Vans Files For Chapter 11 Bankruptcy

[TCABM]

With prepunched parts clecoed together, you're right. Redrilling the parts takes little time. You're gonna test fit the pieces anyway. But some of the prepunched stuff wan't supposed to require deburring. So if it is 5 seconds to upsize a hole, it is probably 20 seconds to deburr the hole (both sides, both pieces). Over the 15,000 rivet holes in an RV, that adds 100+ work hours. So it isn't trivial.

And it likely isn’t every hole needing that work.

 

[PaulS]

Never time to do it right, always time to do it over.

Not sure where the 30% number came from, but that doesn’t sound anywhere close to enough. They need to get this right, looks like they are not good with money matters.

 

[kyleb]

Never time to do it right, always time to do it over.

Not sure where the 30% number came from, but that doesn’t sound anywhere close to enough. They need to get this right, looks like they are not good with money matters.

I suspect 30% will be fine and if orders hold to the current volume, which produced ~$50M in sales last year, it would add $15M to the bottom line. That is enough to resolve virtually all of the issues and leave Vans substantially more profitable going forward. Now, if new tail kit shipments fall off the table for 18 months, that's a bad leading indicator. But most of the existing builders will conclude that A) They want an airplane. B) The best way to get what they want is to continue down the Vans path. C) A 30% increase on a portion of a kit (where you've already built some/most of the kit) isn't a game changer financially.

And if those builders don't want their kits, I think there will be a strong secondary market for in-process kits. New (second hand) kit owners will pick-up where the prior owners left off.

 

[Racerx]

well....vs what else.....trash?

Where it should have gone if QC did their job....vendors scrap hopper.

 

[Racerx]

Do you have a link to that, or did you have to pay for the BK filing from the PACER system? I'd be interested in seeing anything committed to that doc from the unsecured "little people" side of things that are pushing back on the price increase...

 

[455 Bravo Uniform]

To the other poster, I’m surprised that creditors could get 97 cents on the dollar.

Couple things were at play there. One, demand for products dropped due to the Great Recession. Two, idiot CFO failed to re-up financing well before bonds came due, then it was way too late due to credit crunch. No cash to operate, and no way to pay creditors. We were having vendors not allowing trucks through the gate to drop off raw materials unless they confirmed EFT.

Filing Chapter 11 allowed survival. Plants were temporarily shut or went to reduced production, but not many jobs were affected. Contracts were renegotiated. Bond holders got some greater ownership share. Took 20 months to exit.

At reorg, stock was given to formerly stiffed suppliers (they had to file claims of course). The ones who I knew personally as mom & pop operators said it was worth it. Examples of being owed $70k, filing a claim, getting stock, and selling it within a year doubling their money. I’m sure they’d rather have not had that worry, but they were pleasantly surprised.

 

[Jim K]

I thought this was interesting on avweb this morning:


So I'm guessing that means the vast majority of their problem is builders with deposits down at prices they can't afford to delivery on. Chapter 11 allows them to break all those contracts, which solves their problem, but obviously at a huge hit to their reputation.

 

[luvflyin]

Van himself stepped in to loan the company $6(?)M as part of the bankruptcy filing.

If he gave instead of loaned, would that change much?

 

[DaleB]

With prepunched parts clecoed together, you're right. Redrilling the parts takes little time. You're gonna test fit the pieces anyway. But some of the prepunched stuff wan't supposed to require deburring. So if it is 5 seconds to upsize a hole, it is probably 20 seconds to deburr the hole (both sides, both pieces). Over the 15,000 rivet holes in an RV, that adds 100+ work hours. So it isn't trivial.

Not trivial, no. But you're building an airplane, not ordering takeout. In the grand scheme of things, it's a drop in the bucket that a builder should be able to deal with. Stuff happens when you're building. You need to be able to fix it, shrug it off, and build on.

 

[Racerx]

If he gave instead of loaned, would that change much?

He already has. 6m the last couple years.

 

[Salty]

Not trivial, no. But you're building an airplane, not ordering takeout. In the grand scheme of things, it's a drop in the bucket that a builder should be able to deal with. Stuff happens when you're building. You need to be able to fix it, shrug it off, and build on.

You can ignore reality all you want, but that reality is that builders are getting screwed. They got bad parts and now it's going to cost them more time and or money to finish their builds.

 

[Dana]

How many of those bad parts are already built into quickbuild components? Having to drill out thousands of rivets to replace a bad part is a lot more work than just redrilling or remaking a part. I get the impression that most RV builders go for the quickbuild option nowadays, which are mostly completely built subassemblies with a couple of rivets left out so the builder gets credit for "riveting" on the checklist.

 

[fasteddie]

Not trivial, no. But you're building an airplane, not ordering takeout. In the grand scheme of things, it's a drop in the bucket that a builder should be able to deal with. Stuff happens when you're building. You need to be able to fix it, shrug it off, and build on.

Any concerns about running out of edge distance if you start drilling out a bunch of holes?

Subjectively, from the pics I've seen, some of laser cut holes are pretty ugly, and would seem to require a significant oversize.

 

[455 Bravo Uniform]

You can ignore reality all you want, but that reality is that builders are getting screwed. They got bad parts and now it's going to cost them more time and or money to finish their builds.

Yep, that’s called being an unsecured creditor (I’m open to being corrected by bankruptcy counsel).

I believe anyone that is owed something by Vans needs to file a claim in the judicial district where the case is being heard. If you don’t file a claim, you’re open to being left at the altar (again, open to correction, I’m no expert but I’ve been to the dance once).

 

[DaleB]

You can ignore reality all you want, but that reality is that builders are getting screwed. They got bad parts and now it's going to cost them more time and or money to finish their builds.

Absolutely not ignoring reality. I'm just saying it's not a terminal screwing. If the builder were to need to drill out a bunch of holes, which is still a theoretical situation, it's not the end of the world and most builders wouldn't cry too hard over it. I'm sure most would prefer that to waiting some indefinite period of time and potentially paying more for replacement parts. If you can't deal with a little adversity, you're not going to finish an airplane.

As has been discussed ad nauseum, yes, Van's should have caught the bad parts being send by their vendor before they ever got shipped out. They didn't, and now they're paying the price for it. Nobody is going to be happy about this.

 

[luvflyin]

He already has. 6m the last couple years.

Oh. I had replied to post #50 where it said “Van himself stepped in to loan the company $6(?)M as part of the bankruptcy filing.” That would have made himself the biggest creditor.

 

[Dave Theisen]

The Van’s “laser cut years” are the new Grumman “purple glue years”.

 

[luvflyin]

The Van’s “laser cut years” are the new Grumman “purple glue years”.

Weren’t there just few of those, like less than a hundred? And Grumman solvent and fixed them?

 

[luvflyin]

What’s this doing to the used Vans market? Say ya got a pre lazer one. Has the value just gone way up?

 

[iamtheari]

Yep, that’s called being an unsecured creditor (I’m open to being corrected by bankruptcy counsel).

I believe anyone that is owed something by Vans needs to file a claim in the judicial district where the case is being heard. If you don’t file a claim, you’re open to being left at the altar (again, open to correction, I’m no expert but I’ve been to the dance once).

I'm not a bankruptcy expert but I have seen a few of them, mostly from the creditor's perspective. Van's will file a mailing matrix or similar list of unsecured creditors with their last known addresses and amount owed. Those people should get notice of major events in the case, and it's normal to just mail copies of everything in the case to them. They will get notice of the meeting of creditors, notice as to whether or not to file a Proof of Claim form, copies of motions, and so on. Most of the time, the initial notice will say not to file a Proof of Claim and then, later on when it looks like there will be assets to pay unsecured creditors, a new notice will go out telling them the deadline to file one. It is also possible that unsecured creditors will be asked to file a Proof of Claim only if they disagree with the amount of the debt that Van's put into the schedule of unsecured debts. Time will tell.

The main things I would suggest to someone with a pending order from Van's, whether it's for a bag of rivets or for a complete set of airframe kits plus an engine and propeller, are to download the Proof of Claim form and fill it out so you have it ready, watch for some notice to come in the mail and, if you don't get some notice of the bankruptcy filing directly to you, get someone with a PACER account to check if they missed you on the schedules or put down the wrong address, and get a head start on soul-searching whether you want to take the kit position with a price increase or try to recover some of your deposit.

As far as the value of completed planes goes, I think it's a wildcard until Van's is either operating out of bankruptcy or the assets sold off. How many times have you heard, about a certified aircraft, "It's a great plane, but you shouldn't buy one because parts are hard to get"? That's probably going to drive both the size and the enthusiasm of the used Van's market, especially for those of us who built newer kits like the RV-14, which are easy enough to be Baby's First Metalworking Project, and do not have the skills to take off a damaged airfoil skin and duplicate it at home.

 

[Lindberg]

You can ignore reality all you want, but that reality is that builders are getting screwed. They got bad parts and now it's going to cost them more time and or money to finish their builds.

I have no dog here, so I really haven't followed this, but are the parts actually bad, or are they just not made to spec and builders don't want them?

 

[X3 Skier]

I have no dog here, so I really haven't followed this, but are the parts actually bad, or are they just not made to spec and builders don't want them?

Had the same question but the photo upstream means they're BAD. small chance they are repairable if that photo is representative.

 

[Warmi]

Had the same question but the photo upstream means they're BAD. small chance they are repairable if that photo is representative.

Vans own assessment ended up concluding that most of the issues are not as bad as that one in the picture and they would only replace the really bad ones but that also means you don’t really know until you inspect all laser cut parts - some of which are already part of larger assemblies etc … also …. are most builders even qualified to make this sort of judgement call to begin with ?
Vast majority of folks simply concluded that they don’t want to take any chances and … that was that.

 

[PaulS]

It sounds like Vans was taking customer's money for engine deposits and using it to subsidize its bad business practices. They need a major cash infusion to get out of this, I doubt a reorg is going to fix this unless the court wipes out 3/4s of Vans debt. My guess is about $75 million to get the company rolling again. I'm thinking probably about double their current prices to keep it going. Also the people responsible for letting it get this bad need to move on. It's a sad situation, hopefully someone or some aviation friendly investment group will jump in. They are awesome airplanes.

 

[Warmi]

It sounds like Vans was taking customer's money for engine deposits and using it to subsidize its bad business practices. They need a major cash infusion to get out of this, I doubt a reorg is going to fix this unless the court wipes out 3/4s of Vans debt. My guess is about $75 million to get the company rolling again. I'm thinking probably about double their current prices to keep it going. Also the people responsible for letting it get this bad need to move on. It's a sad situation, hopefully someone or some aviation friendly investment group will jump in. They are awesome airplanes.

Well, that’s kind of like Social Security is currently set up … or frankly any insurance-like pool .

 

[Checkout_my_Six]

More I think about it.....I can see an AD issued for all those affected Van parts.

 

[wsquare]

@Salty said - You can ignore reality all you want, but that reality is that builders are getting screwed. They got bad parts and now it's going to cost them more time and or money to finish their builds.

Or, said another way -> "You can escape reality, but you can't escape the consequences of escaping reality."

 

[iamtheari]

It sounds like Vans was taking customer's money for engine deposits and using it to subsidize its bad business practices. They need a major cash infusion to get out of this, I doubt a reorg is going to fix this unless the court wipes out 3/4s of Vans debt. My guess is about $75 million to get the company rolling again. I'm thinking probably about double their current prices to keep it going. Also the people responsible for letting it get this bad need to move on. It's a sad situation, hopefully someone or some aviation friendly investment group will jump in. They are awesome airplanes.

That was part of their initial announcement back in October. They committed to kit contract pricing when you made your deposit, then assembled the kit, and then sent it to you when you made the final payment. That worked fine when they could assemble your kit for the aluminum and labor prices in effect on your order date. Over the past few years, aluminum and labor both got slower and pricier and kit orders went up, causing longer lead times. Just for comparison, I received my RV-14 empennage kit 10 calendar days after I ordered it in January 2018, and the fuselage kit arrived within 2 months of the order that spring. The last time I checked, empennage kits were 8+ months out and fuselage and wing kits could be 18+ months.

The other main factor was using kit deposits to finance anything other than filling the crate with an airplane kit, although that is not really bad on its own. Cash flow is how you keep the lights on and the timeclock punched in. I think it just turned into too much of a buffer against the cost and delay pains that, had they been felt earlier, might have led to things getting fixed before they spiraled so far out of control. Kind of like downing a bottle of ibuprofen before playing a game of football and wondering how you got so banged up.

The main thing to consider here is how much of Van's debt is in the form of unfulfilled kit deposits and how much is in the form of more traditional debts such as operating loans and inventory financing. They checked the boxes for having 25,001-50,000 creditors, $10,000,001 - $50,000,000 in assets, and $10,000,001 - $50,000,000 in liabilities. But their top unsecured creditors only add up to $1.75M. Depending on how far into each of those checkbox regions they are, it could be that they are perfectly healthy other than being upside-down on kits. That is, maybe they owe $2M cash plus a bunch of kit deposits. (Or maybe it's something different altogether, but the publicly available information suggests that their main liability is unfulfilled kit contracts.)

A big part of their reorganization plan is to give customers with pending kit orders the option of revising their contracts to the new pricing or of canceling the order and becoming unsecured creditors. I think the number they've tossed around is a 32% increase in kit pricing, quite a bit less than double. They also have some founder financing to help bridge the laser and corrosion do-overs. Given the demand for their product and the price-elasticity of their customer base, I think they have the right resources to solve the Chapter 11 puzzle and emerge in mostly the same form as we know them.

 

[nauga]

More I think about it.....I can see an AD issued for all those affected Van parts.

Per AC 39-7d The FAA doesn't issue ADs on an experimental/amateur built airframes, of which those parts are part.

Nauga,
well regulated

 

[kyleb]

The main thing to consider here is how much of Van's debt is in the form of unfulfilled kit deposits and how much is in the form of more traditional debts such as operating loans and inventory financing. They checked the boxes for having 25,001-50,000 creditors, $10,000,001 - $50,000,000 in assets, and $10,000,001 - $50,000,000 in liabilities. But their top unsecured creditors only add up to $1.75M. Depending on how far into each of those checkbox regions they are, it could be that they are perfectly healthy other than being upside-down on kits. That is, maybe they owe $2M cash plus a bunch of kit deposits. (Or maybe it's something different altogether, but the publicly available information suggests that their main liability is unfulfilled kit contracts.)

One of the talking points is Vans has a lot of high value inventory. Another thing they have said is they farmed out "simple" parts to the laser cut folks.

Where I'm going with this is cash flow. What the two prior statements indicate to me is they have a lot of inventory "trapped" today - 95% of the kit is on the shelf, but they need to remake the laser cut parts so they can ship the kit. I think this has paralyzed their cashflow temporarily. Once they get the bottleneck parts back in inventory, they can turn their inventory into cash. IMO, this and increased pricing will correct much much of their cashflow issue fairly rapidly. The next hurdle is to convince newbies to buy their first kit - the tail kit. No new tail kit sales means less demand going forward once the pipeline (and pent-up demand) of current projects (kits under assembly by builders) begins to tail off in a year or two.

 

[Sierra_Hotel]

Well...****. Was planning to order the first kit of an RV-14 after the first of the year. Guess I'm going back to the Mustang II I originally wanted to build.

 

[Checkout_my_Six]

Per AC 39-7d The FAA doesn't issue ADs on an experimental/amateur built airframes, of which those parts are part.

Nauga,
well regulated

yes...but on rare occasions they are issued.

bonus points for mentioning the last AD issued affecting a EAB aircraft.

 

[Racerx]

I have no dog here, so I really haven't followed this, but are the parts actually bad, or are they just not made to spec and builders don't want them?

 

[PaulS]

That was part of their initial announcement back in October. They committed to kit contract pricing when you made your deposit, then assembled the kit, and then sent it to you when you made the final payment. That worked fine when they could assemble your kit for the aluminum and labor prices in effect on your order date. Over the past few years, aluminum and labor both got slower and pricier and kit orders went up, causing longer lead times. Just for comparison, I received my RV-14 empennage kit 10 calendar days after I ordered it in January 2018, and the fuselage kit arrived within 2 months of the order that spring. The last time I checked, empennage kits were 8+ months out and fuselage and wing kits could be 18+ months.

The other main factor was using kit deposits to finance anything other than filling the crate with an airplane kit, although that is not really bad on its own. Cash flow is how you keep the lights on and the timeclock punched in. I think it just turned into too much of a buffer against the cost and delay pains that, had they been felt earlier, might have led to things getting fixed before they spiraled so far out of control. Kind of like downing a bottle of ibuprofen before playing a game of football and wondering how you got so banged up.

The main thing to consider here is how much of Van's debt is in the form of unfulfilled kit deposits and how much is in the form of more traditional debts such as operating loans and inventory financing. They checked the boxes for having 25,001-50,000 creditors, $10,000,001 - $50,000,000 in assets, and $10,000,001 - $50,000,000 in liabilities. But their top unsecured creditors only add up to $1.75M. Depending on how far into each of those checkbox regions they are, it could be that they are perfectly healthy other than being upside-down on kits. That is, maybe they owe $2M cash plus a bunch of kit deposits. (Or maybe it's something different altogether, but the publicly available information suggests that their main liability is unfulfilled kit contracts.)

A big part of their reorganization plan is to give customers with pending kit orders the option of revising their contracts to the new pricing or of canceling the order and becoming unsecured creditors. I think the number they've tossed around is a 32% increase in kit pricing, quite a bit less than double. They also have some founder financing to help bridge the laser and corrosion do-overs. Given the demand for their product and the price-elasticity of their customer base, I think they have the right resources to solve the Chapter 11 puzzle and emerge in mostly the same form as we know them.

It's a problem when you are taking orders for products you are going to ship months if not a year or two out. A lot can happen. Cirrus has the same issue, but stipulates in their contract that by the time your airplane is done you are going to pay the going price at that moment. Vans should have been following that model, but sometimes, as in flying, you don't know what you don't know. I've seen a lot of companies that don't watch the bottom line, if they have cash in the bank they think all is well. This is prime example of why that isn't true. They most likely thought they had plenty of cash until the **** hit the fan. Then they found out. I'm thinking they are most likely good people, but they messed up bigtime.

One of the talking points is Vans has a lot of high value inventory. Another thing they have said is they farmed out "simple" parts to the laser cut folks.

Where I'm going with this is cash flow. What the two prior statements indicate to me is they have a lot of inventory "trapped" today - 95% of the kit is on the shelf, but they need to remake the laser cut parts so they can ship the kit. I think this has paralyzed their cashflow temporarily. Once they get the bottleneck parts back in inventory, they can turn their inventory into cash. IMO, this and increased pricing will correct much much of their cashflow issue fairly rapidly. The next hurdle is to convince newbies to buy their first kit - the tail kit. No new tail kit sales means less demand going forward once the pipeline (and pent-up demand) of current projects (kits under assembly by builders) begins to tail off in a year or two.

Unfortunately the inventory is stranded cash, "a lot of high value inventory" is a problem for any company. It is deadly to the company if something like this happens and they can't ship. It's still not good for the company if everything is going well. The thing about it is it's really not cash, it's parts that will be worth pennies on the dollar if they can't fix this. Plus it is costing them hugely in lost opportunity.

I'm convinced if they only increase their prices by 30%, they will not last. I'm also convinced that while they may have been adequately capitalized (I'm still doubtful) when they were smaller, they were woefully undercapitalized when they committed to all these orders. They need to be adequately capitalized, if they can't get there, they should sell the company.

 

[Datadriver]

Vans has a profitable business, notwithstanding a few short-sighted financial decisions.

"profitable" and "Chapter 11" seem to be mutually exclusive

 

[kyleb]

"profitable" and "Chapter 11" seem to be mutually exclusive

You can be very profitable and run out of cash. Profit and cash flow are related but also very different.

My belief is that the fundamental business is solid, but unforeseen events have hurt profit and cash flow over the last couple of years. They need a price increase to drive enough income to recover from those events-some/most of which were self inflicted.

 

[Warmi]

You can be very profitable and run out of cash. Profit and cash flow are related but also very different.

My belief is that the fundamental business is solid, but unforeseen events have hurt profit and cash flow over the last couple of years. They need a price increase to drive enough income to recover from those events-some/most of which were self inflicted.

Yes the underlying demand for their original product was sound but at this point the question is ..will there be enough customers willing to trust vans with their deposits ?

 

[hindsight2020]

Yes the underlying demand for their original product was sound but at this point the question is ..will there be enough customers willing to trust vans with their deposits ?

Was it though? Definitionally the demand was juiced (covid fomo). So-called demand based on free money not assigned to surplus capital that didn't exist (aka M2 go BRRRRRRRRR). Most importantly, consumption imprudence incurred under the auspices of pre-covidian pricing.

Of course, since we can't prove a negative (aka, how "sound" the demand would not have been if they had priced at the postcovidian M2 level from the outset), we're just gonna have to agree to disagree on what "sound" demand means.

fwiw, I don't think they'll find enough takers to keep the status quo. My bet is this thing goes down the glasair path, and I'll digress here for brevity.

 

[Flyxaos]

Cirrus has the same issue, but stipulates in their contract that by the time your airplane is done you are going to pay the going price at that moment.

We build new Single Family Homes. It is a fixed price contract, but we have the above clause, more or less. We never had to use that clause and normally just sucked it up on price increases as the build started and progressed. But with the introduction of Covid to the world we had to use that clause. We wouldn't have survived without it. Surprisingly, the vast majority of our customers understood and where still happy to get to build.

 

[WDD]

What hurt them more? Bad laser rivet holes, or the bad primer?