Van's Aircraft customers hold the key
Critical weeks for company's reorganization
As thousands of Van's Aircraft kit customers ponder new terms of sale including a substantial price increase, attorneys representing the company in bankruptcy court cited the outcome of that effort as a key unknown they expect will be resolved by the end of February, according to new filings in the case.
A status report filed January 2 by the company (included in the public case file maintained by the debtor's agent) states that the company has developed a reorganization plan that hinges on two significant unknowns, one of which is the determination of what the company owes, and to whom. "This cannot be reliably estimated until the Debtor knows the number of customers that either accept the new contract pricing and terms for their aircraft kits and related components, or reject their contracts providing the customer with a claim. January 30, 2024, is the termination date of the Debtor's offer to modify orders for its kits. Customers whose kit orders are not modified and are subsequently rejected will have 30 additional days to file a rejection claim."
AOPA Legal Services Plan attorneys have consulted with many members (who subscribe to AOPA Pilot Protection Services) about the options available to them as Van's Aircraft customers.
The second key unknown highlighted in the latest report to the court from Van's Aircraft is future revenue, which depends on "two key factors: one, the impact of the price increase on existing and future demand, and two, the ability of Debtor to effectively mitigate the negative impact the laser cut parts has had on its business and reputation by replacing laser cut parts used in the most highly loaded structural locations both during its chapter 11 and post confirmation."
Cracks around laser-cut holes in parts sourced from an outside vendor were previously noted by the company among a number of factors that precipitated the bankruptcy, and the latest filing documents a shift in the company's previous plan to replace all such parts with a more tailored approach.
The issue affects about 1,800 of the more than 11,000 kits that Van's Aircraft has produced, and began around the time the company celebrated 50 years in business at EAA AirVenture Oshkosh in Wisconsin in 2022, unveiling the RV–15. the first high-wing design in the company's long history, which received an enthusiastic reception.
The company would soon find itself struggling with a growing number of customers reporting cracks in parts.
In October 2023, company founder Richard "Dick" VanGrunsven declared a fiscal emergency in a video released on YouTube, pledging details of a recovery plan would soon follow. The video release coincided with an official statement from the company citing a "number of factors" including "an unmanageable number of requests to replace laser-cut parts and cancel orders."
The January 2 status report to the bankruptcy court provides more detail on the laser-cut parts in a lengthy footnote consisting of excerpts from an email that VanGrunsven sent to Hamstreet and Associates, the Oregon corporate turnaround consultant (to be paid $974,700 for its services, according to the filing). According to the cited email excerpts, the company first became aware in late 2022 that cracks were forming around laser-cut holes in parts, and "reacted with caution by offering to replace the laser manufactured parts it had supplied with many kits."
The company worked with its own equipment—not the vendor who supplied the laser-cut parts—to produce replacement parts, delaying kit shipments for months. The company also began "aggressive accelerated life testing of riveted joints that used laser cut holes," the quoted email states. "Testing soon revealed that there were different kinds of cracks, generally classified as manufacturing cracks and fatigue cracks. Manufacturing cracks are those that have been observed around dimpled laser cut holes. The testing has shown that these are overwhelmingly passive when used in aircraft structures. They don't elongate or lead to failures. They don't reduce the strength or the expected life of the airplane."
The company told customers it would replace the parts prior to completing the testing. "Though Debtor's testing has now shown Laser Cut Parts to be more than adequate for even an unrealistically long flight life, it will continue honoring its commitment to replace LC Parts used in the most highly loaded structural locations."
The company published additional information about its testing on January 8, including an 18-minute summary video introduced by VanGrunsven, and a two-hour video presentation by company engineers. A form to submit questions was also posted on the page.
In addition to customers, Van's Aircraft is seeking agreements with suppliers "to determine the timing of delivery and economics of the transaction in order to proceed with contract revisions" for customers whose orders include engines, avionics, and propellers, the report states. "By late February 2024, the Debtor should be able to make a realistic estimate of the amount of pre-petition claims that will need to be provided for under the plan."
A status conference is scheduled for January 16 at 10 a.m. Pacific time. The court will provide remote video connection to the hearing.
