on 18 October 2006, whilst they were being concurrently, on 11 July 2007, being requested by their client to certify “identical” resolutions in documents (see below) for MALUK Directors and E&Y for the statutory FY2005 financial statements as at 28 April 2005. Mr Dekker (MAC CFO and Corporate Secretary) was to flout or disregard proper company or legal processes (like Mr Neill and Ms Ball on UK employment law above) by misleading and being untruthful when he had PinsentMasons LLP certify written MALUK Ordinary and Special Resolutions for the MALUK business on 18 October 2006 as a “True and Complete Copy of the Original” resolutions for crucial MALUK Board business matters on loan and share capital that it is wrongly stated by Mr Dekker took place on 28 April 2005. (minutes ref 20\21315831.1/MKA). No MALUK Board meeting took place by the Directors to resolve an increase in MALUK share capital and the concurrent conversion of £10m debt to equity Special Resolution on 28 April 2005 was not accurate - as several contemporaneous documents in the court bundle demonstrate. Factually – the MAC loan to MALUK as at 28 April 2005 was for less than £10m – it only reached £10m in mid August 2005 after further funds of £406K were received from Canada (doc 1014A-C). Unsurprisingly no contemporaneous documentary evidence from a MAC Board Resolution, MAC Weekly Staff meeting or from Mr Dekker of any such communications of these MALUK Ordinary and Special Resolutions or business changes took place with or within MALUK in April 2005. PinsentMasons have since acknowledged this “very serious allegation against Mr Dekker” and told me, what we interpret, as their firm/solicitor having no legal duty or ethical/professional responsibility regarding any due diligence on such matters, even when they are relevant to my case in this litigation. They stated that “ It seems to us that you may have misunderstood the purpose and effect of a Certified Copy stamp. All that the stamp indicates is that the document with that stamp upon it is a copy, and that it is warranted by the Firm or Solicitor signing it that it is a faithful reproduction of the original. In practical terms, it means that the Solicitor who affixed and completed the Certified Copy stamp had the original document in their possession and is confirming that the copy is identical to the document that the copy was taken from. That is all that the Certified Copy stamp can, and does, indicate. It does not for example indicate (as you suggest) that any checks were carried out as to the contents of the document, or that any representations needed to be made about it by our client before completion of the certification, or that such solicitor was "signing off" the factual contents of the document. Affixation of a Certified Copy stamp means is that the document is identical to the document that it was copied from - and nothing more.” Mr Dekker then arranged to have Mr Phil Underwood (MALUK Company Secretary on 28 April 2005) retrospectively sign and submit via PinsentMasons a Notice of increase in Nominal Capital form (123) dated 28 April 2005 to the Companies Registry on 12 July 2007, shortly after MALUK had received a “query” letter from the Companies Registry on these matters. As you can read the Companies House printed Annual return (dated 16 September 2006) showed that the public record was for £6.1m in equity in section 4 and NOT £16.1m. with a concurrent swop of the £10m MAC loan to MALUK into ordinary shares. As a result clearly the position of trade creditors to MALUK (vis-à-vis Magellan as equity) would be substantially different in any “doubtful solvency” or insolvency processes and any proper consideration of same by MALUK Directors. PinsentMasons had previously confirmed through correspondence in mid 2007 (relating to the Court Ordered disclosure of MALUK Notices and Minutes of Board meetings –Request 22) and then following a December 2008 Tribunal Order for Request 4 that a Board Notice and Minutes of a Board meeting on 28 April 2005 did NOT exist – as there was No Board meeting on that date. It would seem that the shareholders (Mr Dekker only - issued two Resolutions) and that same PinsentMasons “True and Complete Copy of the Original certification” dated 11 July 2007, of the written MALUK Board Ordinary and Shareholder Special Resolutions on 28 April 2005, was then wholly relied upon by E&Y for the accounting, information and notes to the MALUK FY2005 statutory financial statements when signed off and released on the same day, 11 July 2007 – See point 2A. This was despite the fact that E&Y could see that the contemporaneous internal MALUK Board minute book and MALUK accounting records did NOT support either of those Resolutions or transactions. As a result the draft MALUK FY2005 statutory financial statements submitted by Mr Smith in October 2006 for the E&Y statutory audit for FY2005 were then amended …… The reader will note that the Note 17 Share Capital : “On 28th April 2005 the directors resolved to increase the authorized share capital to 36,100,001. On the same date 10,000,000 ordinary shares were allotted to the parent company. These shares were issued on 18 October 2006” n Note 13 Creditors : The amounts owed to fellow group undertakings was reduced by £10m and instead now recorded at only £120K. The amounts owed to fellow group undertakings is a loan due to the ultimate group undertaking. The loan is non-interest bearing and has no fixed repayment date. This loan became interest bearing in 2006 at a rate of 6%. The directors have deemed the loan to be repayable within one year.” Furthermore, as my leading Counsel Mr Andrew Stafford QC stated in his Aide Memoire on 19 January 2009, and immediately before my Evidence-in-Chief in the UK, at paragraphs 12 and 13 12. In relation to the E&Y representation letter that document records that specific representations were sought from directors (and given by them) in relation to both bonus accruals and overheads. For an auditor to seek specific representations is akin to saying “there is no evidence to support this but if you give me your solemn word we will accept that”. Bearing in mind the heavy reliance which the Respondents place on the accounts audited by E & Y, those accounts are now revealed to have been in part a series of self-serving statements emanating from MALUK MAC. The true position is not (as the Respondents have been arguing) “We rely on the accountants whose audit lends weight to our position”. Rather this late disclosure reveals the true position as “the accountants rely on us.” 13. Bear in mind that this is a case in which the Claimant has consistently complained about the accuracy and reliability of accounting treatment, in which the Respondent has placed reliance upon the audited accounts, in which the personnel involved include directors – precisely those people responsible for the companies accounts – and in which there have been serial orders for disclosure against the Respondents. It is truly astonishing that this document should have remained undisclosed until now.” < UPDATED 18 JULY 2010 – In an email on 18 July 2010 I asked Mr Dimma about this subject matter – see below. As yet no response or documentation has been forthcoming.. “ You will recall your public evidence on Doubtful solvency / Statutory Supplier Payment Policy (Website Part M.5.B.2.) Also at the website at Part A Points2A and 2B I refer to the £10m MALUK debt for equity swop and its significant implications for trade creditors and Directors duties and responsibilities in the event of MALUK “Doubtful solvency” or insolvency. You will know that Ms Barbara Hadfield has now retired from E&Y UK in June 2009 and you I think are aware that I worked on a part-time consultancy basis for E&Y UK from 1997 – 2001. There is no doubt that a number of the statements made in the MALUK FY2005 statutory accounts were wrong and not supported by MALUK Board minutes or the contemporary MALUK management accounts . Mr Dekker represented to PinsentMasons on 11 July 2007 that Resolutions had been made on 28 April 2005 and on that basis, without any due diligence, they “Certified to be a True and Complete Copy of the Original dated this 11th day of July 2007 “ . E&Y (UK) relied solely on that solicitors certification before Ms Hadfield approved the FY2005 statutory accounts later that day. As this is a significant transaction for MAC and MALUK I would expect that there would be written / minuted MAC Board approvals, a record within the contemporary MAC weekly staff meetings or other written records of that MAC decision and transaction. From all the evidence available to date they do not exist. At some point in the future I will apply (as PinsentMasons have stated and aware) for the documents disclosure which might add further evidence to that available. In the meantime you may wish to consider and investigate this carefully as it was clearly an important component in my MALUK solvency considerations in FY2006. As I was a UK Director at the relevant time my MP intends to write to some of the UK national regulatory agencies on these matters during the summer recess of Parliament. “ Although a director of MALUK from early 2004 (and should have been fully involved/legally aware), as you know I did not join MAC as a Senior Officer until May/June 2005, QUESTION 3 : Were you aware and did you approve this 28 April 2005 Board / Shareholder Resolution (doc 506) before the MAC re-financing was completed at the end of May 2005? Can you provide for disclosure to me (directly or via PinsentMasons) any contemporaneous documents in April / May 2005 provided by Mr Dekker which would underpin your involvement and approval on 28 April 2005 of those resolutions/ accounting transactions within MAC?”> 2B UK Court evidence/submissions, Late disclosure of Auditors letter from Ernst & Young UK to Magellan UK Directors regarding the statutory Financial Statements for MALUK for FY2005 dated 11 July 2007,MALUK Director Representation to E&Y, Engineering Management Bonus Letters from Mr J Butyniec & Ms J Ball 3. Canada Globe and Mail – 16 April 2008 by Brent Jang Selected Quote “ But 2007 was a particularly rough year for Magellan, when fourth-quarter “accounting errors and misstatements in accounted receivable” related to alleged fraud contributed to its $11.3 million loss, compared with an $8.1million loss in 2006. Separately, during the first quarter of 2007, Magellan wrote down $2-million in fees to investigate allegations levelled by former executive Brian Little, who claimed that there were accounting irregularities. Magellan hired PricewaterhouseCoopers to probe Mr Little’s allegations, which were unrelated to the fourth quarter accounting overstatements. PwC experts examined Magellan’s books in early 2007 and “have not found anything that would undermine the integrity or accuracy of the corporations’ financial statements,” Magellan reported” Selected Quote “ .. The Toronto based company is providing the exhaust nozzle for the Rolls Royce Trent 500 nozzle until 2012. The A340 work is an important element of Magellan’s overall business ; non-recurring costs on the program are believed to be roughly $40m. Giving evidence at a tribunal hearing, John Dekker, Magellan’s vice president for finance, said the company had made a significant investment in the A340, and there was a “risk” if the aircraft’s production run did not meet initial expectations… Airbus currently has orders for 140 A340-500/600s: 31 aircraft still have to be delivered. Some of the remaining balance may not come to fruition. Out of the total order, 38 are for the -500 and 102 are for the -600. A340 orders had already been lagging under competition with the Boeing 777 …….. .. Kingfisher Airlines recently reduced its commitment to the four-engine wide body transport. Virgin Atlantic still has to take its final A340-600’s out of its original order for 20, although there are suggestions that delivery of the remaining aircraft has been “suspended indefinitely.” Some companies have publicly acknowledged that they may not break even on the A340-500/600 program. Matthews (MAC VP Sales) would not comment on whether Magellan would recover its investment in the A340-500/600. He suggests that the company was cautious on the original projections, but admits that sales of the aircraft could have been a lot better. When Magellan won the A340 -500/600 business in 1998, orders and options for the type stood at 130. At the time, it was expected that sales of the aircraft would likely exceed 300. Delivery of the type began in late 2002.” Selected Quote “ At a hearing in Bristol, England, Brian Little told Mr Edwards – the company’s chairman and one of Canada’s richest men – that he thought Magellan management “had misrepresented and misled” the company’s auditors about the project. …….. Magellan expected about S40-milion in development costs related to the A340 project and, in 2006, according to Mr Little, estimated some 275 + of the planes would be bought by airline customers (meaning four times as many exhaust systems would be built, because the A340 had four engines). Mr Edwards called the contract “a major project”. Mr Little, however, said he doubted that Airbus would sell that many A340’s. At the time, the plane was losing market share to the Boeing 777, which was favoured by the airlines because it has two fewer engines and is cheaper to fly. In his witness statement, Mr Little said that, in early 2006, Airbus’s own internal estimates for A340 program “were for just 75 sales from that time.” He said he made his skepticism known to Mr Edwards and other Magellan officials. (G&M referenced BL witness statement para 200 refers as example to email doc 1437 to Edwards et al in Feb 2006). Airbus’s website says the company has orders for 139 of the new A340 aircraft. Magellan’s own revised sales estimate for the plane, if it has one, is not known, nor is the number of “spares” (replacement parts) it expects to build after the initial production run…… Bill Dimma the Magellan director who is chairman of the audit committee, concluded there was “no substance to the purported concerns” of Mr Little, Magellan said in its respondents’ statement. Magellan then commissioned PricewaterhouseCoopers to conduct an internal probe. Magellan said that the audit concluded the alleged complaints were “without foundation.”….”
Selected Quote “ … There will certainly be a lot to discuss at the annual general meeting of Magellan Aerospace Corp. in Mississauga , Ontario, today. Not only have shares in aerospace-parts maker quadrupled in the past month, but the company’s finances have finally been stabilized by a sizable investment by its chairman and controlling shareholder, Calgary oil-sands mogul Murray Edwards , and the Edco Corp last week. “This is a company that didn’t make money during the peak of the aerospace cycle, and now we’re heading into leaner years” said Cameron Doerkson, Versant Partners analyst, who has a “sell” rating on the stock. “That has to be a cause for concern”. Moreover, one of the company’s former top executives , who has been locked in a wrongful dismissal suit , told the Financial Post yesterday he intends to file documents with security regulators and the Royal Canadian Mounted Police by mid-June that he alleges show the company misrepresented to its auditors the value of one of its main programs to supply exhaust nozzles for Airbus’s A340 aircraft. Brian Little, who headed the company’s European operations until he was fired in 2006 alleges the company ignored his requests for a writedown on a portion of the value of C$40m in deferred costs tied to future sales when it became apparent Airbus would not hit its projected sales targets. …………..John Dekker, the company’s vice president of finance, pointed to a PricewaterhouseCoopers report commissioned to investigate Mr Little’s accusations that he said “had not found anything that would undermine the integrity or accuracy of the company’s financial statements.” (May 2010 Update/Observation; Mr Edwards did not attend this Magellan AGM in May 2009 - see Part H. of the website for the Q&A. The files were not passed to relevant Canadian authorities as further documentary and oral evidence was obtained in the meantime. My recent ill-health has postponed this further – see Part G on website at E&Y Open Letter etc.)
Part B : Brian Little and Magellan Aerospace Corporation Through this website I am publishing my own account and experiences for the first time, having informed MAC and its advisors that I would do so and having sent them drafts on which they have opted not to comment. 6. Brian Little A340.ON.THE.RECORD.FINAL REPORT 15TH DECEMBER 2009 (PDF) I asked another detached observer to assess for you the structure of the material so, in his words, this is what now follows: Foreword “This account is at once personal, narrative, analytical, and evidential. It is tightly argued in content and aimed at a broad readership, ranging from those who know nothing about the situation, or, indeed, the aerospace industry, to those who were principally involved as main players. As such, it is set out in levels to allow the reader to be selective or all-embracing, depending on his or her interest in the subject matter, and designed to allow each reader to measure the facts. It is therefore presented in five sections. Following Brian Little’s Introduction (Section 1) is the Evidence in Detail (Section 2), supported by a series of attachments (Section 3). This includes witness evidence from the relevant public UK court notes, some documents and then Question & Answer notes from the Magellan AGMs in May 2008 and 2009. Section 4 provides views from 15 people from all walks of life, who were provided with Sections 2 and 3, and recently asked by Mr Little to review the evidence. Now finally my initial public response following my AGM May 2009 remarks Critically, most of the evidential material has in fact already been examined by an outside agency. MAC eventually asked PricewaterhouseCoopers , on PinsentMasons recommendation - at a cost of C$3m+, - to undertake an "independent forensic investigation" into MAC's actions regarding the A340 contract in the light of my protected disclosures. Although we asked for an invitation to comment on the factual accuracy and conclusions in the PwC Final Draft report, the product of a four month of the seven month exercise undertaken by PwC as a direct response to my whistleblower claims, I was advised that PwC was of the view that this was unnecessary and that Mr Dimma and “the Audit Committee is confident that PwC’s investigation was thorough and competent, and is prepared to rely on PwC’s conclusions.” PwC failed to record in their Final Report that they had not invited me to make any comments, despite my offer to do so. In contrast unlike the PwC final draft report Brian Little provided Magellan via Mr Dimma (Chairman of its Audit Committee), PwC UK and Canada - instructed on the C$3m+ "independent forensic investigation" report and Ernst & Young Canada (E&Y) their public auditors with an invitation to comment on the factual accuracy and omissions on the contents of this On-the-record A340 Report for some four to six weeks - no response was received from Mr Dimma, PwC or E&Y. However MAC has asserted, on 26 November 2009 through their UK Solicitors, that there are "many inaccurate and incorrect statements" in my A340 report. Although I immediately invited them to list those inaccurate and incorrect statements, for our proper consideration, some three weeks later all I can say is that they have neither provided a list as a whole or indeed the substantive factual errors or omissions. If you wish you should ask them directly - email : wdimma@msn.com - for that detailed page by page list and / or assess for yourselves the credibility of the evidence and analysis contained herein and from your own experience, analysis and research. I will add that Magellan have produced no evidence or contemporary documentation to support those assertions, and simply persist in stating they rely on PwC and E&Y as the experts. As an example please re-read the Canada Globe and Mail's 1st April 2009 coverage in part B.5 above. I repeated this offer in an email to the MAC CFO and Corporate Secretary Mr Dekker and their UK solicitors in an exchange in April 2010 in which they responded - “As you note yourself, we have previously stated to you our position on your so called "Final A340 report" and our position on it has not changed. We will not be debating your conclusions and opinions on that matter for reasons already stated. “ To which I replied “For the record I specifically stated that I did NOT ask you to debate the “conclusions and opinions” on my 15 December 2009 A340 Report. I asked that you advise me in a simple list of any of the factual information in the Report which Magellan have determined to be inaccurate and incorrect and provide the relevant contemporaneous documentation to support that assessment or show me where I am wrong from other hitherto non-disclosed documentation. Perhaps you could provide only from your assessment a list of the identified “inaccurate and incorrect statements” for the Detailed Report in Section 2 from Pages 23 – 52 so as to provide a focus on the matters. It is important to remember that it is the Respondents position and that of their legal team, which moved from a position on 3 May 2007 (doc 3196) “At situation is that, at present , there is no issue that arises as to “reasonable belief”, to the changed position in the Respondents PD schedule of November 2007 by relying on a flawed PwC report/mindset and that despite multiple opportunities since then you continue to oppose (rather than concede and accept as in May 2007) MY mindset on “reasonable belief” on PD22, PD23 and PD24 on A340 with the consequences on costs, time and your client’s reputation. QUESTION 1 : I formally ask you, for the final time, will you and Magellan Aerospace Corporation provide a proper list of what Magellan consider to be factual errors in my attached A340 Final report rather than hide behind legalistic “many inaccurate and incorrect statements” in my A340 report, as recorded by PinsentMasons and included in my website – copy below? Can you please arrange to provide this by return (say by the end of July) given that it must have been readily available to you and Magellan Canada to enable PinsentMasons to legitimately underpin such an important assertion. This opportunity for input is of course not what you/PwC did in my case – in a professional breach of “independence”. As I said in the concluding paragraph of my email above, if having considered all the factual evidence now available you wish to seek the recovery of £1m + from PwC for MAC shareholders I remain committed, on this final occasion, (when my health fully recovers) to support such a process undertaken by Magellan. Please advise me formally if you wish to take up my offer of support to Magellan on behalf of all the MAC shareholders?. QUESTION 2 : To your knowledge was Mr Butyniec’s 11 /14 August 2006 BAFO settlement pricing proposal discussed and/or approved by you or any other member of the MAC Audit Committee or non executive Director? Was its proposed pricing settlement implications with regard to the A340 unit pricing that had been used by all of us in the Q2.2006 A340 EAC explained to any of you, in relation to the $5.3m Gross loss etc? The following provides you with a series of quick access links to crucial parts of the story contained in my A340 report and the broader situation. I am now moving to the section of my account in which I set out, through various links, my own Public Witness Statements and various pieces of external evidence. However, I would ask you to note, while reading these, that the Magellan Aerospace Corporation Annual Report for FY2006 at page 14 (MD&A/AIF.p12) states "The Corporation relies on customers' delivery projections as well as external market forecasts to determine the number of units over which to amortize non-recurring costs. Should deliveries not reach the number projected, any unamortized balance that remains would then need to be charged to cost of revenues which could have a material adverse impact on the Corporation." <BL Observation – it is noteworthy that in the MAC FY2005 Annual Report at P18/19 (as at 17 March 2006), the MAC FY2007 Financial statements (as at 28 March 2008) the MD&A/AIF.p12, the MAC FY2008 Financial statements (as at 24 March 2009) the MD&A/AIF.p12 and the MAC FY2009 Financial statements (as at 26 March 2010) the MD&A/AIF.p15. MAC now state they rely on customer delivery projections BUT revert to the FY2005 statement which excludes any reference to any consideration/reliance on third party external market forecasts. Although this MAC statement is not restricted to the A340-500/600 to my knowledge seven third party organisations could have provided such forecasts for the A340-500/600 program quantities/life as at December 2006/March 2007. Teal Group/Richard Aboulafia, Forecast International, Janes DS forecast, Airline Monitor/Ed Greenslet, Frost and Sullivan, Bank of America/Merrill Lynch, John Walsh Aviation/Consulting. See also the FY 2007 - 2009 Annual Information Form text extracts “Industry Overview The aerospace supplier industry differs from traditional manufacturing industries in a number of material respects. Customer unit deliveries may not reach the number projected when the basis for amortization of non-recurring Changes in estimates used in accounting for long term contracts could adversely affect the Corporation's future UK Court Case: My Public Witness Statement (A340 - 500/600 - Pages 61 - 79, paragraphs 187 - 227) (PDF) attached (BL Note : My attached public witness statement was amended for the Tribunal with the documents disclosed by the Respondents following the December 2008 Court Order and before my evidence-in-chief in January and March 2009. However subsequently further crucial documents were disclosed (substantively those requested in Request 16 for CMD4 (see Part K : Current status of UK court/tribunal case: 2) documents disclosure ) in which the Respondents counsel Mr Lynch QC initially persuaded the Tribunal/Ms Christiansen that these documents would be “more appropriate for a full scale forensic accountancy enquiry” which was already underway with PwC. On that basis these documents were not disclosed in June 2007 and before my initial witness statement could deal with these. A number of these documents were then disclosed from March 2009 and subsequently- and on which Mr Neill and Mr Dekker gave their evidence –see later. As the UK legal test is a threshold of “my reasonable belief” (see Part K : Current status of UK court/tribunal case) I was not required by the Tribunal to give any further written evidence on these new documents. So in addition to my attached written witness statement I explain the relevance of these contemporaneous documents in my A340 detailed report and Section C and D of this website.) My Public Supplementary Witness Statement 1 (my ET-limited 30 page response to their "56" allegations) (Word Doc) attached (BL Note : I am unable to attach publicly a copy of my initial 235- page Supplementary witness statement 1 - which provided my evidence on the further 46 unpleaded misconduct allegations not included in the ET3 Magellan defence - as it was not admitted as evidence to the court, as the Tribunal considered it too comprehensive etc, and instead asked for my limited evidence for each allegation for a max. of 30 pages as above. Also my Supplementary Witness Statement 2 - SWS2 dated 15 January 2009 - 3904/3919- is not included here , which dealt with some of my evidence in support of my Rule 34 Costs claim has not been admitted or heard yet in Court and in any event requires further update following the further March 2009 and subsequent document disclosures.) 3600 - Airbus delivery projections for wing deliveries 2007 - 2009, dated 6th February 2007 (to 135 a/c) (PDF) 2992/3 Published Teal Group/Richard Aboulafia - April 2006 A340 ten year market forecast (total build 135 ac) (PDF) confirmed typo of 163 Total Aircraft Build "Airbus's Tragic Quadjet" Aboulafia – “DEAD PLANE FLYING “ - March 2010 A340 ten year market forecast (total build 130 a/c) (PDF) Latest Information Available
Latest Orders and Deliveries schedule at Airbus.com <BL Observations - 132 aircraft - Iberia Airlines have 2 A340-600 aircraft from their sales option conversion in 2007- which were delivered by Airbus since mid 2009 - of their 15 A340 600 aircraft fleet in storage at Lourdes Airport. These 2 stored aircraft will replace in service A340-300 aircraft on 1 June and 1 August 2010. The remaining Airbus A340 600 order book for 2 aircraft for Iberia are now scheduled for delivery from Airbus to Iberia – MSN1079 (March 2010) - and MSN1122 (delayed to Sept 2010). The cancellation of the A340-500 aircraft order from Kingfisher Airlines of India above – since mid 2008 – leaves a further 2 completed aircraft in storage/inventory and they remain the subject of Kingfisher/Airbus resale efforts. This leaves the 3 remaining sales orders for A340-500 VIP aircraft. Two of which are for the Kuwait Government - MSN1091 (delivery June 2010) and MSN1102 (delivery October 2010). That third VIP aircraft emanates from an Asian customer order which was placed in Q1.2007 but as yet has not been scheduled for final assembly in Toulouse during 2010 or 2011.> In fact, Airbus VP-Marketing Andrew Shankland expressed during the Speednews Commercial Aviation annual conference in Los Angeles in March 2009 when he stated that “The A340 is pretty much built to order” while noting “it has found a niche as a VIP airplane”. >
<BL Observation – the new A350 XWB aircraft (500 orders), launched by Airbus in July 2006 at Farnborough Air Show, records the A350 -1000XWB – 75 sales orders - and A350 “Prestige” – 8 sales orders - (VIP). Virgin Atlantic Airways have 2 of their 19 A340-600 aircraft in storage at Lourdes Airport which are available for sale/dry lease since July 2009, Qatar Airways would like to sell /lease their 4 A340-600 aeroplanes and Thai Airways continue to try and sell/lease their 4 A340-500 aircraft without success since June 2008.> {BL – UPDATED 16 JULY 2010 : As above Airbus have now delivered the planned A340-500 - MSN1091 to the State of Kuwait on 15 June 2010 for storage/VIP completion and the final A340 600 - MSN1122 was delivered today to Iberia Airlines. See also latest Airbus O & D website above. The Airbus assembly delivery projections schedule for 2010 – 2014 has now been formally adjusted to 2 aircraft in 2010 (the assembly of that Iberia MSN1122 and the State of Kuwait second A340-500 aircraft - MSN1102 and the last A340-500 complete assembly and scheduled for delivery by October 2010.) As the reader can see the Airbus delivery projections schedule has also had the two A340 -500 VIP aircraft in FY2012 removed from my “adjusted” January 2010 Airbus plan of 4 a/c above and therefore Airbus at present do not plan any further Assembly of A340-500/600 aircraft. This now leaves the two A340-500 (ex cancelled Kingfisher aircraft MSN886 at TLS /MSN894 at LDE assembled in early 2008) which Airbus are continuing their endeavours to resell – my latest information is to Sonair. I expect there may be an occasional A340-500 VIP aircraft sold in the next period (largely out of primary parts inventory already within Airbus) but fundamentally the mid-2006/early2007 estimate of approximately 135 A340-500/600 production deliveries and series production cessation in 2010 has come to pass. For completeness I had not foreseen the A340-500 April 2006 order cancellation by Kingfisher Airlines of India in August/September 2006. This effectively reinforces the conclusions of
As you will read later in the website at Part K - the Respondents (Magellan) position was on the record from Mr Lynch QC in the UK court/tribunal on 16/19 November 2007, as “It is right to say that, prior to the receipt of the PWC report, the Respondents envisaged that the issue of reasonable belief might not be a live issue. PWC concluded that the view adopted by the Respondents as to the treatment of those costs and likely sales of the A340 formed no basis for criticism.” As the reader will recall earlier in this website the UK court-ordered disclosed report from PwC also stated on this subject matter at para 2.40 “that Financial Control in MAC was Poor and at 4. Poor control over individual projects from an accounting perspective. Project sales volumes, revenues and costs are not reviewed with sufficient frequency or rigour." PwC went on to independently calculate, at para 8.75, that a further 2040 A340-500/600 exhaust system units would be required for production (468 - to a total Airbus production series build of 220+ A340-500/600 aircraft) and full replacement spares (and repairs, which were not appropriate for accounting NRC recovery as per PwC para 8.72) from FY2007- FY2021. For completeness, Magellan have stated that MAC"s public auditors Ernst & Young (E&Y) were "satisfied" with the quantities of 833 by FY2012 in Magellan's submission/representation in their Q4.2006 EAC during their year-end audit testing. It used a quantity of 701+ units for future aircraft production (a total Airbus production series build of 284 – 291 A340-500/600 a/c) and Spares / Repairs of 92 - 172 units from January 2007 to December 2012, which was the end of the current commercial contract with Aircelle. I have also recently learned that Mr John Furbay (the Magellan/Aeronca CFO, including the A340-500/600 EAC accounting role) was dismissed by Mr Dekker and escorted off the Aeronca site by the General Manager at the end of June 2010/Q2.2010. In the same 2007-2009/2010 calendar period as Airbus reliably predicted in their projections documents above those 32 + 2 aircraft deliveries (136 production nacelle unit deliveries) Aeronca/Magellan delivered some 121 production AND spares units. This compares with Magellan submissions to E&Y and to PwC of 366+ production/spares and the use of 439 units in the CFO/Finance Program EAC used by E&Y for their Q4.2006 audit testing for the same 42-month period from January 2007. An increased Magellan factory A340-500/600 production rate totaling 296 was then estimated in the remaining 18 months for production and spares (H2.2010 and FY2011) for that Magellan strategic 5 year planning period. I believe that those “quantities” representations would NEVER have been allowed to happen if Larry Winegarden AND I had led, in my MAC strategic planning SVP functional role as planned, those FY2007-FY2011 4 day strategic planning sessions within hours of my no-warning firing on arrival in Toronto Airport by Mr Neill on Monday 18 September 2006. For me, and us, to enable and permit that would have been basic professional negligence and a fraudulent representation of the realistic/most likely A340-500/600 outcome in meeting our MAC business/legal obligations. in effect, as I stated earlier, “A340-500/600 was and is vitally important to MAC. The A340-500/600 project investment/asset was the single largest financial number (>C$40m asset in FY2006) and failure to fully realize the value of the project would, inter alia, bring about the triple consequences of (1) an overstatement in the project / non-recurring costs/engineering development assets of > C$40m . (2) a program gross margin “breakeven” to actual financial losses and (3) create a future cash deficiency / non-recovery in the internal and public reporting (MAC 5 year strategic planning base - Sales revenues / cash projections of C$150m +)” Although, obviously by comparison a secondary matter, after the normal cycle/flow time adjustment this lower actual -121 - Magellan delivery number (-15) to that - 136 - properly and credibly planned in Airbus/Aircelle in that 42-month period is not surprising. I believe this difference was largely because I witnessed in FY2006 the COO Mr Butyniec pressing his Operations staff in Bristol/Aeronca for more A340 deliveries to Aircelle than budgeted (to achieve 80 versus the budget of 64 units). In large part this was because he was trying to improve the factory overhead recovery rate to meet the approved MAC 2006 budget – this despite the fact that the direct labour hours total/per unit were also already above the unit FY2006 budget target - in the EAC (although this action was at the detriment to his Aircelle 14 August BAFO settlement letter with a lower price for FY2006/Q2.2006 EAC) and therefore Aircelle are likely to have had a surplus of perhaps 10-16 completed exhaust system units at “2006” prices in their inventory/stock by December 2006. Notably, and only reluctantly disclosed by Magellan in December 2008/2009, as a result of almost continuous UK Tribunal/court intervention at my request, the A340-500/600 production delivery and spares projections / other documents (3605/3597 series) which provided the A340 quantities stated for the 42- month period above, and which the senior Magellan management represented to their auditors E&Y and PwC on 1/14/22 and 29 March 2007 (for the audit of MAC FY2006 financial statements and the PwC C$3m+ “independent forensic investigation” ), have belatedly been the subject of some further oral evidence in the UK by the MAC Vice-Chairman, Mr Neill (July 2009) and MAC CFO, Mr Dekker (June 2009) and is recorded/addressed at this website parts C,D,E & F> Part C Magellan documents referred to by Magellan in their oral evidence and in their March 2007 Representations (Mssrs Neill, Butyniec, Dekker and Furbay) to Ernst and Young {external auditors} and PricewaterhouseCoopers {independent “forensic” investigation} 1 March 2007 - (MAC Projected sales and build of almost 300 production A340 -500/600 aircraft through to FY2016: of which the MAC Production Plan for 2010 = 29 aircraft or 116 engine exhaust systems) . The lower schedule (1831A) is the representation made by MAC to E&Y in the Q4.FY2006 Estimate at Completion (EAC). As per the PwC report para 8.61 “The Q4 FY2006 EAC was also used by EY for year-end audit testing purposes.” The Estimate at Completion (EAC) process/documents are the MAC management “most reasoned view and likely outcome – oral evidence :Dekker” and showed in this Q4.2006 EAC submission to the auditors E&Y and PwC an improvement over Q2.2006 to a miniscule $0.1m gross profit on $250m program revenues. Quantities specified in the updated “Q4.2006 gross margin breakeven” as the A340:Summary of Best Information Available for Production and Spares/Repairs at 31 December 2006. The column on the right are the quantities (and prices) used in the Q4.2006 EAC. whilst the reader will observe in Mr Dekker’s schedule under the left hand column heading % of Units Justification the “identical” quantities information from FY2007-FY2021 for Trent 500/A340 Production of 60 + 661 = Sub-total = 721 and Spares and Repairs = 6 +166 = Sub-total = 172 to that contained and submitted to PwC and E&Y in the Aeronca document 3605 dated 16 February 2007 referred to above was then to appear in May 2009 (See my A340 Written and oral evidence at Report:P79-80 in April 2008 and further A340 document (doc3605A) – in May 2009 – with a comment from the Magellan UK solicitors in which they state……… PinsentMasons, on behalf of Mr Dekker, the MAC Chief Financial Officer described this document /schedule for production and spares on 5 May 2009 as MAC A340 forecasts - Aeronca Inc Aircelle A340 Program - Actual / Estimated Quantities <BL Observation – Despite their centrality neither of these documents are Exhibits in the PwC report. Based on these crucial March 2007 documents therefore the manufacturing volumes projected for 2010 in Magellan’s plant Aeronca Inc was now for some 116 production (reduced from 127 as at 31 Dec.2006/page 3) and 81 spares (was 8)= 197 engine units (or almost 50 aircraft sets). As the contracted pricing was identical for production and spare engine exhaust systems the A340 program revenue projections for 2010 would be for some C$47m–C$50m with the attendant NRC and cash recoveries in the MAC strategic planning and financial budgeting/reporting processes. I believe it was predictable then, and will actually be now, some 90%+ lower i.e less than C$4m. MAC publicly reports these Revenues through its Aeronca facility and the United States line in their quarterly earnings statements - see example extract in the Q4.2009 from MAC Earnings statement. The historical position reported by MAC from 2006 -2009 is --
You will note in Part G, and specifically in my 27 November 2009 letter to the MAC Directors before their December 2009 MAC Board meeting, that each Director has been invited to look at these very carefully for the FY2009 financial audit by E&Y and when reviewing the FY2010 MAC budgets for approval at that December Board meeting – you will see this in part of my letter when I said: “Part of my team role, as both a MAC Senior Officer and with functional responsibility for coordinating the MAC strategy, was to identify these major matters and have them addressed by us all within management. Mr Dekker’s comment to the Judge that I had simply a different point of view about the A340 -500.600 in August 2006/September 2006 is very far removed from the truth. This week you will be approving the MAC budgets for 2010. Look specifically at what those MAC budgets include for the A340 production units and spares. As you know from my MAC Board May 2006 presentation, there is a typical three year lead time from aircraft wide body sales campaign to delivery. MAC represented in March 2007 to PwC and E&Y that in 2010 some 116 units/28 production aircraft (1 March 2007: doc 3605B/D to E&Y and 3605E/G to PwC) would be built and projected a Spares build of 81 units (14 March 2007: doc 3605H/red Tab page 68) – a total manufacturing requirement in Aeronca of some 200 x A340 units in FY2010. My view, by February 2007, was that we would be more likely to be facing the production case shown by MAC at document 3605H dated 14 March 2007 /Page 68 (total production build of 135 aircraft) whilst back in Aug /September 2006 MAC would be lucky to still be building at a rate of 10 aircraft per year by 2010 with the termination of meaningful series production of the A340-500/600 very probably imminent. Even now Mr Neill would, it would appear; based on his July 2009 evidence to the court does not admit that. I believe instead you will read in those submitted MAC budgets for 2010 A340 production = 0 and Spares (rotables and replacements) of 8 – 10 units. This was predictable and indeed predicted by six external market forecasters, and almost everyone else with experience in the industry from mid 2006/early 2007, except those MAC Senior Officers on this the largest cash recovery/asset in the MAC Balance Sheet/Strategic Plan. I understand that the Program EAC is not just about volumes, prices and costs matter too, and those were and have been carefully considered then and now by me. See my A340.On the Record.Final.Report.” As further background the former President and CEO Mr Neill in his written evidence to the UK court (RAN20) stated that Brian “was an experienced operator in the aerospace industry, with excellent links with key figures (such as Ken Brundell – should be Brundle – and indeed many others) …and (RAN22) “It was clear to me that the Claimant had lots of experience and knowledge of the industry. He had a good technical understanding of the issues, a good grasp of contractual issues (which led me to believe he would be a strong negotiator) and a sound strategic approach” but, for the first time in my life read (RAN55) and heard that Mr Neill believed that Brian ”operated badly on points of detail…..“ Mr Neill : Extracts of Witness Evidence on A340 Att C pages 57 - 64 and D p 72 -78 and then Attachment J Former President and CEO Mr R Neill (now Vice Chairman) - his oral evidence on 14 November 2007
and then in Mr Neill’s oral evidence on “A340 Spares and Repairs” - 27 July 2009
earlier in evidence
Part D : and now the ONLY (5) A340 Document Exhibits from PwC C$3m+ Final Draft and Final Reports via Canada Disclosure
Part E : Aerospace Industry /Aircelle and expert insights and views - Mark Bobbi - Engine Nacelles August 2007 report (UK document 3015-3025) - Jan - March 2009 report (UK doc 3890 - 3890XX) “In August 2007, I performed a study of the A340-500/600 for Mr. Brian Little. The results of that study are found in the referenced document 3015-3025. The essence of that report was that the A340-500/600 was a market failure, generating far less orders than anticipated in the 1990s by its maker, Airbus. In fact, total orders and options for the A340-500/600 were unlikely to exceed 130-135 which, as I am now aware, is approximately 150 /175 less than MAC’ amortization figure for the A340 NRC……. ……Therefore, I find it impossible to believe MAC’ spares/repairs forecast is based on any rational market assessment and runs completely counter to my and others career-long experience together with the detailed communications I undertook with the maintenance people in the airlines flying the -600 aircraft” MARK BOBBI - WITNESS STATEMENT (W/S) TO UK COURT - EVIDENCE GIVEN ON 8 JUNE 2009 UK Court oral evidence – 8 June 2009. Transcript/Notes of the UK public hearing by WordWave International Ltd (A Merrill Communications Company) - Official Shorthand Writers to the UK Court of Appeal
4184 / 4183 : MARK BOBBI EMAIL AND REPLY (24 JUNE 2009 FROM AIRCELLE - MAC'S CUSTOMER - RE A340/T500 EXHAUST LIFE "40,000 hour or less replacement requirement ...WE BELIEVE THE WHOLE THING IS A HOAX....." 4185 / 4186 and 4186A: Email from Aircelle (23 June 2009) to Etihad Airways regarding A340/T500 exhaust system life / certification "...There is no specific life limitation for the T500 exhaust system…….” and in Mr Neill’s oral evidence on 27 July 2009
Note as Mr Bobbi and I had already seen and determined the Aircelle Component Maintenance Manual for T500 Exhaust nozzle and plug – sample 3625S – refers, and had always done so, to “FACTORY REPAIRS” by the manufacturer – Aircelle in the operating airlines. Magellan and their own advisors (PwC) recognise that “due to the unpredictability of repair work” Factory Repairs (for On Condition Maintenance components) should not be included when recovering NRC assets. They are also subject to contractual MTBUR and Guaranteed Direct Maintenance Cost (DMC) values of much less than a $1 per flying hour with Aircelle/Airbus (doc 3525). In part, this accounting treatment is because other companies, such as the global number 1 supplier of engine nacelles/exhaust systems, Goodrich (also audited by E & Y), provide a Repair & Overhaul service for the A340/Trent 500 engine Exhaust plug and nozzle to the airlines. <BL Observation - Please note that Aircelle (part of the Safran Group), as Magellan’s customer for the A340-500/600 exhaust system were asked by me in late 2009 (and again in late July 2010) whether they wished to add any further comments on the factual accuracy or omissions in the Report. No additional comments were made. No changes have been made to the Maintenance plans or documentation in the airlines possession.> Part F : Chief Executive Officer (CEO) - Mr J Butyniec and Chief Financial Officer (CFO) - Mr J Dekker - legal and regulatory quarterly and annual certifications of MAC financial statements.
<As we worked more closely together from mid-2005 and as time progressed I became more aware that Mr Butyniec’s strengths did not lie in financial/numerical literacy and the reader/listener can hear an audio tape later in website Part G during my interview (2812) with PwC in January 2007 in which I state “ I think you just need to ask yourself that this man is due to retire (Mr Neill) , he wants to go up the way to whatever, he doesn’t want a balance sheet that effectively is going to get write –offs. He and Mr Dekker and I have got to face into that because that’s what’s going to happen. That’s not fair to Mr Butyniec to be taking over a balance sheet that isn’t right” >
(BL Observation : The reader should note my written evidence (Website Part B : para 205) which states “.. In a conversation at Farnborough Airshow in July 2006 with Mr Butyniec, held after he had met Aircelle representatives to try and progress the commercial negotiations on the application of the pricing escalation formula , he said he too was concerned about MAC/Aeronca ever recovering its NRC investment on the A340-500/600.” Mr Butyniec and/or the Respondents counsel Mr Lynch QC never challenged this evidence in court. Mr Butyniec had explained that he was skeptical (perhaps even cynical) about pressing for the arbitration route in Europe – they had not done so in their prior March 2005 amended commercial settlement (see history in Part D : Exhibit 8.1 document) which brought into existence this escalation formula. I was the only Magellan person with prior experience of European arbitration via Shorts/Bombardier and it was really only Mr Furbay (Aeronca CFO) and myself who were convinced we needed to do this to get a proper overall pricing settlement for FY2006 etc and appropriate and relevant price escalation arrangements for the future. I was also conscious of the limitations of the current escalation formulae in the medium- long term for a MAC perspective (the 0.31 fixed limit for BETA21 materials escalation. Mr Butyniec produced his Best and Final Offer (BAFO) commercial letter proposal for settlement immediately following the MAC Board on 11/14 August 2006 with the approval of Mr Dekker , Mr Neill and Mr Edwards – see website Part D (c ) CD2 extracts with the relevant contemporaneous documents and sent it to Aircelle. It was not discussed or approved at the MAC Board in the minutes or whilst I attended it throughout. In the event Magellan did file for Arbitration and reported in Q3/2008 (3481) “As noted in Note 5 “Inventories” in the Corporation’s 2007 (BL :and 2006) audited financial statements, due to the long term nature of the Corporation’s contracts , the Corporation may be in negotiation with its customers over amendments to pricing or other terms. During the third quarter of 2008, the Corporation concluded its negotiations in respect to one such long-term contract with a European customer and as a result recorded one-time retroactive price adjustments totaling $10.4 million, which was a direct increase to both of the Corporation’s revenue and EBITDA in the third quarter of 2008.” These price changes would have been for both the A340-500/600 AND A380 programmes as the planned arbitration was on the pricing for both of these products. My information from reliable Safran and Magellan sources is that this was settled by Aircelle before Arbitration hearings commenced. Magellan reported this settlement / price adjustment in their Earnings webcast call in Q3.2008 (p5) (against the NRC Amortisation in FY2008 financial statements) “Mr Jim Butyniec – Magellan Aerospace - President, CEO Mr Cameron Doerkson - Versant Partners – Analyst Jim Butyniec - Magellan Aerospace – President, CEO Mr Cameron Doerkson - Versant Partners – Analyst John Dekker – Magellan Aerospace – VP Finance Mr Cameron Doerkson - Versant Partners – Analyst John Dekker – Magellan Aerospace – VP Finance <For information the MAC Q1.2008 and Q2.2008 earnings release did not show a separate line recording any Amortisation of Deferred Developments costs whilst the Q3.2008 financial statements showed Q3.2008 C$3095K and C$7185K for the nine months to 30,September 2008. This was in the same period as the C$10.4m retro price adjustment settlement with Aircelle. Q4.2008 Financial statements would show amortization of deferred development costs of C$7289K for the fourth quarter and an annual C$14474 for FY2008. Added April 2010 In FY2009 the audited results would record C$7360K were expensed as amortization of deferred costs on all programmes.> And then (p11/12) Mr Chris Murray – CIBC World Markets – Analyst John Dekker – Magellan Aerospace – VP Finance Mr Chris Murray – CIBC World Markets – Analyst John Dekker – Magellan Aerospace – VP Finance And then in the final Market analyst question (p14) Mr Claude Proulx – BMO Capital Markets Analyst John Dekker - Magellan Aerospace – VP Mr Claude Proulx – BMO Capital Markets – Analyst
Subsequently Magellan publicly disclosed on its website that the commercial terms of that agreement was for increased revenues and gross profits of $4900K in 2006 and 2007 and $5500K in Q1/Q2/2008. I know that during the course of FY2006 Magellan budgeted/EAC.Q4.2005 to ship 64 A340-500/600 units and actually delivered 81 whilst in FY2007/EAC Q4.2006 budgeted for 40 units and actually delivered 45 units…for a combined total of 126 units over that two year period. In FY2008 48 production and spares units were delivered by MAC: 25 during Q1/Q2/2008. 17 A340-500/600 exhaust system units were produced by Aeronca/Magellan in FY2009. It would seem from my knowledge, experience and logic (recognising that this settlement ought also to include that for the A380) that the commercial terms of this further Aircelle “settlement” agreement has NOT been constructed (as most stakeholders, including the professional stock market analysts, expected,) on a “normal stepped increase pricing basis for the actual units delivered each year” but to substantively meet the financial and accounting needs of Magellan in reducing further its “over-stated” A340-500/600 asset valuation on the Balance Sheet. Though we do not have the precise “pricing/settlement terms” information or that MAC accounting value it seems very likely that a substantial portion of that CDN10.4m has been expensed against the Amortisation of Deferred Development Costs. If this were so then of the circa C$40m “MAC asset value” at December 2006 approximately C$10m will have been reduced through “inventory accounting standards changes per 3031”, which permitted the write off of the A340 escalating labour learning costs AND the majority of that C$10m + in amortization of deferred development costs via those “accounting-led” retroactive price adjustments in Q3 and pricing/terms in Q4.2008 with Aircelle will also have been “written-off“. Despite these reductions I continue to believe, as you have read earlier in Website part D. Exhibit 8.3. that as at today, from the documents/information available, I believe the MAC Balance Sheet continues to be over-stated by in excess of C$10m on an equivalent basis, a “material” value. For completeness, you will also see in Part K that the basis of my “reasonable belief” in MAC Q2,Q3 and FY2006 financial statements is central in the UK Employment case for the A340 Protected Disclosures PD22,PD23 and PD24. At that time we faced actual costs on A340 which were escalating further and further away from our FY2006 Budget/Program EAC, a North American management team (with Mr Edwards approval) who were prepared to settle with Aircelle - and not proceed into the Arbitration/commercial processes etc - in Mr Butyniec’s 11/14 August 2006 Best and Final Offer letter for A340-500/600 pricing that was LESS than we had used in our Q2.2006 EAC which had already generated a $5.3m gross loss (and which was NOT reflected in MAC Q2.2006 Financial Reporting by Mr Neill /Mr Dekker/Mr Dimma see Exhibit 8.3 oral evidence in Part D), and an increasing clarity from multiple sources and decisions that the quantities/volumes used in our A340 Program EAC were no longer valid or justifiable from any “reasonable” business or accounting assessment/quarterly financial reporting certification. Ordinary MAC Shareholders will also recall that at that time MAC shares were at a “new peak”, equivalent to C$15 + per share. In fact that “new share price peak” was in the very same week as Magellan filed their defences (ET3) to my whistleblowing claims (ET1) in the UK case and Mr Dimma instructed PwC to undertake their 7 month/C$3m+ investigation under his Chairmanship. We also all know that the MAC TSE Market Cap. value of C$300M + has fallen very substantially since that week in late January 2007.
plus his further UK court evidence on 10 June 2009 – in particular pages 133-160. Chair of MAC Audit Committee - Mr Dimma - His oral evidence at Report in June 2008 :P100-114 including
(BL note 1. As I read it Mr Dimma asserted in his evidence that effectively he relied on Mr Dekker and PwC. However he stated that the Audit Committee looked at the draft and final PwC report very, very carefully. As one example we cannot understand why Mr Dimma or his colleagues (or indeed anyone at MAC) did not see the obvious “logic and basic maths” error made by PwC (“forensic deceit”) when they calculated a potential demand for A340 Spares and Repairs of “1572” units by FY2021. That was one of those from our list of factual errors and omissions which we were denied the opportunity to provide to PwC or the MAC Audit Committee by Mr Dimma and his legal advisors from TORYS LLP. 2. For completeness readers will have observed that the Q2.2006 quarterly certificate (doc 2006) also refers to Boeing 737 – Integrator Kits. In the Dossiers I provided to Mr Dimma (Folder B4/32 pages) in September 2006 were on this Boeing 737 accounting concern <Protected disclosure- PD19 and PD20>. Despite the information which follows below Mr Dimma failed to intervene in the Q3.2006 quarterly financial statements and ensure this USD800K /C$904K adjustment was made to the published Q3.2006 MAC financial statements, as it failed the basic revenue recognition test. Indeed PwC record (para9.42) that he Ellanef CFO included an exception with respect to the Boeing accrual in his quarterly certificate letter for Q3.2006 on 1 November 2006 to Mr Dekker and Mr Neill (after my termination) but before a recommendation for approval by Mr Dimma and the Audit Committee on to the MAC Board approval. UK evidence – Mr Neill and Mr Dekker
In your 14 November 2007 re-examination you told Mr Lynch QC about the Mr Little’s Q2.2006 quarterly certificate on document 2006 – on 9 August 2006
Can I also refer to the transcript of oral evidence in April 2008 for Mr Dekker
Extracts from some paragraphs in PwC report – Section 9 – on Boeing 737 Integrator kits.
re 737 The MAC Q4.2006 quarterly results were then reduced by the USD800K and published accordingly. Subsequently, on 1 June 2007 MAC and Boeing reached agreement in writing with respect to price adjustments and an extension of the contract from 2009 to 2012. This agreement included the payment of higher pricing on a one-off basis for those units delivered by MAC from 1 June 2007 to 31 December 2007 and MAC accounted for this in revenue recognition terms appropriately for deliveries in Q2.2007, Q3.2007 and Q4.2007 earnings statements. When the Selling price/gross margins review was presented by Mr Groot and I on December 2005 (MAC Board 151-156) it was accepted that we needed, as a minimum, to target on the Boeing 737 System Integrator kits (circa $30m revenue per year) the re-negotiation out of the contracted discounts from the MAC Board approved 5 year contract signed in 2004. The new June 2007 contract for the Boeing 737 system integrator kits prices to be paid by Boeing (in this new extended MAC agreement) for FY2011 and FY2012 are contracted to be lower than the “discounted prices” for the deliveries throughout the 2005- 2009 original contract. As I am no longer directly involved I can only comment that, on the face of it, this acceptance by MAC management and its Chairman and Board of Directors of this new “lower” pricing for these Boeing 737 system integrator parts seems very odd. This is particularly so after the natural disappointment and comments/discussions following the total MAC/Boeing sales contracts and poor actual/projected gross margins through to FY2009 presentation made in December 2005 to the MAC Board by myself. We set out to achieve the MAC Board and Corporate strategy objective of a minimum 15% Gross Margin across all the Boeing revenues. Certainly from a commercial and financial perspective, given its importance to MAC in its Revenues from the Boeing Commercial Aircraft Company, this extended contract and lower pricing is inconsistent with the MAC Board threshold targets discussed in December 2005. In my functional strategy and senior sales and marketing role I would not have suggested or recommended to the MAC Board, in accordance with the MAC Corporate Bid/ Contract approval process and financial documentation from Mr Dekker, that we accept lower pricing than the $103,765 per aircraft set in FY2005. It would seem that this new agreement will have provided enhanced revenues and gross profits of approximately $1.9m from June - December 2007, to maintain the equivalence of that FY2005 price, to the end of FY2007 but for the following five years from FY2008will mean less Magellan revenues and profits of approximately $10m. I am surprised and disappointed as a former Senior Officer with functional responsibility for these matters (and an ordinary shareholder) that Mr Butyniec and Mr Dekker did propose this to the MAC Board for approval. Obviously now when this contract comes up for renewal again in FY2012 the follow-on contract discussions for FY2013 + with Boeing will also start from that much “lower pricing base” for that future period – and it is likely that the Boeing 737 Single aisle aircraft will be in series production for another decade. 3. Although Mr Neill was the President and CEO from 2002-2006, and MAC reported net losses in every year from 2002 – 2007, Mr Neill stated to the UK court (RAN11) “Far from being a financially dubious or badly or carelessly managed group, Magellan was and is a solid performer in an extraordinarily challenged market backed by major shareholders who are both involved and patient”. Shortly after Mr Neill’s retirement as CEO and Several months after PwC completed their Final Report MAC announced on 31 March 2008 for FY2007 “Accounting errors and mis-statements in accounts receivable were uncovered at one of the Corporation’s divisions during the course of an ongoing process to collect outstanding accounts receivable on a timely basis. This prompted an internal investigation that uncovered the overstatement of various assets on the balance sheet resulting from improper accounting and also discovered unsupported and unrecorded transactions. This was for a sum of C$7m + and took place over the period when Mr Neill was President and CEO ( Mr Dekker CFO) from 2003 -2007. During Mr Dimma’s oral evidence on 4 June 2008 Mr Little In April 2008, Magellan disclosed a “fraud” position of C$7m+ in British Columbia? <BL observation : Although I am not aware of MAC ever disclosing which business unit or jurisdiction these accounting errors and mis-statements took place in, I believe it can only be one of the two business units in Canada in which I had no day-to-day functional responsibility within MAC. That is I was instructed by Mr Neill (the former President and CEO and my superior) to leave Aerotech / MATS and the Power Generation Division outside of my functional scope. I say this for two reasons. One I believe I would have had a sense of the magnitude of any such activities within the businesses in which I had a strategic and functional sales and marketing involvement and secondly in briefly looking at the financial numbers for the extent of overdue debtors greater than 90 days in Aerotech (in Langley , British Columbia), as part of my MAC general reviews for the other businesses, I thought the financial numbers seemed much higher than would be typical of the “norms” in that type of business. I believe there was one occasion when I made such an observation to a Toronto Head Office finance person in the summer of 2006. I did not pursue that any further and I of course I may, perhaps, be simply wrong. More concerning, and unclear to me, is why in the Ernst & Young (Canada) public audits at MAC year end FY2003 to FY2006 were these accounting errors not discovered by E &Y in their year-end audit processes and testing , or by my former MAC senior management colleagues - Mr Dekker and Mr Neill – in their governance and cash management routines. 4. PwC also report (para 5.22/5.23) that they uncovered in their investigation an email from Mr Dekker to Mr Groot dated 5 November 2005 entitled “life is full of opportunities” in which John Dekker suggests a number of possible positive accounting adjustments (doc 1099) for Q3/2005 and then in para 5.23 “ We asked John Dekker what he meant by the phrase “life is full of opportunities”. He told us that it was an ironic, light hearted phrase, designed to recognise that the trading performance of MAC had been well below industry trends for some time and that this would continue for a further 12 – 18 months. He stated that it was his practice to look at adjustments that might be made at the end of each quarter, regardless of whether the impact on earnings would be positive or negative.” The reader will observe in doc 1099 above that Mr Dekker’s list of opportunities are all positive adjustments to Magellan’s short-term financial and cost reporting. PwC and I can comment on two of these items in Mr Dekker’s Q3.2005 email as I was functionally responsible for these (they reduced MAC’s publicly reported Q3.2005 net loss by approx - 50%)
- consider if 266 GBP reserve can come in. I learned after the Q3.2005 earnings results were published to the TSE in mid November 2006 that Mr Dekker had unilaterally included the release of this reserve in the MAC Q3.2005 earnings. MALUK correctly had not reported its release in their engineering or MALUK accounts. I had advised Mr Dekker and Mr Neill on various occasions that whilst I had secured agreement in Airbus UK on commercial terms, which would permit the release of that £266K reserve, we had NOT yet obtained the written authority from Airbus Toulouse to properly release that £266K reserve to Magellan earnings. Mr Archer and I in MALUK did finally achieve that written agreement in January 2006 and therefore the Q3/2005 financial statements were overstated , Q4.2005 was under-stated and obviously the audited FY2005 MAC financial statements for FY2005 were correct. Mr Neill and Mr Dekker had also released the other substantial part of this reserve (£200K) at the end of 2003. As I state in the website at Part K the commercial agreement and payment by Airbus for the related activity was only concluded shortly before, during and after my termination in September 2006 by me with the Airbus UK MD – see his and Mr Renson’s witness statements in Part J. The ultimate irony is that the inclusion of that £200k profit in the MALUK accounts and hence in the Q3.2006 MAC quarterly earnings meant that MAC reported its first quarterly profit in many quarters. - consider capitalizing overhead burden into engineering inventory PwC record at Para 5.25 of their Reports “A document titled “Magellan Aerospace Corporation Eliminating and Adjusting Entries Index September 30,2005 (exhibit 5.10) shows an adjustment made by Corporate for the quarter ending 30 September 2005 for CAD 107,000 which is described as “To adjust overheads on Engineering inventory (UK) – Q3. “ Shawn Smith (Magellan UK CFO) stated in interview that he was unaware that this adjustment had been posted by Corporate and expressed surprise that it had been done. We have identified no e-mail communication that would indicate that any MALUK employees were consulted on the adjustment.” In para 5.48 PwC also state that in their experience of SSAP 9 the inclusion of non-productive costs and office administration – as Magellan had done - are not generally absorbed into inventory. PwC also record at para 5.62 that no review concerning net realizable value of WIP and loss provisions had been carried out. A similar accounting approach was taken in the Q4/2005 earnings and Magellan Aerospace Corporation FY2005 audited accounts. In due course the MALUK statutory accounts for FY2005 had a C$100K+ downwards adjustment – which I and the MALUK Engineering Accountant still believe was insufficient. Although in additional to my functional roles I had the business/legal duties and responsibilities of a MALUK director and MAC Senior Officer (with a first class honours in Business Studies, specializing in Finance and Accounting) Mr Neill it would appear from contemporary court evidence had been told that I was impeding the ability to achieve compliance with costing and reporting systems. He never discussed this with me. Elsewhere in PwC’s Executive Summary at para 2.36 “We have sought to set out the relevant facts and circumstances in relation to the five accounting issues that the Audit Committee of MAC has asked us to investigate. The Audit Committee and its legal advisors will wish to consider whether there has , or has not, been “financial engineering” as alleged by Brian Little”. Correctly PwC note also that materiality considerations are not driven solely by the size of an adjustment or transaction , as is often misunderstood by many business /lay people and some accounting professionals, CICA Assurance and Related Services guideline AuG 41 sets out the Concept of Materiality. This point was and remains consistent with what I had learned from the Director Training on directors duties and responsibilities provided by the Institute of Directors in the UK> Part G The Corporate Framework As a former Senior Officer and Senior Vice President of MAC and as a whistleblower, I have sought to discharge my legal, business, ethical and moral responsibilities and in doing so, provide greater transparency for the stakeholders surrounding the inherent culture and financial framework within MAC. This objective of transparency is seemingly in conflict with the board of directors and is the key reason why I have sought to highlight these concerns in public by now implementing my suggested proposals at this year’s AGM - see part H - with the publication of this information. “Magellan Aerospace Corporation Board of Directors General Guidelines The fundamental responsibility of the Board of Directors is to appoint a competent executive team and to oversee the management of the business, with a view to maximizing shareholder value and ensuring corporate conduct in an ethical and legal manner via an appropriate system of corporate governance and internal control.” The MAC Board fundamental responsibility -
Three Letters from Brian Little to each MAC Director Example - Mr Edwards - Chairman 7 November 2006 : 4 December 2006 : 27 November 2009 With the 4 December 2006 Letter to each director a dossier which contained DIR44 –UK Times article– 28 Oct. 2006 “End Looms for Airbus A340 as Emirates cancels $4bn orders” Mr Edwards was asked during his testimony by videoconference in the UK public court on 5 June 2008
<BL note : I sent a number of emails in October/November 2009 and my A340 Final Draft Report to Mr Edwards – see pages 154 -158 and concluded – From: Brian Little [mailto:brian@fortfield.com] and later in email trail For the record Mr N.Murray Edwards - Chairman of Magellan Aerospace Corporation (TSE – MAL) Similar letters were sent to : 7 November 2006 : 4 December 2006 : 27 November 2009
With the 4 December 2006 Letter to each director a dossier which contained DIR44 –UK Times article– 28 Oct. 2006 “End Looms for Airbus A340 as Emirates cancels $4bn orders” Ernst & Young LLP When I followed up with Mr Linsdell of E&Y on 11 January 2007 he left the attached 2 minute voicemail message on my mobile phone . I also note that although Mr Dimma was Chair of the MAC Audit Committee it was Mr Edwards, the Chairman of the Corporation, who had spoken to the Ernst and Young Canada Chairman ( Mr Lou Pagnutti?) about the issues arising in the last FY2005 Magellan audit (as recorded in the 11 May 2006 Audit Committee minutes); which was managed by Mr David DeWolf (the previous E&Y Canada partner who had led the external public audits since Magellan’s formation in 1996) and who had now been replaced by Mr Linsdell. Our family accountant/auditor Mr James McCreery (who accompanied me to my meeting with PwC on 29 January 2007) also met Mr DeWolf in an unplanned meeting in the Square 1 shopping mall in Mississauga in mid May 2007 during which he expressed to both of us his opinion that in his experience he viewed “Murray Edwards as a bully”. Mr DeWolf was not isolated in that opinion, as I had heard other senior management colleagues in Magellan Head Office use words to this effect in my year located in Toronto. I put this question in cross-examination to Mr Edwards on 5 June 2008 - “Do you accept that some staff thought that you were a bully?” and “Do you realise you are perceived by some staff members as cranky or grumpy? ” – based on Mr Dekker’s oral evidence 2 April 2008 (p.48.57). The Judge then intervened and because of my recollections of these multiple comments from others and the short subsequent exchange he triggered the final input/driver that caused my first seizure and unconsciousness in court for several minutes. Mr Butyniec had earlier - 24 January 2008 (p160) - given his evidence that “Murray was a very emotional guy. Certain things he says can be understood” whilst Mr Dekker subsequently confirmed in his cross-examination on 2 April 2008 to this question “Was Mr Edwards emotional…” interrupts “…… He can get expressive when he needs to make a point.” Some two years after Mr Linsdell left that 2 minute voicemail you can read also Mr Linsdell’s email reply to me (dated 12 January 2009) in response to my email asking for confirmation of the actual A340 documents disclosed to E&Y for their audit and EAC testing in FY2006 and other documents relating to their audits in FY2005 and FY2006. a) the MAC Fixed Assets Machinery and Equipment Depreciation accounting policy – MALUK management and statutory financial reporting policy in the UK is 10 years (straight-line) not the MAC 20 years. The three UK resident MALUK directors and auditors (Mrs Barbara Hadfield-E&Y UK audit partner) determined in FY2004 that we could not present a “true and fair view” by using a plant and equipment depreciation rate of 20 years as our representation in our UK statutory public reporting. Both the former MALUK CFO’s and myself considered that if we were to use the MAC 20 years for the Magellan UK Plant and equipment we would understate the real costs in future contract bids, reflect higher short-term profitability and overstate the realizable value of those assets. For MAC Canada reporting this 20 year depreciation policy obviously has the effect of reducing the depreciation costs below those used by other Global and Canadian aerospace companies (some also audited by E&Y as identified in document ) with the consequent effect on the MAC Income and Balance Sheets. I believe this difference in depreciation policy reporting and practice would equate to several million dollars per year in profitability and of course Balance Sheet value issues. Mr Neill offered his opinion on the MAC Balance Sheet/book value of the North American Plant and Equipment, as well as other assets, in answer to part of a question by Mr Claude Proulx during the Q3.2006 earnings conference call with analysts which you can listen to here. Of course as the non-resident MALUK Directors Mr Neill and Mr Dekker have both known and approved the MALUK 10 year P&E depreciation policy and published MALUK statutory accounts from the beginning in FY2004 to date. From my strategic/sales and marketing perspective, in fact, on several occasions I increased the finance costing rates in contract bids and documentation to obtain higher selling prices for MAC proposals to prospective and actual customers. One particular customer bid proposal I vividly recall in late January 2006/February 2006 was increased by almost $18 million. Obviously I do not know what happens now in MAC to address this in the Sales and Marketing bids through the MAC bid and approval governance processes to ensure appropriate pricing is submitted for new work to beat the 15% + gross margin/profitability targets set by the Magellan Board. b) the MAC inventory policies and provisions - regarding costing/realizable value basis and slow/non-moving materials (to my knowledge this was addressed only by EY (UK) in MALUK FY2005 statutory reporting. See Part B Point 2B E&Y letter dated 11 July 2007. “Uncorrected Misstatements : We understand that not all of the differences raised in the matters above were adjusted by Magellan Corporation in the preparation of their group accounts for the year ended 31 December 2005. However the decision as to the materiality of these adjustments for this purpose was discussed and agreed between Magellan Aerospace Corporation and EY Canada. For the purposes of the UK statutory accounts for the year ended 31 December 2005 all audit differences raised in the matters discussed above have been adjusted in the statutory accounts……” – these adjustments equated to some C$2m + and MAC FY2006 financial statements were adjusted for their MALUK FY2005 overrides. I have no evidence of what was implemented in MAC North America ???? and obviously shareholders et al would look at relative measures such as inventory turns in comparison with competitors and best practice norms (even the internal MALUK inventory comparison of inventory as a % of annual sales was 15% compared to twice that at 30% for the North American operations in FY2006, this is also evident in inventory turns benchmark comparisons) ……and
UPDATED JULY 2010: Due to my ill-health/mental breakdown in early February 2010 I was unable to write this OPEN LETTER or attend the May 2010 AGM . I am currently recovering and I hope I am sufficiently well to be able to compile this OPEN LETTER and send it in September 2010 ncluding other appropriate regulatory bodies and interested parties suggested in discussions with my MP – for example “The Accountancy & Actuarial Discipline Board (AADB)” and the Solicitors Regulation Authority and the Law Society – he is currently taking further advice before the summer recess.) External Auditor Service Fees to Ernst & Young (from AIF information) The following is the aggregate fees billed by the Corporation's external auditors, Ernst & Young LLP in each of the last four fiscal years :
Audit Fees. Audit fees include fees for services that would normally be provided by the external auditor in connection with statutory and regulatory filings or engagements, including fees for services necessary to perform an audit or review in accordance with generally accepted auditing standards. This category also includes services that generally only the external auditor reasonably can provide, including comfort letters, statutory audits, attest services, consents and assistance with and review of certain documents filed with securities regulatory authorities.
PricewaterhouseCoopers LLP - instructed to carry out an “independent forensic investigation” “Independent” - most people would understand this to mean that it should be Independent and professionally organized and executed by PwC and in particular the process and its substance. I cite just two examples of our legitimate professional concern -- (1) “ The Chair of the Audit Committee Mr William A. Dimma insisted on chairing the “independent forensic investigation” although he had previously concluded in his own investigation on 14 November 2006 that “ I was satisfied (and remain satisfied) that the issues you raised did not (and do not) warrant further steps or remedy. I considered that the issues you raised were not financial or governance issues that were of concern to me as the Chairman of the Audit Committee. They did not, in my view, amount to unethical or unlawful acts on the part of the Company or any of its employees”. (2) at no stage was I invited by PwC to comment on the factual accuracy of their “Draft Report” which was produced some three / four months after the investigation commenced. This stand in stark contrast to the position recorded in a meeting on 3 May 2007 at the Audit Committee where it records “ The purpose of the meeting was to provide John Tracey with comments regarding factual corrections on the portion of the draft PricewaterhouseCoopers (“PwC”) report he had circulated. The Committee and management (Mr Neill and Mr Dekker present) made a number of comments regarding factual corrections to the portion of the draft report reviewed. “ My accountant , Mr James McCreery also raised both of these issues from the very outset when he accompanied me to my interview with PwC in Belfast on 29 January 2007. Deloittes LLP also raised both of these concerns directly with me too. Given the reliance by MAC on the Final draft PwC report in their public financial statements the UK court Ordered the disclosure of this “draft” report. Despite the fact that the Final PwC investigation and report was not completed for a further three months (until late August 2007) we were never invited - though on advice from Deloittes LLP and Mr McCreery - we offered on multiple occasions, to comment on the factual accuracy of that Final Draft PwC report. Forensic” - comprehensive and thorough “evidence – based” research. Here I will select the most obvious A340 example. Despite the MAC MD&A in its Annual Report "The Corporation relies on customers' delivery projections as well as external market forecasts to determine the number of units over which to amortize non-recurring costs. Should deliveries not reach the number projected, any unamortized balance that remains would then need to be charged to cost of revenues which could have a material adverse impact on the Corporation." see the Exhibits section 8.1 – 8.5 earlier e.g. (1) No Airbus customer delivery projections or production programmes are included in the PwC Report. (2) Only one external market numerical A340 -500/600 forecast is used from the at least six other available – another of which was also available (Teal) within PwC UK. (3) The Airbus Order Book was not “adjusted” for known A340 600 sales order cancellations from public data available from other actual PwC airline audit clients – Air Canada (3 a/c) and Emirates (18 a/c). Whilst there also fundamental aerospace industry failures by PwC to review Spares and Repairs available information what is even more disconcerting is that one would reasonably expect a “forensic accountant” from PwC not to make basic logic and maths errors in a C$3m report. If the website reader turns to Pages 36/37 &71 of the Final Report you will be able to read where I set out the evidence where PwC did precisely that and none of the other PwC or MAC readers observed or corrected those errors (which could be worth C$100m in MAC A340 revenue assumptions) in the three months before the Final Report was circulated. As I said in part of my 2007 witness statement at Para 224.4 “In the circumstances I consider the mathematical spares calculation included in the report to be, at best, misguided.” “Investigation” - researching the body of evidence and facts from multiple public and aerospace/industry sources for information consistent with that expected from competent people of superior knowledge and experience. A couple of examples (1) PwC failed to obtain and report information which was available within the PwC s global firm (2) certain documents and CD2 PC email/report files were not considered and reported by PwC, although these were provided by me to PwC and E&Y. (3) the two people assigned by PwC Canada in the A340 investigation demonstrated minimal, if any, relevant Airbus experience and knowledge. As part of their investigatory tools the PWC Forensic team tape record a copy of their interviews (on advice we decided we would do likewise). I attach a recorded copy of the interview with PwC in Pricewaterhouse Coopers in Belfast on 29 January 2007 led by Mr Tracey of PwC from the portion which dealt with the A340 subject-matter . Tape recording - Part 1 (16 minutes) and then Part 2 (7 minutes) . Mr James Mc Creery , a partner in our lifelong accountants/auditors (McCreery, Turkington and Stockman in Belfast) also attended with me that interview with PwC in their Belfast office. He also met Mr Dave DeWolf of E&Y Canada in mid May 2007 when we were both in Canada. See My A340 Report for PwC comments (pages 132-148) including my emails to Following the 12 January 2010 Press Conferences /website release of the Airbus Orders & Deliveries (O&D) information at December 2009 - I sent a follow up email to PwC - Mr Ian Powell, Mr Christie Clark and Mr J Tracey (Copy Mr N.Murray Edwards, E&Y and others) in which I concluded with “At the Magellan AGM in May 2009 (transcript in Part H of the website) I said I would publish all the relevant evidence available to me for the MAC shareholders and other stakeholders to review and consider for themselves . As you know from my prior emails I have just released this on my website www.fortfield.com. You all also know (from 2009 and documented in my Final Report at page 138) Mr Edwards position on the cost of your PwC report. I ask once again on the basis of all the evidence/information available together with your own internal review last year , on behalf of the other MAC public shareholders, that PwC now return at least £1m (of the C$3m paid for the investigation) to Magellan Aerospace Corporation. If Mr Edwards wishes to achieve more, given his recorded concerns about the costs, then I will leave that to the MAC Board and he to pursue. If they wish with my assistance.” UPDATED JULY 2010: Due to my ill-health/mental breakdown in early February 2010 I was unable to write this OPEN LETTER or attend the May 2010 AGM . I am currently recovering and I hope I am sufficiently well to be able to compile this OPEN LETTER and send it in September 2010 ncluding other appropriate regulatory bodies and interested parties suggested in discussions with my MP – for example “The Accountancy & Actuarial Discipline Board (AADB)” and the Solicitors Regulation Authority and the Law Society – he is currently taking further advice before the summer recess.)
Part H : Magellan Aerospace Corporation - AGMs May 2007 – I attended the May 2007 AGM (with my family accountant/auditor, Mr James McCreery) but we did not ask any questions. I did not attend the May 2008 AGM but see Q&A transcript below…. however in May 2009 -- Brian Little extract p8/9: “Can I just make a point now that there are effectively eight documents that prove your sole reliance upon E&Y and PwC has been invalid and unjustified. Why don’t you publish the following documents on your website so that all the ordinary shareholders can see what happened in Fy2006- what has been said in evidence , what has been said by PwC, what has been said by Mr Mark Bobbi and everyone can see what has been said.......................... .........I am now talking to those people who made the representations to the auditors for A340 in FY 2006 . Mr Neill, Mr Dekker - what they provided as that data to the auditors? Provide the ordinary shareholders with the information / documents so they have the opportunity to see what has been said, put it on your website and let everyone see. If you are not going to do it ... I will in a month’ time. “ (Note added – delayed after further inputs/advice that three events / matters needed to be concluded. One of which was in deference and respect to the Uk Tribunal and the conclusion of the UK evidence phase. Magellan UK’s latest estimate, in their most recent MALUK statutory accounts FY2008 filing, is that the UK employment case should now conclude by December 2010 but have excluded any comment on the breach of employment contract case in the UK High Court which will be filed in March 2010 (after my health recovers) and likely to proceed into 2011. MAC financial statements address these matters at FY2007 Balance Sheet page 21 : Note 22b (page 50) ;FY2008 Balance Sheet page 27 : Note 22b (page 57); FY2009 Balance Sheet page ? ; Note ??? (page ??).) Mr Neill : Obviously on the website we provide all the documentation we are required to meet the OSC and the TSX. To go beyond that in the context of this ---- is over and above what we have to do , especially since we disagree with you on so many of the issues. Copy of transcript from Questions and Answers at Magellan Aerospace Corporation AGM - May 2008 (p10 - 14) Copy of transcript from Questions and Answers at Magellan Aerospace Corporation AGM - May 2009 (p1 - 10) Magellan Aerospace Corporation AGM – May 2010 Updated May 2010 - due to my ill-health I will be unable to personally attend this AGM Updated July 2010 - on this occasion, although preceded by a MAC Board meeting on Friday 14 May 2010, neither Mr Edwards or Mr Neill were present at this AGM. No questions were asked by anyone present at the public AGM.
Part J : Whistle blowers normally stand alone :
Having received the witness statements of Mr Fairbairn and Mr Wilkins (above) PinsentMasons on behalf of Magellan sought to prevent for several months the admission of their entire witness statements as evidence to the Tribunal. Mr Lynch QC finally conceded this and their witness evidence was admitted and heard on 30 March 2009 and 1 April 2009 respectively. It is significant that neither PwC nor E&Y were presented as witnesses by Magellan Aerospace although at one point on 10 March 2009 Mr Lynch told the Tribunal Magellan “we can call them” . This oral exchange at the Tribunal was later denied by PinsentMasons and PwC or E&Y never appeared in the UK proceedings as witnesses in support of the Respondentsor to face any cross examination. Mr Little Next doc is p3891 , vol 10 it should contain a comparison of the draft/final PwC report. Provided to the Respondents three times and PwC to confirm validity. Independent solicitors and Deloitte have verified the differences. Colour coded. Red is deleted between final draft and Bold Black is added during May and disclosure Aug 07……………. All the other changes are made by Magellan – more specifically Mr Neill , Mr Dekker and Mr Smith as the central characters.
My personnel files, throughout all my business career and employment of some thirty years, have never had any complaints, whilst my superior Mr Neill (MAC CEO) and Ms Ball (HR) confirmed to the Judge in their evidence that they had consciously decided not to follow the UK statutory procedures and UK HR advice, when they both summarily dismissed me on my arrival at Toronto Airport for a week-long series of strategy and budget-setting meetings. As my Leading Counsel, Mr Andrew Stafford QC, stated at the first UK hearing in October 2007 “Moreover it is important to appreciate thatMagellan’s approach is entirely consistent with the way in which whistleblowers are treated; first ignored, then demonized, then dismissed and then publicly rubbished.” Mr Little : “ No, I’m publicly whistleblowing <on A340 500/600>. It’s still wrong and I’m going to give evidence that is the case.” - Stated in March 2009 Hearing
Part K : Current status of UK court / Tribunal case The UK court / Employment Tribunal case being held in Bristol, England has now heard all the evidence for the Liability phase over 40 plus days during the two year period from October 2007 – October 2009 due to the part-time role of the Tribunal’s three members. Magellan were advised of the Tribunal’s role in PinsentMasons information / explanation and advice to Mr Dimma/Audit Committee minutes – 21 Dec 2006/3 Jan 2007 (doc 297M/I and 309A/B) which includes as you can see “Claims lodged with the Employment Tribunal The primary interest of the Employment Tribunal will be to determine if Mr. Brain Little was “sacked” because he was preparing to make or had made protected disclosures under the whistleblower policy. They will not be interested whether the disclosures are true or not”. Based on UK case law the burden of proof is on Magellan / the Respondents to prove its case. Current legislation for UK Employment Tribunals do not provide any formal powers to refer my “accounting protected disclosures” to the relevant national/international regulatory bodies. I believe and understand that Magellan Aerospace Corporation ordinary shareholders, as at August2006 - March 2007, have such powers and responsibilities. These UK evidence hearings have therefore taken so long, in my view, caused primarily by: 1) Magellan witnesses have barely dealt with my case (the protected disclosures) in their written witness statements. As the best example, despite MALUK “doubtful solvency” as a significant number of the protected disclosures in my Grounds of Complaint and my case – largely disclosed to Mr Dekker (MAC CFO), he chose to deal with these specific Protected Disclosures in their entirety in his witness statement at para 79 “In terms of the detail, one of the matters that was initially considered, as a result of the Claimant’s allegations regarding governance, but that ultimately did not fall to be reported upon by PWC was in regard to the business’s solvency. I believe this was because the claimant dropped this allegation when he was pressed on it in the aftermath of his dismissal”. It is also noteworthy that this was also after Mr Dekker had initially agreed, through their solicitors in March/April 2007 in a Schedule of Factual Issues that certain statements (or words to that effect) had been disclosed to him by me (Protected disclosures PD1,PD2,PD3,PD9 & PD10 at two crucial dates on 15 August 2006 and 14 September 2006) and then apparently set out to deny that in his oral evidence in April 2008. In fact PwC’s final draft report recorded at para 4.11 “EY confirmed at a meeting of the MAC Audit Committee that the outcome of our investigation into the zone of insolvency and the whistleblowing process would not affect their audit of the consolidated audited financial statements for MAC for the year ended 31 December 2006 and the financial statements of the MALUK for the financial years 31 December 2005 and 2006. At the request of the audit committee we have deferred the investigation of these matters”. This paragraph was removed in its entirety in the Final PwC Report published some three months later in August 2007. Yet the Magellan legal team continue to state they rely on PwC’s report in contesting my “reasonable belief” on these. For the remaining less than half of the protected disclosures investigated by PwC the Respondents preferred instead to rely wholly on the PwC reports and E&Y – who although Magellan’s clients – were not presented to give their evidence on these subjects. The combination of this approach to my case, when combined with Mr Dimma / PwC denying me the opportunity to comment on the PwC Final Draft Report, even after it was Ordered for disclosure by the UK court, and before PwC completed their investigation, has undoubtedly directly caused a substantial prolongation of the hearing cost and time for this Tribunal as well as leading to a failure by PwC to carry out an “independent forensic investigation” by any basic professional standards. Also as a consequence of the unreasonable conduct of their case comprehensive notes/transcript of the oral evidence has been necessary throughout the 40+ days of public hearings. We have some 660 + pages of oral evidence similar to the extracted detail you have read elsewhere in this website over those 40 days. A subset of this is particularly clear on the A340,where Magellan’s position on my “reasonable belief” was initially expressed in May/June 2007 (6 June 2007-CMD 4) as“ At present there is no challenge made by the Respondents in regard to the “reasonableness” of any beliefs of the Claimant. If that is not a live issue between the parties, ordering disclosure (of the PwC report) in connection with that non issue would, with respect, be inconsistent with the over-riding objective and would not be necessary for the fair disposal of the case. Naturally, the issues in litigation can shift. Further, if, say, the issue of reasonable belief became a live issue between the parties that would be relevant to consideration of whether the PwC Report was a relevant document for disclosure. However, until such time as the final Report exists, the above cannot be determined.” This then became, during the first hearing in the UK court/tribunal on 16/19 November 2007, the Respondents (Magellan) position was on the record as “It is right to say that, prior to the receipt of the PWC report,the Respondents envisaged that the issue of reasonable belief might not be a live issue. PWC concluded that the view adopted by the Respondents as to the treatment of those costs and likely sales of the A340 formed no basis for criticism.” Magellan’s position had then changed due to this reliance on PwC and the belated challenge to my reasonable belief on A340. This necessitated more documents and witness recalls of Mr Neill and Mr Dekker. Although most of these documents were provided (DOC 1830/1A series,3605 series, 3625S,4183-4186A) after I had completed my Evidence-in-Chief in March 2009 the Tribunal determined that they did not need to hear any further evidence from me, on 22 October 2009, on my “reasonable belief” on A340 – protected disclosures PD22, PD23 and PD24. Perhaps this is a good opportunity to explain “reasonable belief” – as set out by Magellan’s counsel Mr Lynch QC in some extracts of his written Submissions to the Tribunal to date – A) Para 8 – What the ET is not required to determine, and it would be wholly unfair and inappropriate to expect it to determine are ……… I believe the UK Employment Tribunal role and “reasonable belief” is consistent with what I explained during the Q & A at the MAC AGM in May 2009 – page 8 and 9 and the reason for my resultant suggestion and my decision to now finally publicly comment and provide the relevant information to shareholders etc 2) Documents Disclosure - Whistleblowing - Law and Practice Book - Page 235
The record shows most visibly over the last 3 years that the Document disclosures track record of the Respondents has been tardy, begrudging, unreasonable and even obstructive whilst deliberately with-holding crucial documents . This has occurred, despite their legal obligations and despite their solicitors’ (PinsentMasons) remarks in their letter of 16 February 2007 (document 3130). This stated “For the record, my clients have made it clear to me that they intend to fully and properly comply with any order for the disclosure and exchange of all relevant documents. I have had sight of the documents that are referred to in the Responses but they are not assembled in such a way that they can simply be run through a copier and sent to you. I do not believe that it is in accordance with the over-riding objective that my clients should incur the time and cost of my firm compiling and sending to you documents in advance of the CMD. Such piecemeal overall disclosure only serves to increase costs. The documents referred to in my client’s responses will form part of my client’s overall disclosure in compliance with the anticipated Order. I totally refute your suggestion that my clients’ conduct of this case is unreasonable.” Additionally my solicitors email (3160A) on 14 March 2007 (after the Employment Tribunal CMD1 on 7 March 2007 and the documents / index disclosure Order for 4 April 2007) also stated “And on the subject of discovery, don’t forget the laptop PC as a source of relevant documents for your discovery exercise. That ball is now in your court given that you have not made it available to our client to find the relevant documents for both sides benefit. We still expect access to check through on the dates suggested previously. “ {BL observation – At this juncture I would now ask the reader to note before proceeding any further the document creation dates by MAC of key documents in the A340 case listed at Section C on the website and the dates between this solicitors letter (16 February 2007) and the CMD1 Court order for disclosure of all relevant case documents/index (Court Order for 4 April 2007) . For example in website Section C . Documents 3605 MAC A340 forecasts – Aeronca-Aircelle Inc A340 Prpgram – Actual/Estimated Quantities – produced on 14 February 2007 – disclosed after a further Tribunal Order in December 2008. An update of this document title/format which it is asserted by Mr Dekker was then sent to E&Y (3605B/D) and PwC (3605E/G – which was not included in any reference or Exhibit within the PwC report) and on 1 March 2007 – finally disclosed in court on 8 June 2009. A further copy of this document format was produced showing a total production build of 135 A340-500/600 a/c with final Aeronca production deliveries at the end of 2009 (similar to the Feb 2006 and a August- October 2006 case of 150 a/c expressed by me and part of my CMD4 Request 16 below) which was dated 14 March 2007 and sent to PwC (3605H – which was not included in any reference or Exhibit within the PwC report) and now projecting a minimum “886” Spares which as instructed by Mr Neill would largely arise from the replacement of exhaust system units in service by no later 40,000 flying hours -– disclosed on 27 August 2009. There are other key documents such as at 1830A,1831A,3597/3598 and 3598A-C which were produced and sent to PwC and E&Y? just before the publication of the FY2006 MAC Financial statements to the TSE Etc and also not disclosed until 2 years later in 2009. All of these documents were finally produced by the Respondents from May 2009 - when they should have been in April 2007 in accordance with the Respondents legal obligations and before my Requests 15 and 16 above. All of these documents are similar to what I had written to the Tribunal about when I said in January 2009 about a series of other document disclosures} When the Documents/index was disclosed on 4 April 2007 in accordance with the CMD1 Order it was immediately clear that many key documents were not listed by Magellan. As a result it eventually became necessary at the Tribunal CMD 4 one day hearing on 6 June 2007 to formalise a number of “shopping list” requests for documents disclosure. My legal team told the Tribunal at CMD4 in their Opening Skeleton at para 15 “If the Tribunal were not to hold the Respondents to the normal disclosure obligations (which is all that is required by the Shopping Lists), the Claimant will effectively be forced to fight his case almost entirely upon his own evidence. This will undoubtedly prejudice the ability of the Claimant to fairly and properly argue his case. “ One outcome was that this included the Order for the disclosure of the Final Draft PwC Report relied upon by MAC management in their 11 May 2007 financial statements and as another relevant example for the A340-500/600 at Shopping List Request 15 & 16 I requested documents disclosure of Request 15 “Copy of the Aeronca management accounts for each quarter from Q1/2004 – Q4/2006 with the detailed inventory (NRC) and production inventory schedules at the end of each quarter. Please split the detail between the three Airbus programmes – A340, A380 and A318. Copy of final auditor submissions of Management accounts for FY2004, FY2005 and FY2006. Request 16 “Supporting analysis for the expected recovery of NRC s and estimated contract profitability against future production levels – certs etc. Any analysis prepared by management to assess the commercial or financial impact to the Group of the three scenarios discussed in August / emails of October or DIR4December documentation (DIR44). Copies of all minutes of Audit Committee meetings, which formally discussed this subject from 1 January 2006 to present. Copies of all external marketing reports used by the company in support of the assessment by management after 31 December 2006 and the provisional auditor accounts provided to Ernst and Young.” Mr Lynch QC , for the Respondents, stated that for these Requests 14,15,16 &18 - “Once again, these requests relate to the most extensive and detailed documentation in regard to the Respondents business and transactions relating to the Boeing 737 and Airbus contracts. The requests include all the management accounts with “relevant correspondence”, quarterly slides, management accounts for each quarter of 2004-2006 with detailed inventory and schedules, financial analysis documentation , marketing reports and minutes of meetings. Quite apart from, once again, the reference by the Respondents of various matters to PwC, the documents sought would be very, very much more appropriate for a full scale forensic accountancy enquiry …..” After CMD4 Employment Judge Ms Christiansen issued an Order for the disclosure of the PwC report relied on for that MAC 11 May 2007 public release. After the most cursory review by us it was very clear (a) The disclosure which the tribunal ordered at the first CMD (by 4 April 2007) required the Respondents to list and produce all documents relevant to the issues raised by the Claimant. The documents produced to PWC were those relevant to the whistleblowing allegations which are in issue. Indeed, the first document produced to PWc was the ET1. In relation to whistleblowing the two lists should have been identical. There should have been no document produced to PwC which had not also been listed and produced in disclosure to the Claimant. The difference between the two lists is striking. There are some 60 out of the 89 relevant documents produced to PWC which have never been listed or produced in these proceedings “ – extract from my counsel CMD5 Opening Skeleton paras 6 and 7. (b) that the final Draft PwC Report contained a number of factual errors and substantive omissions for A340 etc – e.g only 5 document Exhibits. In fact there had NOT been the full scale forensic accountancy enquiry referred to by Mr Lynch at CMD4 in June 2007 and most certainly that Final Draft PwC report did NOT include all of the documents I identified as necessary in Request 16 above. It was for this reason and in light of the CMD4 Order that my counsel applied for an affidavit signed by a Director (he felt strongly about this Affidavit from MAC Directors - having read the PwC Draft Final Report and my CMD4 shopping list requests- and told my solicitors he had never had to do so in his career before in an Employment tribunal) as set out in his CMD5 Opening Skeleton. I understand that it was briefly argued by Mr Lynch QC at the CMD5 on 2 July 2007 that this May 2007 Final Draft PwC report was not the FINAL PwC report and that Requests 9 -16 for documents disclosure would be covered, if the requested information was obviously judged relevant by PwC, in their Final Report ---- in effect he argued that no Order for documents disclosure for Request 9 -16 was again necessary. My counsel Mr Andrew Stafford QC presented this “documents disclosure” matter comprehensively in the Claimants Skeleton argument for CMD 5 on 2 July 2007 (document 69A-69H). In addition to recording at para 4 “The PWC report was eventually disclosed on 20th June 2007. It comprised a narrative, a list of about 100 Exhibits (5 for A340) and a series of appendices. When disclosing the report, only the narrative and appendices were made available to the Claimant. It was necessary for the Claimant’s solicitors to press the Respondents in order to secure disclosure of the Exhibits. The Exhibits were only disclosed on 22nd June 2007 , 89 of those exhibits related to issues raised by the Claimant in his Grounds of Complaint.” Mr Stafford QC stated under the heading Verification of the Respondents disclosure at point 10 “In the light of the history of this matter, and in particular in the light of the Respondents clear and deliberate failure to disclose to the Claimant the same documents as had been produced to PwC , it is submitted that the Respondents are clearly in breach of the tribunal’s order for disclosure…….. through to Point 22 “the Claimant presently makes no application for cost in relation to the tortuous process which disclosure has become, but intends to in due course”. Instead of Ordering an affidavit from a Director, which Mr Stafford QC had sought at paras 10 – 14, the Employment Judge Ms Christiansen ruled that “No order is made for a director of either Respondent to serve an affidavit in relation to their disclosure requirements” (document 70) but Ms Christiansen, I understand,……….. firmly reminded both sides of their duties and responsibilities in regard to disclosure under UK law. Ms Ball then in answers to cross-examination questions on documents disclosure in January 2008
<BL Observation – when my PC forensic files were sent by PwC to us in mid April 2007 to assist their investigation Mr Lynch QC for the Respondents acknowledged at CMD 4 on 6 June 2007 at Para 29 “A list of some 156 new documents from the Claimant’s laptop which are allegedly relevant was sent under cover of the letter of 29 May 2007.” This excluded the further relevant documents which I recovered from my PC following the “swarm of misconduct allegations – see 3) below in late October/November 2007.>
And then Mr Dekker’s oral evidence on document 1830 (the A340 Q2.2006 EAC and disclosed at Exhibit 8.3 of the PwC report but NOT disclosed by MAC in accordance with the CMD1 Tribunal Order on 4 April 2007 with a $5.3m gross loss)
The Respondents actions in accordance with UK disclosure and natural justice arose again, part-way through the hearing process in an interlocutory hearing in arguments put by Mr Lynch on 28 November 2008 against the disclosure, amongst others, for Requests 13-15 and 21. As above as a QC he carries the trust of the court to decide the relevance of his client’s documents to the case. That his vigorous arguments were set aside for example by the Tribunal in the Order dated 3 December 2008, so that now we have sight, for example of the MAC/Aeronca A340/Trent 500 production, spares and repairs schedule in February 2007 /March 2007 (document 3605 series) along with for example Request 14 - the E&Y letter of 11 July 2007 to the Directors of MALUK for the FY2005 statutory accounts, (2B above) demonstrates to us that those legal responsibilities for disclosure and consequentially justice have not been met. Many other relevant documents referred to on A340 above have now been disclosed subsequently by Magellan Aerospace –often through Tribunal involvement - reluctantly. It is arguable that had these document disclosures not been blocked I should not have had to forfeit my home of 400 years and bring such distress to my family. As a result of the above disclosures I wrote at Mr Stafford’s request to the Tribunal stating that “ The Tribunal will recall in my email of 24 October 2008 that I said ………………On this occasion in October 2008 I have tried to provide plenty of Notice, the information etc so that this may be properly addressed at the ET procedural hearing on 28 November 2008. I would respectfully suggest that the respondents should bring a schedule (perhaps circulated in advance) for each of the remaining document requests stating clearly
Following the documents disclosure (to date) after the Tribunal 3 December Order I have discussed this matter further in a consultation with Mr Andrew Stafford QC and in light of my 24 October 2008 email to the Tribunal and 5 October 2008 letter to PinsentMasons. Resulting from that consultation and to provide the precision which the respondents expect I have written to them yesterday, having selected Requests 13 , 14 and 15 for the present, the following extract “ …. For the Tribunal Order dated 3 December 2008 Request 13 “We mentioned in our letter of 4 October (2007- 3275) about expecting a request for further documents relating to the preparation of the financial statements for Fy2005, which is of course relevant to a number of protected Disclosures and then formally as below on 19 October 2007 . Please disclose to us the draft financial statements prepared by the First Respondent dated 26.10.06 and 1.5.07 (now documents disclosed following Court Order at doc 3548-3565), Request 14 Mentioned in my solicitors letter of 4 October 2007 and formally requested precisely and specifically from Mr Charles Rae of PinsentMasons in a 19 October 2007 (3276) email “……We mentioned in our letter of 4 October about expecting a request for further documents relating to the preparation of the financial statements for FY2005, which is of course relevant to a number of the Protected Disclosures. Please disclose to us the draft financial statements prepared by the First Respondent dated 26.10.06 and 1.5.07. Also Ernst and Young’s letter to the First Respondent’s directors around 11.7.07.” My solicitor also asked Mr Rae about the disclosure of these at the start of the first hearing in late October 2007. Despite the fact that the Directors addresses of that 11 July 2007 E&Y letter - Mr Smith, Mr Underwood and Mr Dekker – had a legal obligation for its disclosure as a relevant document (as above 10.29 and 10.30) Mr Rae as their solicitor also failed to search for this crucial letter/document. Request 15 the First Respondents notes of the audit closing meeting with Ernst and Young on 10 February 2006. It is most likely Mr Smith as the Finance Director would have made these minutes. (now E&Y minutes/document disclosed following Court order at doc 3545-3547 as PinsentMasons advise that Mr Smith took NO notes at the only FY2005 Directors Closing Audit meeting) and then CRUCIALLY also then for North America/MAC re A340 on 12 January 2009 the MAC selected example at “Point 4 For the Tribunal order dated 3 December 2008 Request 21 document 3605 - Aeronca Inc – Aircelle Programs – Actual /Estimated Production Quantities (engine Sets) dated 16 February 2007 where by reference to the email to the Tribunal dated 9 January 2009 at 08.51. my QC asked me to formally put in writing…… “Having regard to the issues in this case (especially the reasonableness of Mr Little’ beliefs) and to the evidence which the Respondents advanced in their witness statements and oral evidence , these documents were manifestly disclosible . The failure to disclose these documents at the outset and subsequently , calls for an explanation because (A) it is relevant to the bona fides of the Respondents conduct; Consequently , the explanation to be provided should include an explanation as to Question 1 Who, on behalf of the Respondents decided not to disclose this document The Respondents have failed to answer these questions yet, although the Tribunal Chairman did comment on 19 January 2009 that “We’re not going to draw any adverse inference until we know why. The documents identified by the Claimant are also documents that we think should have been disclosed and quite accept that explanation is needed ……… seems like an explanation will be called for in due course and its probably appropriate at submissions.“ Following all of the above I had and maintain records since April 2007 of the analysis of document disclosure by the Respondents/ Magellan with regard to the Claimant’s and Respondents case, which will form an essential component in my Rule 34 Cost claim. As the reader will observe under the left hand column heading % of Units Justification the “identical” quantities information from FY2007-FY2021 for Trent 500/A340 Production of 60 + 661 = Sub-total = 721 and Spares and Repairs = 6 +166 = Sub-total = 172 to that contained and submitted to PwC and E&Y in the Aeronca document 3605 dated 16 February 2007 referred to above was then to appear in May 2009 (See my A340 Written and oral evidence at Report:P79-80 in April 2008 and further A340 document (doc3605A) – in May 2009 – with a comment from the Magellan UK solicitors in which they state……… “As you know both Ernst and Young and PricewaterhouseCoopers were comfortable with the manner in which the Respondent justified the quantity of units expected to be delivered. For the sake of clarity, we also attach (at page 2 – 3605A) a document that our client has recently prepared which At a glance the assessment that would have been carried out by the auditors in order to satisfy themselves that the accounting on this matter was appropriate” Without the contemporaneous documents there is little doubt that the “natural” subconscious prejudice in challenging and revealing what the “experts” such as E&Y/PwC are actually considering and doing would prove impossible -- as it then simplistically reverts to evidence on a words versus words only basis on subjects with an implied “expertise” outside the everyday experience of Tribunal members. That documentary support then leads to the stress/anxiety in trying to explain business subject matters for an aerospace industry with which they are all unfamiliar.
3) A swarm of “misconduct” allegations As my Leading Counsel, Mr Andrew Stafford QC, stated at the first UK hearing in October 2007 “Moreover it is important to appreciate that Magellan’s approach is entirely consistent with the way in which whistleblowers are treated; first ignored, then demonized, then dismissed and then publicly rubbished.” Given that there was no discussion with me about any of the pleaded defence case at paragraph 8 and “Claimant misconduct” allegations (para 9) with Mr Neill (my boss/MAC CEO and the Dismissing Officer) and I believed that there was nothing on any of this in my Personnel File my legal team and I produced a Request for Further Particulars (Rfp) on 28 March 2007 (3171/3) in which we asked, amongst other items, for full particulars of the specific incidents which supported their defence / “demonisation” of me. In both their solicitors letter responses on 4 April 2007 (3182/3) and again on 23 April 2007 (3222/3) their legal team refused to provide any further particulars. It is important to also record here that at the Tribunal CMD4 my counsel Mr Stafford QC asked that the Tribunal press the Respondents to confirm their case (Claimant Skeleton : para 43 – Close of pleadings – 1 June 2007/{69A1-7}) and once again at Tribunal CMD5 ( Claimant Skeleton para 21 – Close of Pleadings – 2 July 2007/{71K}) n their letter dated 13 August 2007 {3236} PinsentMasons again responded regarded clarification of Responses - ”As to our position as to whether (as you have requested us to confirm) there are any other matters that we wish to add to this paragraph 9, we made our position clear on this in our letter to you of 23 July. (Document 3223). There are not. I reject your entirely unwarranted comment that this will mean our client is to “conduct a defence by ambush”. I reiterate, the grounds and reasons why our clients dismissed your client are crystal clear. The evidence as to why our clients reached the view that your client should be dismissed is a matter for witness statements, although we have stated in the response the principal incidents that my clients took into account. (Note their 23 July letter stated – “We have asked our client to confirm again that it will be standing by all of the assertions at paragraph 9 of the response and to confirm whether there are any other specific points that it wishes to seek to add to the response. I will revert to you again on this point shortly, but for current purposes please proceed on the basis that the response will remain as drafted (save for paragraph 9.3 as explained above.”). The result was that no additions were made to the ET3 by Mr Lynch QC. When the witness statements were finally exchanged, just eight working days before the first UK hearing in October 2007, a “swarm” of "misconduct" allegations – now totaling 56+ - were put forward by Magellan Aerospace. My Counsel described this to us as Magellan choosing to conduct its defence via the “thick” case – a classic diversion from whistleblowing to “character assassination”. This has led to much more cost and time in written and oral evidence in rebuttal – including from some of those witnesses actually involved in the “misconduct allegations” (such as Keith Baigent – MALUK Finance , Jim Fairbairn – Airbus UK , Stuart Wilkins – MALUK Supplier MD , Raymond Semple – MALUK Supplier MD) etc and of course myself. Given the Tribunal’s role, and that the Tribunal legal process is not yet complete, at this juncture I will solely record that Employment Judge Ms.Christiansen Ordered in June 2007 the disclosure of my “Complete Personnel File of Brian Little, March 2002 to present” as these documents “would be relevant to the issue of the Claimant’s conduct (whether good or bad) during his employment with the First and/or Second Respondent. Accordingly , it directly relates to the reason for the Claimant’s dismissal”. Following that June 2007 Court Order when my Personnel file – docs 533-584 - was disclosed it contained NO formal or informal complaints about my conduct and NO formal or informal warnings (Section 5 doc 533-584) from my boss and the dismissing officer Mr Neill, or indeed anyone at Magellan or its predecessor. Additionally none of the people who had left Magellan Aerospace had left because of me, or indeed been critical of me in any way when writing their “exit notes/interviews” with Magellan HR. Most importantly, since my promotion by Mr Neill and Mr Edwards/MAC Board on 12 June 2005 to the Senior Vice President and Senior Officer position in Magellan, Mr Neill as my boss and CEO ONLY raised
{Mr Neill also confirmed in his oral evidence to Employment Judge Walters/Tribunal members that although he had read the MALUK policy and UK statutory procedure on the morning of my termination he chose not to take Ms Ball / Ms Walker’s local HR advice or properly seek any legal advice (from the Engineering Employers Federation, PinsentMasons LLP or Eversheds LLP) before instantly dismissing me at Toronto Airport in breach of those statutory procedures and business/ethical sense. Ms Ball (MAC VP – Human Resources) confirmed that obviously she was aware of the UK statutory procedures and told the Tribunal that “it was discussed openly with Mr Neill ….. and he didn’t see the need for the expense. I was discussing it with him and said we should. He said not, but he’s my boss.”} Naturally a number of witnesses and other people/readers have asked about “settlement”. Initially on the day of my instant dismissal (18 September 2006) Mr Neill presented a letter which was in breach of UK employment law with the terms which you can read (2372), including particularly their anxiety about recovering my PC immediately, as I had sent him a number of crucial documents in the seventy two hours before my instant dismissal and just 24 hours before a companywide Strategy meeting of senior Magellan managers in Toronto. Since then there have been two direct efforts made by Mr Dekker on behalf of Mr Edwards and Magellan. One on the 23 October 2008 at the Aztec Hotel in Bristol (in advance of the interlocutory documents disclosure Application on 23 November 2008 and the Tribunal Order for further documents disclosures in December 2008) and the other on 1 April 2009, immediately after Mr Edwards completed his evidence in the UK court – in this instance his contact was via a former business colleague, Mr Robert Beckett at the court and before further A340 documents disclosures (e.g. At a glance auditors etc ) and Mr Bobbi’s witness statement and evidence was admitted and heard in the public court. The content and style of these “settlement” approaches has been solely one of “fait accompli financial offers” with no admission of any fault on the part of Magellan or credible “comfort” on A340 etc . For a number of substantive reasons, (not least his subsequent “apparent” prior failure to remember the substantive content of important conversations about my Protected Disclosures on 11 and 15 August 2006 – 15 minutes - and 14 September 2006 – 29 minutes) I considered it necessary to record the eleven minute nature and content of the 23 October 2008 settlement interaction which will give a sense as to why our “fait accompli” assessment. Both parties are now providing what are called Closing Submissions (of some 250 pages) and will present this orally in a single day public hearing on Tuesday 23 February 2010 at the Bristol Employment Tribunal. Currently it is expected that a Liability judgment would be available in May /June 2010. (UPDATED JULY 2010 – hearing postponed due to my nervous/mental breakdown which had been primarily finally triggered or caused by the Respondents acting solicitor in the week of 8 Feb 2010 – to be reviewed again by my medical advisors and the Tribunal in September 2010) My solicitors have already lodged an Application for Costs under Rule 34 with the Bristol Employment Tribunal – on 19 July 2007 and 16 January 2009. This would be heard by the same Tribunal panel members, most probably in Q4/2010. My Costs claim is to cover part of the £ 1.55m in fees incurred in the UK Employment Tribunal case (doc 3892/3904 - which were financed from all the proceeds of the sale of our ancestral home/ land at Fortfield), for the reasons cited above and the unreasonable conduct of this employment case by Magellan Aerospace. We have no longer been able to afford to incur any further fees from my UK legal team and I am effectively forced to try and represent myself in the case for the foreseeable future. Initially I was represented by Leading Counsel : Andrew Stafford QC
{BL Observation : In addition to the Business and Accounting issues I would expect from a ordinary shareholder MAC perspective that the C$3+ million paid to PwC (and TORYS LLP Canadian legal advice to the MAC Audit Committee chaired by Mr Dimma) when added to the UK legal fees paid to Mr Lynch QC and PinsentMasons by Magellan from late October 2006 – April 2010 (which I comfortably estimate would be a further C$3+ million) would now probably, at this total cost of C$6m +, or certainly shortly, exceed the Total value of my maximum December 2006 / Original Claim (£2.34m Option 1 – doc 3281 – Deloittes LLP Schedule of Losses - although this would now be grossed up and adjusted for the UK new 50% income tax rate from April 2010 to £2.58m etc) and a portion of the costs incurred by me under my Rule 34 costs claim referenced above at the Employment Tribunal. . As some readers may have noted Magellan address the value of my claim in the careful wording written, for the first time in their FY2007 (p21) and subsequent Balance Sheets, in a Note to their public financial statements ( FY2007 – Note 22 (b) – Contingencies – page 50). I think it is very unlikely, but cannot be certain, whether Magellan management have secured from PinsentMasons LLP any acceptance of any contingent fee risk on the case and Rule 34 costs claim outcome. When challenging my working in Magellan business interests, it is also noteworthy from a business / MAC shareholder interest perspective, as I and others state in the detailed written evidence and underpinned by the contemporaneous documents, that I had secured for MALUK- MAC (1) in the 60 days prior to my termination, as per my witness statement at Para 65 – 68, that by “going over the head” of middle UK procurement management (Mr Vandersteen) to the top management at Airbus UK (Mr Brian Fleet and Mr Dave Micklewright) an increase in pricing for 77 components at 100% of our price increase request/target which would generate “Over the course of the remaining contract to 2010 .. an increase in profitability for MALUK of some £10m +” - see Jim Fairbairn (Airbus Commercial Manager – Procurement witness statement paras 11-15 and Mr Vandersteen of Airbus procurement letter dated 21 August 2006 . {This would equate to an approximate contribution of £2m per year within the MALUK/MAC gross /operating profit which was of course then included in the total a. MALUK FY2006 statutory accounts: Operating Profit = £0.4m b. FY2007 statutory accounts: Operating Profit = £2.7m c. FY2008 statutory accounts: Operating Profit = £2.9m and should be for those for FY2009 (£x.xm filed no later than by October 2010) and for FY2010 (y.ym filed no later than by October 2011. I would expect also that the contract extension by a further two years ( from December 2010 to December 2012, and just before the sale of Airbus UK Filton and novation of current Airbus contracts with Magellan UK to GKN) – announced by Magellan on 1 May 2008 - will also have the benefit of at least that approximately £2m per year sum in “increased pricing”, gross profit and operating profit for those 77 parts in future MALUK public statutory/financial reporting} 2) and just three weeks before my termination including, whilst on my annual holidays, by going this time to the Airbus UK Managing Director (Mr Iain Gray) I successfully prevented some A380 Airbus senior programme management and middle procurement management (Mr Vandersteen and others) seeking to obtain a further seven figure NRC investment / amortization in the A380 from Magellan, which in any event, when combined with the continuing poor financial performance of the MALUK Manufacturing business, managed by Mr Butyniec and Mr Underwood, was simply unsustainable. Indeed Mr Underwood emailed me on 13 September 2006 (doc.2197) “Brian.. What’s going on? They are not honoring the last agreement never mind more! Regards phil ” Instead MALUK were promptly paid – some in advance of commercial contract payment terms – a number of outstanding A380 engineering monies. { This Request for further A380 amortization was after I had already recommended (and been accepted by the MAC Board – doc 247 – on 11 May 2006) that Magellan should definitely NOT increase any further our A380 NRC investment or sales revenue per aircraft ( it was already now C$1.5m per A380 aeroplane) and instead we would focus my and our Business Development and sales efforts on trying to improve Magellan presence (of less than $67K per aircraft revenue on the increasingly successful twin-engine Boeing 777, - which was now winning nearly every airline sales campaign against the four –engine A340 – 600) and in particular strategically secure at least $500K for every aircraft sold in the twin aisle market in the next two decades (effectively $500K + revenue per aircraft on both of the new twin aisle/wide body products - the Boeing 787 and Airbus A350}. As the contemporaneous documents show (email trails exchange between Mr Gray and Mr Little from 25 August 2006 – 21 September 2006 and Mr Gray confirms in his witness statement at para 18/19 he authorized the payment of all those outstanding A380 Engineering monies in mid September 2006 and all discussions with Airbus UK about further Magellan amortization on A380 then ceased. (3) and a month (18 August 2006-2062/2062A) before I was terminated the MALUK CFO and Company Secretary Mr Smith emailed his and my UK resident director colleague Mr Phil Underwood, who was functionally responsible for all the Manufacturing operations, that based on the MALUK Daily Cash balances “As you can see from this, as we stand we are currently still 172K short of meeting our commitments next week , namely the payroll. As we stand we are therefore still not in a position to release any more cheques to creditors, thus where we are on stop currently we are not going to resolve this yet”. Within days I was also to receive the third written Airbus letter of complaint written by Mr Vandersteen in nine months (See also website Part C: 2075/6) stating amongst other matters his concerns that the manufacturing delivery performance in his and Airbus’s view was still not underwritten by a robust production system. In part it was clear that the delay in materials and parts not starting on time was leading to a delinquency in deliveries and any “intelligent inventory buffer” being built to prevent Airbus assembly delays. In accordance with my own experience and UK Directors duties and responsibilities and consistent with the President and CEO Mr Neill’s instructions from Canada – as the Chairman Mr Edwards had instructed Mr Dekker after the August 10 MAC Board Meeting, which he reiterated to the attendees of the weekly MAC staff meeting on Tuesday 15 August 2006, that “No more cash to the UK” / no further MAC parent company funds would be provided – were also to seek payment deferments by agreed contractual variation with suppliers. I was able with my UK director colleagues involvement and agreement to seek and obtain a deferral of £575K of contractual payments with MALUK’s two large raw material suppliers for 12 days in September 2006. Both their Managing Directors were able to confirm to the Tribunal in their evidence that they had agreed to these payment deferrals e.g Stuart Wilkins witness statement:page 3 . This £575K deferral and Airbus special pricing payments outside the normal weekly payment process of £329K on Thursday 14 September (doc 2196) provided the potential for Mr Smith to now discharge our MALUK substantially overdue contract debts for other trade creditors and in so doing meet our contractual obligations and MALUK statutory supplier payment policy, whilst certainly, for some of those suppliers, it would enable the release of further materials for September /October 2006 production and sales/ cash recovery and Airbus complaints re Manufacturing delivery performance. I also successfully obtained with my engineering staff, after agreement with Airbus top management, an acceleration in payments of £738K (2311A-C) ahead of the contract payment due date for some Engineering work carried out by my division at the end of August/mid September 2006. These were all important actions from a business and legal perspective in MALUK circumstances -- all of which was just days before my instant sacking by Mr Neill at Toronto Airport. (4) and immediately before, during and immediately after my termination at Toronto Airport on 18 September 2006 by Mr Neill, as I state in my witness statement at paragraph 327, I also secured agreement with the MD Mr Gray that Airbus UK would now additionally pay for the entire £207K of Engineering work for the A380 Freighter A and B Design scheme work, which had been the subject of a prior 2003 Mayflower commercial agreement and then Magellan A380 Sales Reserve £200K release – see Clive Renson (Airbus Procurement Manager – A380 Engineering witness statement paras 6 and 9-11. And Paul Nokes – Supplementary witness statement para 13) The impact of this agreement and resultant 20 September 2006 invoice and payment - which despite my termination I ensured was raised in MALUK and then processed within Airbus (doc 2546-M432) - was to increase the profitability of MALUK Engineering by some £209K in profits in Q3.2006 and cash flow (doc 2647-2649). Whilst this did not adequately compensate for the £2m deficit to the FY2006 budget in the manufacturing operations (Mr Underwood/Mr Butyniec) it did enable the Engineering division ( Mr Nokes and my functional control) to end the quarter with a better than budget EBIT of £334k Q3/YTD:FY2006 financial result . This EBIT would have been higher if we had not been forced to also absorb the unbudgeted engineering management bonuses of £52K for FY2005 in FY2006 (re Claimant Misconduct allegation 32 /PD16 above), though I do accept that I agreed to Mr Edwards personal challenge to cover that additional cost by superior budget performance in Engineering, in a discussion after the MAC Board Meeting in May 2006. When reported though to MAC in the September MALUK engineering management accounts (doc 2548) this £209K ultimately had the effect of enabling MAC to report a C$221K net income in the Q3/2007 accounts – the first publicly “reported” net income rather than loss for many quarters at Magellan Aerospace Corporation. {Subsequently we now know from the PwC report – see final part of Part F on website - that Mr Neill and Mr Dekker continued to take further profits of US $200K in Q3/2006, in contravention of the MAC Revenue Accounting policy and my protected disclosures – PD19,PD20; there were also continuing – since 2003 - accounting errors and mis-statements in accounts receivable etc. at one of the MAC business units for which I had no functional responsibility and that MAC/Aeronca failed to produce a Q3/2006 Estimate at Completion (EAC) for the A340 -500/600 program – PwC para 8.58 – despite my Protected disclosures PD22,PD23 and PD24 in August/September 2006 to Mr Neill, Mr Edwards, Mr Dekker and subsequently Mr Dimma’s “internal investigation” in September/October 2006.}
These examples of contemporaneous facts merit consideration alongside the publicly-stated mandate of the Magellan Aerospace Corporation Board which has always been “ Board Mandate The fundamental responsibility of the Board of Directors is to appoint a competent executive team and to oversee the management of the business, with a view to maximizing shareholder value and ensuring corporate conduct in an ethical and legal manner via an appropriate system of corporate governance and internal control.” Added April 2010 : As my wife and I are ordinary shareholders of MAC ourselves and we have just read the Management Information Circular to shareholders for the MAC AGM on 14 May 2010. I observe that the answers to two questions posed by another attendee at last year’s AGM have now been disclosed – on directors salaries (page 7) and the Management bonuses “earned” in 2008 of almost C$500K (page 12 : the total compensation column maths sums are wrong) in a year in which shareholder value fell by 85% ( and MAC continued again with a “Going Concern” declaration) and by a similar percentage fall from the same Board of Directors and senior management team in the last three years (page 11). As you can read in the Circular to shareholders a Bonus total of approximately C$1m was listed for the five Named Executive Officers (NEO’s) in 2008 and 2009. We have watched the MAC company market value on the TSE fall from the date of the filing of the ET3 Defences in this UK case (January 2007) to one point in March 2008 when it was only 2% of that January 2007 TSE value. Indeed at that point the TSE Magellan Market Value (C$5m) was less than the total costs incurred by Magellan for the PwC report and Canadian and UK legal fees – as in BL observation above. I retain the public record for the only MAC Named Executive Officer (NEO) to have never been paid any bonus in the prior 6 years of MAC public reporting (see Management Information Circular – 2006/FY2005 – pages 11/14). FY2005 was a year in which MAC made a net loss of C$6M+ although the functional Engineering division in MALUK, which I led, made an operating profit of approximately C$2.2m and a 16% return on sales revenue when the Directors finally reported as part the total MALUK statutory financial statements public filing for FY2005 in the UK. This “FY2005 business/profits success” was part of the misconduct focus/discussion of Allegation 32 by Mr Neill and others. {I have also recently learned from Magellan customer and competitor reliable sources that the MALUK Directors have tried to sell this profitable MALUK Engineering unit - which will in turn will strategically revert Magellan Aerospace to a civil “operations” business. } Nor as a matter of record did I ever seek or receive financial compensation for working some 30% / 50+ more working days in 2004 and 2005 than required by my 150 working days per annum employment contract. Furthermore Magellan Aerospace would have been aware from my Personnel File (docs 563-568) that the Magellan Aerospace UK predecessor company (Mayflower Aerospace UK) had in fact compensated me accordingly in mid-2003 for additional days and I donated more than the entire after-tax bonus sum of £25,000 to our local Ballywalter Church. This contribution was by no means unique. As my lifelong accountants/auditors, (McCreery, Turkington and Stockman in Belfast) can verify my wife Jackie and I made other anonymous donations to various Northern Ireland organisations and charities from earlier management bonuses. e.g. ex Bombardier / Shorts – which Ernst & Young (Belfast) and Mr Laurent Beaudoin could also confirm.} Added May 2010 A number of readers have asked whether the Employment Tribunal have any responsibility to provide my “whistleblowing” evidence and documents to the appropriate regulatory authorities for a proper investigation. One person indicated that they believed that the law now set that responsibility with the Tribunal. I raised this matter with the Respondents in April 2010 and received the following reply from their UK solicitors on19 April 2010 -- “There is just one point I would make. I note your comment/threat that you "will therefore ask the Tribunal to pass the relevant information / documentation and my A340.Final. Report.15.December.2009 to the relevant regulatory organisations (with addresses and current contact names)....". As I understand it, you seem to suggest that the recent Employment Tribunals (Constitution and Rules of Procedure) (Amendment) Regulations 2010, which came into force on 6 April 2010, would oblige the ET to carry out such an instruction. I am familiar with this change in the law and would point out that:- 1. The change in the law is not retrospective and only applies to PIDA claims lodged with an Employment Tribunal on or after 6 April 2010 (which yours was not); and 2. The Regulators whom the ET can notify is a specific list and, in particular, the Ontario Securities Commission and the Royal Canadian Mounted Police Commercial Crime section are not specified Regulators. “ So there is NO requirement for the Tribunal in the present legislation to refer this case. I have to pass the relevant evidence and documentation to the relevant authorities as an individual. Jackie and I have a meeting with our Member of Parliament (Mr James Shannon MP) on Friday 14h May 2010 so we intend to ask him about this further – particularly for international cases, such as Magellan. This is of course timely given the international banking crisis and the relevance of some of the conduct of people and global organisations prior to those problems and the well-publicised view of the new UK Coalition Government Cabinet Business Secretary of State, Mr Vince Cable MP. The Employment Rights Act 1996 also refers at para 43B (2) “For the purposes of subsection (1) {a qualifying disclosure} , it is immaterial whether the relevant failure occurred, occurs or would occur in the United Kingdom or elsewhere, and whether the law applying to it is that of the United Kingdom or of any other country or territory. “ After discussion we also believe that the list of regulators needs to be added to and discretionary power should be given to the Employment Tribunal Service as to whom or what such information/evidence is referred to - e.g. the Law Society for England and Wales , the Solicitors Regulation Authority for England and Wales and the Accountancy and Actuarial Discipline Board (AADB) etc. UPDATED JULY 2010 : We have had a further meeting with my Member of Parliament (MP) on Friday 25 June 2010 and one planned for 23 July 2010 when we will conclude what actions may be taken by him directly on our behalf on this and other matters during the remainder of 2010. Part L : Brian Little - My business career and what some prior employers have said about me 1. Current Curriculum Vitae and System of Identified Motivated Abilities (SIMA). 2. Short Brothers PLC / Bombardier Belfast ; 1979 - 1995 - Reference Sir Roy W.R. McNulty and other contemporaneous materials. 3. Harland and Wolff PLC - 1995 - 1997 - References Mr Per Neilsen, Chief Executive and Mr Bill Gallagher - General Manager and the H&W 1996 Annual Report extracts 4. Non executive roles - 30th April 1997 Mr Robert Beckett - Valpar Part M - Essential reading and listening on Whistleblowing / Corporate Governance 1 A. UK BBC - Television 1 B. See also And may also refer to Part G titled “The Corporate Framework” on this website.
Linklaters and Ernst & Young face action over Lehman Brothers collapse UK Times - March 2010 Ernst & Young's Lehman Fallout - E&Y March 2010 Lehman, Ernst & Young and accounting - Accountancy Age - March 2010 PwC in spotlight over missing billion at Satyam, 'India's Enron' - Re PwC Jan 2009 CL Financial – CLICO scandal: Silence from Price Waterhouse Coopers as forensic investigator Robert Lindquist submits report - PwC March 2010 Directors 'withheld facts' at loss-making Cattles - PwC 2010
Mr Edwards – Chairman - his oral evidence on 5 June 2008 Mr Little Have you ever heard the term “doubtful solvency”? (BL notes discussed with Mr Edwards in our 19 Sept. 2006 meeting – doc.2410 re Solvency / Overdraft etc and he was also provided with Mayflower Aerospace story on 14 August 2005 by me 735-753 and he responded at doc 1016 See also 5B. See also 23 June 2004 email and attachment (from Pinsents) forwarded by Brian Little on “Memorandum on Directors’ responsibilities in Potential Corporate Insolvency Situations” to Mr Dekker and Mr Neill (copy Mr Moeller and Mr Underwood) (doc 366- 368 etc)
2. PricewaterhouseCoopers (PwC) Report “Of the accounting issues alleged in accounting-related cases filed during 2008, estimate-related allegations were the most commonly cited, representing 52 percent of all accounting related filings. In 2007, inadequate estimates were alleged in 47 percent of such filings. Among the 5 cases filed against Canadian entities , 60 percent cited overstatement of asset allegations. The accounting areas with the highest increase in allegations are estimates ………. Improper estimate allegations increased to 50 percent versus an average of 32 percent during 2002 – 2006 and 25 percent in 2007. "
3. William A. Dimma - Director and Chair of the Magellan Aerospace Audit Committee Notably, as Mr Dimma ,Chairman of the Audit Committee, states in his most recent book “ Tougher Boards for Tougher Times : Corporate Governance in the Post-Enron era :” If there is one governance lesson to be learned from the many corporate calamities of the past few years, (and counting), it can be captured in the title of this chapter 2 “Individual Competence, Collective Impotence”. Which brings me back to character, (chapter 4 Director with Character), Directors and Senior Officers individually and boards collectively must have the conviction and the strength to speak up and say NO more often than they do. Later in his Chapter 23 “Personal Take on Ethics” he says “Firstly, merely staying on the right side of the law is not enough. Although for some, even that is too much to ask. Without it, chaos rules. But the law as a regulator of ethical behavior is usually too little and invariably too late. The law sets boundaries that separate those on the right side…………..”
4. William G Davis – Director and Chair of the Human Resources and Compensation Committee – From Canadian Business Online, August 15, 2005 Live And Learn: William G. Davis William G. Davis - Directors don't exist simply to serve investors. The question with corporate governance is how you define shareholder rights and how far you go protecting them. Boards should also look out for employees and the communities in which the business operates. That may not be the popular view. But it is right. I'm a lawyer, my father was a lawyer and one of my sons is a lawyer. I respect the profession. The bulk of the lawyer's practice does not usually relate to issues of public policy. I never had a boring day in 25 years as a politician.
5. UK Institute of Directors (IOD) - Page 16 Board meetings The Articles will usually stipulate a minimum number of directors to form a quorum before the meeting can go ahead. But it is important to realise that -- having a quorum is not a substitute for giving notice of a meeting. Achieving a quorum will not validate a Board meeting if reasonable notice has not been given to all directors. -- Where a meeting is held, there is a legal requirement that minutes are taken (and the Companies Act 2006 requires them to be retained for at least ten years). Minutes allow a director to have their view recorded – something that can be useful if questions are raised in the future, particularly after an insolvency (see Section 3 of Chapter 8). Page 20 Special Notices In two specific situations “special notice” may be required Notice to move the relevant resolution must be given to the company at least 28 days before the meeting. Having received the special notice, the company must inform shareholders of the resolution when it gives notice of the meeting. Page 21 Special Resolutions - matters that are less routine and of more importance, such as ………. ( Capitalisation of intercompany loan into shareholder equity) ….. 21 clear days of Notice are needed. Page 30 Delegation “Directors should be aware that when they delegate any of their duties to others (including the company secretary (see chapter 1, section 4), the responsibility and liability for fulfilling those duties remains with them. The directors should periodically satisfy themselves that the secretary or other delegate is carrying out his or her tasks properly and that all legal requirements are being met. Any warning signs to the contrary should be followed up.” Page 36 “The law requires a director to use reasonable care, skill and diligence in carrying out their duties. … Then there is a double test. First there is an objective test: a board member must have the knowledge skill and experience that would reasonably be expected of someone doing that job. Second a subjective standard must also be made: a director has to perform according to the knowledge, skill and experience they actually have.” Page 39 “False or misleading statement in directors’ reports. A director will be liable for any false or misleading statement in the annual directors’ report and the directors’ remuneration report or if they omit something from the reports which should have been included. But the director must have known the statement was wrong, or been reckless about it, or have been dishonest about leaving out the required information. This liability came into force under the Companies Act 2006 on January 20, 2007“. Page 40 “Audit Reports It is a criminal offence for a director or company employee to give the auditors false or misleading information, or to fail to give them information they have asked for without delay. The first offence can lead to a two year prison term; the second risks only a fine. Chapter 8 Page 163 -180 Insolvency and Financial Difficulty Page 165 “Monitoring the financial position of the company” A director should regularly review the company’s financial position in order to assess whether the company is solvent and to determine the prospects of avoiding insolvent liquidation. This will generally involve the preparation of regular statements of affairs and cashflow projections and other current financial information – in collaboration with auditors and other advisors as necessary. Directors should establish a procedure for the finance director to keep the board informed of the performance and prospects of the company. This will generally involve frequent board meetings. The directors should be satisfied that, taking into account their duties to creditors, shareholders and employees, the company may properly continue to trade. Each director should carefully consider the company’s ability to pay before arranging for the receipt of further goods or services on credit, and the board should regularly review the company’s financial position. These reviews should be minuted. Individual directors should raise any concerns over solvency with other members of the board. If their fears are not heeded, they should repeat them and take steps to protect their own position (see the paragraph on resignation in the box on page 172). When going through a difficult period, directors must regularly ask whether their company fails the “solvency” test. A company will be regarded as insolvent when it is unable to pay its debts or the value of its assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities. 5B. See also 23 June 2004 email and attachment (from Pinsents) forwarded by Brian Little on “Memorandum on Directors’ responsibilities in Potential Corporate Insolvency Situations” to Mr Dekker and Mr Neill (copy Mr Moeller and Mr Underwood) (doc 366- 368 etc) 5.B.1 Mr Edwards – Chairman of MAC - his oral evidence on 5 June 2008
5.B.2 Mr Dimma – Chairman of MAC Audit Committee - his oral evidence on 4 June 2008
5.B.3 Mr Shawn Smith - MALUK - Chief Financial Officer / Company Secretary - oral evidence in November 2007
5.B.4 Mr Nigel Jones - Financial Controller at Bournemouth facility - November 2007 evidence - who has since resigned from MALUK
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