The city of Newton is looking to turn some profit out of the ABI Chemicals facility at the Newton City/County airport, which led the commission to approve a new lease agreement with Kansas Chemical Coatings last week.
After an agreement was reached initially with ABI Chemicals in late 2014 to lease a manufacturing facility and hangar space from the city, the company immediately began to run into money issues, meaning it could not repay the debt service costs through its lease after the city financed construction of a $5.24 million facility for the company. Over the past two years, the city has paid $500,000 in loan payments and $35,000 in insurance/utility costs for the facility.
Despite the financial difficulties ABI faced, City Manager Bob Myers noted there is still a great deal of optimism about the product (high-tech metal coatings) the company was working on and Kansas Chemical Coatings — a group born out of ABI investors — is looking to make headway in that industry.
"The upside was still high for the product; it just wasn't able to turn the corner," Myers said. of ABI. "The goods news ... is that they do now have an equity firm. This is one that had money into the project."
Given that ABI partnered with the Wichita State University National Institute of Aviation Research, which had a great deal of interest in its product, there was a remaining obstacle regarding the fact that WSU owned the intellectual property rights to the metal coating on which ABI was working.
However, the group of interested investors looking to continue ABI's work — as Kansas Chemical Coatings — was able to work out that aspect of the deal.
"The other hurdle was to get Wichita State on board; they are on board," Myers said. "Finally, it looks like we've got a break here."
Part of the optimism Myers noted with Kansas Chemical Coatings stems from the product it is working on recently being placed on the Boeing spec list — with a strong list of potential clients in line for the new company.
"This looks like our best shot to come out of this OK," Myers said. "I think this is worth our continuing to hang in there with them."
Still, it will take time to fill orders once Kansas Chemical Coatings starts manufacturing. For that reason, Myers proposed an amended lease agreement to allow the company some cushion in its initial phase. The amended agreement would have the company pay a reduced amount of rent ($35,000) initially — with Kansas Chemical Coatings projecting it would be able to pay the full monthly rent ($50,000) within three to four months. Once cash flow begins to increase, the company would then reimburse the city of Newton for its bond debt payments ($500,000) and rental obligations with the intent to repay the city in full as future cash flow permits.
Commissioners, knowing the history of ABI Chemicals, wanted to make sure there was a way out of the agreement if Kansas Chemical Coatings proved to be equally unsuccessful in its operations. Myers assured them that option would be available in the new lease, with the city needing to show "inadequate" progress in order to cancel the agreement, as the commissioners' optimism about the company was more cautious.
"I can support this," said commissioner Barth Hague, "but I think we need to be vigilant about this."
With the city approving the new lease agreement, it was then brought before the Harvey County Commission at its meeting on May 29.