Dive Brief:
- After filing for Chapter 11 last week, aerospace supplier AeroCision has interim court approval to pay its critical vendors up to $5 million, including shipments made in the 20 days leading up to the bankruptcy.
- In its request to pay critical vendors, the company highlighted material suppliers and service providers that cannot be replaced quickly or at all, and are necessary to its operations while AeroCision tries to reorganize in Chapter 11.
- The company filed for bankruptcy after being plagued by revenue shortfalls, supply chain disruptions and debt.
Dive Insight:
As with fellow aerospace player Incora, which went into bankruptcy earlier in the summer, AeroCision outlined the industry’s supply chain and financial travails in requesting protection from its creditors.
David Nolletti, a senior managing director with Riveron Management Services who is serving as AeroCision’s chief restructuring officer, said in court papers that AeroCision’s revenue fell from $79 million in September 2019 to $55 million in September of last year. He traced the decline to the travel restrictions and demand dropoffs that have weighed on the industry after the appearance of COVID-19.
“While facing a dramatic decrease in demand, the Company was also forced to incur dramatically higher costs to manufacture its products due to significant disruptions in the global supply chain and critical labor shortages,” Nolletti added.
He pointed to rising lead times and costs to procure raw materials, longer manufacturing cycles and high freight costs to expedite shipments. And because contracts had been negotiated prior to AeroCision’s cost increases, it couldn’t pass on those costs to its customers. All of those factors ate into the company’s liquidity and bottom line, while revenue remained far below pre-pandemic levels.
In Chapter 11, the company is looking to restructure its debt and reorganize to continue operating. The request to pay critical vendors, including for items shipped just before the company filed, is a key part of those efforts. The list includes suppliers of materials such as bar stock, sheet metal, superalloys and machined parts as well as providers of industrial services, including welding, painting, coating, heat treatment and others.
AeroCision said in court papers that it “will suffer immediate and irreparable harm to both their customer and vendor bases” if its relationships with critical suppliers is disrupted. A court order provided interim approval to pay critical vendors up to $5 million. AeroCision requested to ultimately pay up to $7.5 million.
AeroCision specializes in complex aerospace engine parts and assemblies. The company was originally founded in 1958 and was acquired in 2018 by aerospace-focused private equity firm Liberty Hall Capital Partners.
After the deal, which was financed with debt, AeroCision became a subsidiary of Liberty Hall-owned aerospace and defense supplier Bromford Group, which isn’t part of the bankruptcy case.
AeroCision’s woes echo those of Incora and others in the industry. A RapidRatings analysis from earlier in the year found that the collective short-term and long-term financial health ratings for private companies in aerospace and defense supply chains have been deteriorating steadily since 2020.
