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On March 29 Van's Aircraft filed its Chapter 11 Plan of Reorganization with the Federal Bankruptcy Court, over three months after announcing it was filing for protection under Chapter 11 of the federal bankruptcy code.
Now that the plan has been filed, the court will set hearing dates and the judge will sign a certificate to make it an official court document, usually taking about three to five days. Once this step is complete, a copy of the official plan will be mailed to the roughly 40,000 people initially notified when Van's filed bankruptcy on Dec. 4, 2023. Those who have claims against the company will receive ballots to vote either for or against the plan. These votes will be collected by Van's attorneys, tallied and then reported to the court for consideration on whether to approve or reject the plan.RELATED STORIES:Van's Aircraft raises prices, orders new policies after filing Chapter 11 bankruptcyVan's Aircraft files Chapter 11 bankruptcy
Van's customers with deposits on their orders from before the bankruptcy filing who have chosen not to renew their orders with valid claims will have those claims classified as Priority and/or Unsecured claims. Priority claims will be paid upon confirmation of the plan or as soon as allowed and unsecured claims will be paid at the estimated rate of 55 percent of the unsecured amount over the next three years. If Van's had liquidated rather than reorganizing under Chapter 11, creditors would have only received about four percent of their claim amounts.
The skilled and hardworking team at Van's has been making progress toward its recovery goals since the December filing. The team is shipping out kits, parts and orders to customers every week. To assist the existing Van's team, the reorganization plan is calling for new positions in quality control, accounting, engineering, technology and engineering. The plan also includes funding to replace equipment and install new business systems, including an MRP system. Van's will be sharing additional information relating to the plan after the court completes its next step, sometime soon.READ THE FULL COURT FILING HERE
After Van's filed in December it announced new kit pricing and changes to kit contents and policies. The kit prices were raised by about 32 percent and the company was standardizing kit offerings as well as implementing new policies. Van's told its customers that during the pandemic the number of orders drastically increased, forcing the company to hire and train more staff, as well as wage and shipping cost increases. At the same time, an overseas contractor was found to be using an inferior primer, leading to aluminum corrosion forming on several quick-built kits, requiring Van's to scrap supplies and increase the already expanded level of production to replace the affected kits. This alone was a multi-million-dollar setback.
While the company dealt with the corrosion on some quick-build kits, it began laser-cutting aluminum parts rather than CNC-punch parts and customers began to report small cracks at the edges of some holes on the laser-cut parts. Following extensive research and testing, Van's found that these parts did not meet design requirements and led to additional replacement needs for the customer base, with over 1,800 affected and some with more than one kit. The issues compounded with the changes in production surrounding the pandemic led to severe cash flow issues and to ensure continued operations, the company acted. Van's has been transparent after filing, letting customers know all the changes and upcoming steps to get back on track and recover from the slew of problems faced over the last few years.
Van's was founded in 1972 in Forest Grove, Oregon by Richard "Van" Van Grunsven. The company has historically operated successfully without bank loans or other lines of credit, primarily relying on customer deposits and earnings for its working capital, according to the filing. Since early September 2023, the company has been able to continue operating with loans of operating capital from the Van Grunsvens, with five pre-petition loans made to the company. On or around Aug. 10, 2021, the Van Grunsvens loaned the company $6.5 million to buy the main building and corporate offices, a loan which was secured by a deed of trust on the property. On or around Sept. 29, 2022 the couple loaned $650,000 to buy a Trumpf 5,000 press. Around Sept. 18, 2023 another $1 million loan was secured by the second building housing the engineering and technical design team, workshops and hangar space. This was shortly followed by an additional $500,000 made on an unsecured basis. On Oct. 30, 2023 an additional $2 million working capital loan was made to the company and secured by all real and personal property of Van's. Before the petition date, the couple transferred their interests in the loans due and owing from the company to the Van Grunsven Trust.
Before the bankruptcy filing, Van's went through an internal assessment of inventory, production and shipping capabilities, as well as overall operating efficiencies. Like many other businesses, Van's saw many long-time employees retire during Covid. The order file doubled in 2020-2021 and the many supply chain issues caused Van's to make a decision in order to continue operations. A $5 million reserve was set aside for the laser-cut parts replacement cost. The Van Grunsven Trust also agreed to provide up to $6 million in new post-petition financing.
In January, following six months and thousands of test samples, Va's and independent aviation engineers determined the nature and effect of the LCPs on Van's aircraft and published these results, providing clarity on which should be replaced out of caution. This reduced some of the concerns Van's was facing at the start of 2024. As of the date of filing, 28 percent of affected customers have received their replacements. All of the remaining replacements should be sent out by November.
After the initial assessment found that Van's was selling kits below cost, prices were raised. As of the petition date, there were 1,751 existing orders. Van's allowed customers to modify current orders based on the new pricing and those who did not agree would have their orders canceled and have the opportunity to file claims in the Bankruptcy Case. About 82 percent elected to renew orders at the new pricing level. The filing reports that Van's has a backlog of 1,949 orders, including the renewed prepetition kit orders, valued at about $64 million. $17.2 million of the pre-petition deposits have been credited towards the backlog. The expected post-petition revenue from existing orders is $46.7 million.
Van's will share the next steps following the court's approval or rejection of its plan, which should be coming soon.