Van's presents plan to climb out of bankruptcy

In broad strokes, the company is poised to continue making good on founder Richard "Van" VanGrunsven's pledge, delivered in a video posted on December 4, the day his 51-year-old company filed for Chapter 11 bankruptcy protection, that, "Our doors will remain open and we will continue to work hard to serve our customers."

In return, Van's customers appear to have saved the company—with a huge helping hand from the company founder, and his wife, who chipped in $7 million in secured loans to the company before and after the bankruptcy petition was filed that now stand to be converted to equity in the reorganized company, rather than repaid, if the plan is approved.

The company proposed in the reorganization plan to repay an estimated 55 percent of general unsecured claims over the coming three years, with all secured and administrative claims payable upon approval of the plan by the court. The company proposes prioritizing the first $3,350 of purchase deposits (that would otherwise be treated as unsecured claims) as a special class of claims that would be payable upon plan approval, with any balances to be designated as unsecured claims, and repaid in part over the course of three years ending in May 2027.

Unsecured creditors in this case are, by and large, the minority of customers who opted not to accept a price increase, collectively accounting for 316 of the 1,751 kit orders that were unfilled as of the bankruptcy filing. By the date the plan was filed, 82 percent of those orders had been renewed at higher prices, with deliveries underway. Those 1,435 kits will cost customers more than the original order price on delivery, though the plan does not specify the magnitude of the increase. Customers who filed claims in the case, and others who sought AOPA's legal advice, reported increases of around 30 percent, and around 50 percent by one customer's account.

AOPA Legal Services Plan attorney Jeremy Browner, whose experience in bankruptcy law made his counsel much sought-after as the Van's Aircraft fiscal emergency unfolded, said that while he fielded dozens of calls from concerned pilots in the days following the December 4 bankruptcy filing, most of these Van's customers expressed faith in the company, or at least in its products.

“Although some members expressed concern about the quality of laser cut parts, most indicated they have an excellent product and reserve their criticism for the past financial management of the company," Browner recalled.

The company noted an even higher reorder rate for orders of third-party components including engines, avionics, and propellers purchased through Van's Aircraft: 95 percent, 514 of 539 orders. Suppliers offered concessions in January that offset some of the difference.

"Customers’ prior deposits were applied in full to all revised contracts," the company wrote in the plan signed by corporate restructuring specialist Clyde Hamstreet, who was hired prior to the bankruptcy filing to serve as the plan's chief architect. Michael Via, who previously led Glasair Aviation for its post-bankruptcy decade, will stay on as CEO of the company, the plan also states.

"Debtor has recruited Shawn Ell as Chief Operating Officer. Mr. Ell has a strong background in manufacturing management and will oversee all manufacturing beginning in early April. Don Eisele will continue to serve as Chief Financial Officer until his replacement is identified. Rian Johnson will continue as V.P. of Engineering and Product Design. Debtor is also creating the position of V.P. of Quality Assurance."

The plan includes a postmortem of the company's financial collapse amid a deluge of demand that is consistent with, and expands on, previous statements (and videos) from the company, explaining how the confluence of pandemic-enhanced demand, supply chain strain, the retirement of key staff, and lapses in management had led the company to scramble to produce kits to fill a huge volume of orders sold at prices below the cost. The financial pressure was made much worse by lapses in quality that followed the outsourcing of parts fabrication to overseas vendors in an attempt to keep up with demand.

The chapter on that episode is about to be closed, also: The plan states that replacement parts—produced in-house with newly purchased equipment—have been provided to 28 percent of customers who received laser-cut parts made by an outside vendor that are susceptible to formation of cracks around the dimpled holes. The company initially pledged to replace all such parts, though an internal engineering review including stress-testing affected parts concluded, the company announced in January, that the parts are safe to use, and only those parts subjected to higher loads would be replaced. "All remaining replacements are expected to be resolved by November 2024," the company states in the proposed reorganization plan.

Along with customers, VanGrunsven and his wife are making key contributions to the company's prospective survival, and avoiding a liquidation that would pay creditors an estimated 4 cents on the dollar. The VanGrunsven trust "will forego payment of its $4 million post-petition loans to Debtor plus $3 million of secured pre-petition loans and convert the $7 million plus interest due thereunder to equity in Debtor."

Other secured claims will be paid in full. As for the unsecured claims, including customers who opted not to pay more for their aircraft, Browner suspects many of them will wind up with a Van's in their hangar eventually.

"They're going to pay more because they didn't take the risk," Browner said, adding that it's unlikely the company would decline to honor deposits and agree to new contracts for those who agree to pay a bit more, most likely, than those customers who put their faith in the reorganization and accepted the company's offer earlier this year. The higher prices, Browner added, are more in line with how the aircraft and kits in question should have been priced in the first place.

For those who rejected the company's offer, up to $3,350 of their claim will be given priority status, to be payable as of the plan's effective date (potentially on May 15, when the court scheduled a hearing on the plan), or when the claim is allowed by the court. Any remaining balance of the (non-priority) unsecured claim would then be paid in installments over the coming three years, out of expected income from business operations.

Van's Aircraft plans to continue building and selling "eight different kit airplanes, one model of production ready-to-fly plane, and one future back country airplane kit," the plan states, though it offers no other details on the forthcoming offering.

In all, Van's Aircraft proposes to repay about 55 percent of the aggregate unsecured claims, and the reorganization plan projects total payments of $851,662 by May 31, 2025, followed by $564,651 paid by the end of May 2026, and the remaining $1.3 million paid to unsecured creditors by the end of May 2027.

Those claims will be paid out of income from the sale of current and future aircraft, the revenue from which is estimated. The Chapter 11 rules may affect what income is deemed "disposable" for the restructured company as it implements the reorganization plan, and actual income available for distribution to remaining creditors may vary from estimates.

Eight kits currently offered on the company website include the RV–15, the company's first high-wing design unveiled at EAA AirVenture Oshkosh in 2022; the RV–12 is available as a factory-built special light sport aircraft as well as a kit. The mention of a new backcountry model would be the first foray for Van's into that segment of the market.

"The Plan calls for Debtor to continue building its professional staff to fully support operations. This team will include additional positions in quality control, engineering, accounting, and IT, as well as a stronger marketing and customer relations support," the plan states. "Debtor has hired a Human Resources director, Colleen Winkler, who has already made substantial improvements. Debtor’s increased professionalism in governance and additional executive personnel, with its depth of experience, coupled with Debtor’s existing skilled, hardworking personnel, provide Debtor with a new level of energy and talent. With that, Debtor is prepared to take advantage of aviation opportunities while being sufficiently profitable to replace its depreciated equipment, install business systems, and repay its creditors as set forth in the Plan."

Creditors have until May 8 (seven days before the May 15 hearing on the reorganization plan) to submit notice they accept or reject the proposed plan. Creditors vote by mail, submitting their notice to Van's Aircraft bankruptcy attorney Timothy Conway, 888 SW 5^th Avenue, #1600, Portland, Oregon, 97204. Under the rules that apply to this particular variation of Chapter 11 bankruptcy, the court may consider the outcome of the creditors' vote, but is not bound by it, and has final authority to accept or reject the plan.

Van's Aircraft estimates in the reorganization plan that a forced liquidation (always a potential outcome in bankruptcy cases) would net unsecured creditors no more than 4 percent of their claims, with aircraft and parts in the company inventory under that circumstance being reduced to scrap metal value.