Many Van's Aircraft customers still await word on price hike

The proceeding, conducted by videoconference, was scheduled to take up routine matters, though the judge was patient with customers who chose to speak up when invited to do so. The first of five was John Aufdermauer of Castro Valley, California, who said he paid a deposit on an airplane kit and a deposit on a Lycoming engine, and had not received word on what new terms might apply to the engine purchase.

"They're making us make a decision by January 30 without knowing what the deposits on the engines are going to be, [and] the airplane is no good without an engine," Aufdermauer said. "I don't know if a lot of people can make decisions."

According to documents filed in the Chapter 11 bankruptcy proceeding, more than 3,500 contracts were in effect, at the time of the bankruptcy filing, between Van's Aircraft and customers who had ordered aircraft kits, engines, propellers, avionics, or some combination of these, or who had placed deposits on completed aircraft. Company officials have told the court they need about 70 percent of those contracts to be approved with new, higher prices in order to successfully reorganize.

Company officials reported during a January 12 creditors' meeting that 50 percent of customers contacted had accepted the new pricing, and cited 60 percent in a January 16 proceeding—though it remains unclear exactly how many customers are still waiting for a proposal. 

Court records show that notices were recently served to 481 customers, both individuals and businesses, seeking contract modifications including a roughly 30-percent price increase for the aircraft kits. Those notices account for 798 contracts (many customers ordered multiple kits, as many as 20 headed to a single customer in Brazil), a little less than a quarter of the total agreements referenced in the December 4 filing.

Attorney Timothy J. Conway, who represents Van's Aircraft, responded to Aufdermauer's comment during the hearing with news that the company has been meeting with engine suppliers, and expects to provide detailed offers to remaining customers soon.

"So far, over 60 percent of the kit buyers have agreed to modify," Conway said. "I understand the other 40 percent may be waiting on more information. We expect to be able to provide that information by next week, in advance of the January 30 deadline."

Conway told the court that customers who opt to reject the new terms will have 30 days to file a claim in the bankruptcy case, and that customers will be exempt from the February 12 deadline to file claims that applies to all other creditors. Notices have not yet been issued to customers who ordered and paid deposits for engines, propellers, or avionics from Van's Aircraft, Conway said, and, pending further planned discussions with vendors, "it is our expectation that we'll have proposals out to the customers on those probably next week."

That will leave just a few days to decide whether to accept the price increase, and at least one of the five customers who spoke on January 16 wanted to know what, if any, laser-cut parts were included in the components already supplied. Clyde Hamstreet, a corporate turnaround consultant hired by the company to help lead the reorganization effort, told the court that "a team of people" is working to figure out which customers have not been contacted regarding the status of their orders, and the company "will also be sending out notice to people regarding laser-cut parts."

Conway, following another customer who reported waiting months for a status update on their order, said, "We're obviously inundated with emails and we'll be getting back to people as quickly as we can."

The company recently posted a series of videos detailing the manufacturing issue that led to cracks appearing in dimples around holes cut by lasers, though the company's own review found that the cracks do not affect the strength or service life of those parts, and, while it had initially offered replacements to customers who reported a problem with cracks in parts, the plan moving forward will be to replace only those laser-cut parts that are "in the most highly loaded structural locations," according to a January 2 court filing.

The company said in October that issue affects more than 1,800 customers, some of whom received multiple kits.

The company noted in the January 2 filing that it needs to know how many customers will accept the price increases, and, separately, the resolution of the laser-cut parts issue, to determine if it will be able to reorganize and emerge from bankruptcy. Company officials told the bankruptcy trustee during the January 12 creditors' meeting (which featured significantly more input from displeased customers) that if roughly 70 percent of the customers with outstanding orders accept the new terms, the reorganization plan will be feasible.

"We think we're going to get very close to that," Hamstreet told the bankruptcy trustee at the January 12 proceeding.

Conway told the judge four days later that the company expects to file its Chapter 11 reorganization plan—a comprehensive document that will chart a course out of bankruptcy—by March 4, if not sooner, even with the delays in notifying many customers about new pricing and terms of sale, or the disposition of laser-cut parts.

Under questioning by the bankruptcy trustee on January 12, the company estimated that if it is ultimately forced to liquidate, the current inventory of incomplete aircraft and parts will become nearly worthless, about 2 cents on the dollar at scrap metal prices. More than 11,000 aircraft kits had been sold over the course of a half-century by the time the company sought bankruptcy protection.