But countering the success of the company’s designs and their unprecedented popularity were challenges compounded by the COVID pandemic, a failure by a key supplier and missteps of its own. Monday’s Chapter 11 filing gives some clues to the situation Van’s faces that pushed the company into a form of bankruptcy that most often precedes a reorganization and recovery. (Van’s is not liquidating. Chapter 11 is designed to give a company some relief from liabilities and enable a reorganization into a sustainable business.)

In the Chapter 11 declaration is this summary: “Until recently Van’s operated successfully without bank loans or other lines of credit, relying on customer deposits and earnings for its working capital.” But then Van’s faced “a combination of unforeseen, significant events occurring over a relatively short period of time increased Debtor’s [Van’s Aircraft’s] costs, doubled its normal inventory levels, slowed deliveries, and strained Debtor’s cash flow to the breaking point.” Support from founder Dick VanGrunsven since September has kept the company afloat.

• READ MORE: Van’s Aircraft Files for Chapter 11 Bankruptcy Protection

One could argue that Van’s trouble started with an issue regarding quickbuild kits. The offshore constructor failed to adequately corrosion-proof parts of the assembly, which led Van’s to a time-consuming side project to understand the nature of the problem and its scope, and construct a remedy. The issue is described in the declaration as a “multi-million-dollar setback” for Van’s. Moreover, it contributed to a growing backlog in ordered kits and extended delivery times for customers.

At the same time, there was unprecedented demand for kits during the early stages of COVID. (In fact, the entire homebuilt industry witnessed a surge in popularity, with all major kit manufacturers reporting greatly increased sales in 2020 and 2021.) For Van’s, kit sales rose from 1594 during 2019 (already a very good number for the company) to 2508 in 2020 and 3982 in 2021. According to the filing, revenue actually decreased from $31.5 million in 2019 to $31.1 million in 2020, despite a 1000-unit increase in orders. Van’s didn’t get the bulk of the kit payment until shipment. In 2021, however, the big increases in order began to show up in revenue, increasing to $37.6 million in 2021 and $52.6 million in 2022. Net income, as described in the declaration, was $2.6 million in 2019, $3 million in 2020, but dropped to $2.1 million in 2021 as investments to increase capacity began to appear in the financials. In 2022, Van’s net income turned red, with a loss of $3.3 million; it lost $1 million through the end of August this year against revenues of $43 million.

It’s important to understand that Van’s was already operating at or near capacity in 2019. Along with technical changes to the kits over time that placed more work at the factory (steps the builder would not have to perform, an expectation in the modern kit-aircraft world), Van’s found itself with greatly increased demand and set about finding ways to meet it.

Because the vast majority of the company’s kit parts are known as “pre-punched” parts and the machines that do the punching formed the production roadblock, Van’s looked for ways to increase capacity by outsourcing some of this step. One way was to have the parts normally punched instead have their holes cut by a laser. This is a common method for automating manufacture of sheet metal parts, along with CNC routers, punches and water-jet cutting. In fact, Van’s had been using laser cutting for some parts and then elected to laser-cut more of them.

Builders began to notice that some laser-cut parts would crack during the dimpling process—where the metal is formed for the purpose of installing flush rivets—and that eventually started Van’s engineering department down the path of discovering why this was happening. Many builders felt that Van’s was slow to acknowledge the problem and that by the time it did, there was a significant quantity of laser-cut parts out in the world. Van’s turned its full attention to the problem and identified the parts in question—more recently, they were able to far more accurately predict which specific airplane kits were likely to have the suspect parts. Latest estimates are that some 1800 kits are affected.

These issues would challenge many companies but they were compounded by other events, as the declaration shows. “Van’s order file doubled in the 2020 and 2021 period. At the same time, supply chain issues, and supplier shutdowns slowed productions of key components, increasing back orders and delaying order completions, requiring Debtor to hire and train more staff. Wages increased, and shipping costs rose more than four-fold during this period. Stated simply, without realizing it, Debtor was selling a high volume of aircraft kits below its cost. The combination of all these factors overstressed Van’s workforce, operating support systems and management skills resulting in a series of one-off but very costly errors.” The declaration also notes that, “Some of its senior employees with deep familiarity with both office and manufacturing process workings chose to retire during COVID.”

The picture painted is of a company overwhelmed by overlapping challenges, started by the primer issue with quickbuild kits and followed closely by a global pandemic that simultaneously cut into its manufacturing capacity, dramatically increased costs and, perhaps ironically, also greatly boosted demand. That in the effort to catch up with demand the company also lost track of internal costs and failed to increase kit prices (as one remedy) is one inescapable takeaway from the factual descriptions in the Chapter 11 declaration—and a good indication of the remedies needed to define its path forward.

Editor’s Note: This article first appeared on KITPLANES.

The post Van’s Bankruptcy: How Did It Get Here? appeared first on FLYING Magazine.

The move comes a little over a month after Van’s announced a series of changes designed to combat “serious cash flow issues, which must be addressed quickly to ensure ongoing operations.” According to the company, the problems stem from COVID-related supply chain challenges, faulty primer that led to corrosion problems on quick build kits, and recent issues with defects in laser-cut parts.

• READ MORE: Van’s Updates List of RV Parts Reportedly Forming Cracks

“As a result of this combination of issues, the company experienced serious cash-flow problems from which it could not recover through the normal course of business,” Van’s said in a statement. “During that time, Van’s built up a significant and high-value parts inventory. As we manufacture the additional parts needed to balance this inventory, we will leverage it to fulfill orders for kits and parts over the next 12 to 18 months.”

Van’s is expected to file a proposed reorganization plan with the court within the next 90 days. The company says it will continue to provide parts, service, and support, along with shipping kit orders, during the reorganization. Plans are being developed for customers affected by the Chapter 11 filing, though the company noted that those plans are ultimately dependent upon court approval.

Plans for Existing Customers

For customers who received laser-cut parts, Van’s says it has now “completed a careful, detailed review that delineates the specific list of laser-cut parts for each individual customer kit order.” If approved, the company says it intends to begin contacting impacted customers with detailed information on the parts and its parts replacement program with the goal of beginning to ship replacements this month. Van’s hopes to have delivered replacement parts to all affected customers, estimated to be more than 1,800, by the end of 2024.

Van’s reported that it is also reviewing all open parts orders, some of which will be hit with price increases. “Customers with open parts orders that require updated pricing will be contacted soon and will receive access to a website where they will be able to review and act upon the details of their existing orders and Van’s proposed order modifications,” Van’s said.

In addition, prices for kits and parts are expected to increase. Van’s plans to “begin contacting customers with open kit orders that were placed prior to the filing date within the next 7 to 10 days with an offer to apply the full amount of their existing deposits toward the purchase of the same kit, under new terms and conditions including a price increase.” Customers with deposits on kits should be on the lookout for an email with a link “to a website where they will be able to view the details of their existing order, the amount of their deposit and Van’s proposed order modifications.”

“Van’s expects to resume shipping in-stock kit orders within the next 7 to 10 days,” the company said. “We will do our best to prioritize those who have waited longest, but our kit fulfillment schedule must be financially acceptable to the court, based substantially on cash flow rather than the traditional and historical method of order fulfillment that Van’s customers have experienced in the past. We will be constrained by – and will make prioritization decisions based on – the rate and timing of order renewal, availability of in-stock parts, and our need to ship kits that generate positive cash flow. Where we are able to do so, we will also consider the age of the original customer order.”

The company says it is still working with its engine, propeller, and avionics partners to get a plan in place for customers with deposits on those products. Van’s noted that orders that don’t require modifications will be shipped as usual.

“The purpose of the Chapter 11 filing is to allow Van’s to continue to provide ongoing support for its customers, suppliers, and employees for many years to come,” Van’s said. “We understand that this situation creates a hardship for everyone involved. However, without these changes we do not see a viable path forward that would allow Van’s Aircraft to remain in business and support its customers.”

Editor’s Note: This story was originally reported on by KITPLANES.

The post Van’s Aircraft Files for Chapter 11 Bankruptcy Protection appeared first on FLYING Magazine.

The Chapter 11 announcement follows the revelation last week that Virgin Orbit was cutting most of its staff because of its inability to raise enough capital to continue operations. The company apparently was not able to recover following a failed satellite launch in January from its Spaceport Cornwall base in England.

• READ MORE: Virgin Orbit Cuts Most of its Workforce, Cites Lack of Funding

The company, which Virgin Group founder Richard Branson started in 2017, developed a system called LauncherOne that uses a modified Boeing 747 to carry its rockets aloft before launching, essentially giving them a head start into orbit. This method contrasts with the traditional large, pad-launched rockets that rivals like SpaceX use to carry satellites.

“The team at Virgin Orbit has developed and brought into operation a new and innovative method of launching satellites into orbit, introducing new technology and managing great challenges and great risks along the way as we proved the system and performed several successful space flights—including successfully launching 33 satellites into their precise orbit,” said Virgin Orbit CEO.Dan Hart. “While we have taken great efforts to address our financial position and secure additional financing, we ultimately must do what is best for the business,” he said.

The company said Virgin Investment Ltd. has committed to provide $31.6 million in financing expected to give Virgin Orbit the liquidity it needs to continue operating as it pursues a sale transaction “that positions our company and our technology for future opportunities and missions.”

The post Virgin Orbit Files for Chapter 11 Bankruptcy Protection appeared first on FLYING Magazine.