The Wood Dale, Illinois-based AAR Corp [AIR] and its Melbourne, Fla.-subsidiary, AAR Airlift Group Inc., have agreed to pay the federal goverment more than $11 million after a False Claims Act (FCA) investigation by the Department of Justice (DOJ) into AAR’s maintenance of nine Sikorsky [LMT] S-61 helicopters used by U.S. Transportation Command (TRANSCOM) for moving troops and supplies in Afghanistan and U.S. African Command.
“The knowing failure to comply with contractual obligations is unacceptable, particularly when such violations raise safety concerns,” Acting Assistant Attorney General Brian Boynton for DOJ’s civil division said in a July 7 statement. “Today’s settlement reaffirms that the government will hold contractors to the quality and safety standards in their contracts that are intended to protect our men and women in uniform.”
AAR Corp. owned the helicopters before selling most of them, including four to the Oregon-based timber harvester, Croman Corp., in 2019.
The DOJ investigation into AAR Corp. arose after a 2015 “qui tam” whistleblower lawsuit brought by Christopher Harvey, AAR Airlift’s former lead conformity specialist for ensuring aircraft are airworthy and maintained in accordance with Federal Aviation Administration (FAA) regulations, air carrier maintenance programs, manufacturer maintenance manuals, and FAA airworthinessdirectives. Under the FCA whistleblower provisions, Harvey, whom AAR Corp. fired in 2014, is to receive more than $2.1 million of the nearly $11.5 million settlement.
Harvey served as AAR’s lead conformity specialist from October, 2010 to June, 2013.
As part of the agreement, AAR Corp. agreed to pay more than $429,000 to resolve faulty helicopter maintenance claims brought by the Federal Aviation Administration (FAA) in 2019. The FAA said that between February 16, 2016 and January 27, 2017, AAR Airlift “failed to properly document the replacement of components on 13 Sikorsky S-61N helicopters.”
While AAR Airlift said that it had followed required maintenance procedures, the FAA said that AAR did not have the required equipment to replace hydraulic pistons on the helicopters that change the angle of the S-61 rotor blades in relation to wind direction. Because of the failure to replace the pistons, AAR Airlift operated the rotorcraft in violation of operations specifications during flights in Afghanistan, the Central African Republic, the Democratic Republic of the Congo, Niger and Uganda, the FAA said in 2019.
AAR’s settlement with DOJ “resolves allegations that Airlift knowingly failed to maintain nine aircraft in accordance with contract requirements, and that because of this failure, the helicopters were not airworthy and should not have been certified by Airlift as ‘fully mission capable [FMC],'” DOJ said on July 7. Under some contracts, aircraft were to be FMC for at least 24 days a month with six days allotted for maintenance.
In April, 2010, in a $200 million deal, AAR bought Presidential Airways and its parent company, Aviation Worldwide Services, from Xe Services LLC, formerly Blackwater, founded by Erik Prince, and now known as Academi LLC. The acquisition of Presidential Airways from Xe Services gave AAR some 45 fixed wing and rotor aircraft, including the S-61s, for transporting U.S. troops and cargo, mostly in Afghanistan for TRANSCOM.
“The [settlement] incident in question occured nearly 7 years after I sold the business in 2010, and 6 years after AAR replaced my entire management team,” Prince wrote in a July 14 email. “Believe me, when I owned Presidential the regulators regularly gave us a full proctology exam and we always came out clean.”
According to the “qui tam” lawsuit, Harvey’s conformity department at AAR found that Presidential Airways’ Continuous Airworthiness Maintenance Program (CAMP) for S-61s “was incomplete and woefully out of date,” the lawsuit said. “For example, the S-61 manufacturer maintenance program requires a ‘debonding check’ to be conducted on the helicopter’s tail rotor blades every 12 months. This requires the maintenance crew to ensure that the blades on the tail rotor are not in danger of falling apart (a particular concern in sandy or salt-water environments).”
Harvey’s team “discovered that there was no debonding check in the CAMP,” the lawsuit said. “When [Harvey] inquired about this he was shocked to learn that management of the maintenance department had no idea such a check was necessary, let alone whether it had been conducted. The problems with the S-61 CAMPs were only the tip of the iceberg. There were parts on the S-61s that could not be confirmed as valid for that aircraft. There were life-limited parts that were not being tracked such that there was no way to ensure that they would be inspected and replaced as required.”
John Sopko, special inspector general for Afghanistan reconstruction (SIGAR), said in the July 7 DOJ statement that “failure to properly maintain aircraft is unacceptable under any circumstances, but it’s especially egregious in a war zone, where the lives of America’s warfighters are on the line.”
In AAR Corp.’s most recent quarterly earnings report in March, the company said that it was moving forward on settling with DOJ to avoid the possibility of being liable for up to triple the amount in civil court.
“Airlift is cooperating with the DoJ investigation and believes it has meritorious defenses and counter-arguments to the concerns raised by the DOJ,” the AAR 10-Q report said. “Nevertheless, in February 2021, Airlift and the DOJ reached a tentative agreement to settle the FCA investigation and related matters for approximately $11.5 million. This tentative agreement is subject to negotiation of a definitive settlement agreement and other contingencies. We recognized a charge of $4.2 million in discontinued operations in the third quarter of fiscal 2021 related to this agreement and related matters. As of February 28, 2021, our reserve for the settlement agreement and related matters, including legal fees, was $12.8 million.”
“As part of the settlement, Airlift and AAR will not admit any wrongdoing,” per the report. “If the parties can agree on a definitive settlement agreement, this will conclude the DOJ investigation into Airlift’s contracts with TRANSCOM and the U.S. Navy. However, there is no assurance that the settlement will be finalized. If the settlement agreement is not executed, the DOJ and the ‘qui tam’ plaintiff could pursue civil litigation under the FCA, which provides for the recovery of, among other amounts, treble damages and penalties.”
In April, the AAR Corp. board of directors increased its size from 11 to 12 members and elected Ellen Lord as the board’s newest member. Lord was a Pentagon acquisition chief under former President Donald Trump from 2017-2020 and the former CEO of Textron Systems–a subsidiary of Textron, Inc. [TXT].
Last October, a New York Times article suggested that former AAR Corp. CEO David Storch had curried favor with the Trump administration, including holding AAR events at Trump hotel properties and quadrupling company lobbying expenditures between 2017 and 2018. Between January 2017 and October 2020, AAR received 10 new, federal contracts worth $1.35 billion, the newspaper said.
Editor’s Note: This story was updated on July 14 to include a comment from Mr. Prince.