Van’s Aircraft is curtailing normal business functions for two weeks as staff and management focus on saving the company from a serious cash crunch. As reported by KITPLANES Editor Marc Cook, Van’s founder Richard VanGrunsven announced Oct. 27 that the process, to be aided by a business crisis consulting company, will address “serious cash flow issues, which must be addressed quickly to ensure ongoing operations. We are confident that we can work through this situation, but some changes are required,” he says. VanGrunsven, in the explanatory video above, said he and his wife have kept the company afloat for the past two months by lending it operating capital and that can’t go on forever. Van’s posted an extensive explanation of the situation. (You can read it here.)
Van’s current challenges result from “a combination of significant events over a relatively short period of time [that have] increased costs, doubled normal inventory levels, slowed deliveries, and strained our cash flow to the breaking point,” the company says. It cites increases in manufacturing still evident from the COVID slowdown and quality control issues.
“Starting today through mid-November, Van’s will be focused on assessing the internal changes necessary to address these issues,” the company said. “During this period, shipments will be delayed, kit orders will not be processed, and refunds will not be issued.” Business hours have been trimmed to 8 a.m. to 4 p.m. weekdays and builder assist calls will be limited to 8:00 to 9:30 a.m. and 3:00 to 4:00 p.m. on those days.
Chinese financing is the trend for this situation.
Van’s Air Force forum removing posts about it. Hope it doesn’t hose their members. Might be attempting to prevent a run on cancellations.
Economic and regulatory obstacles are looming for businesses and consumers, and the environmentalists are just getting going. If Vans can’t make it, then the future of sport aviation is in question.
Can you be more specific? Van didn’t suggest that future economic obstacles were the issue. Covid made the business boom which created production problems. But there is no reference to regulatory issues.
You seem to want to make the story about politics but Van is telling us there were a combination of factors, one of which business was too good. He says nothing of government interference.
Let alone anything about “environmentalists.”
No, not politics. Van’s issue was poor QC from offshore assembly, a primer that was causing corrosion that was not caught early enough, fouled up further by a change to laser cut parts. The latter was an attempt to replace the spoiled quick build assembies, but the new parts ended up with a cracking issue. The delays and replacement of delivered parts in kits caused new orders to dry up, killing cash flow, while at the same time, existing deposits no longer covered the cost of the parts
Not specific to Van’s, but the aviation industry as a whole is being targeted in a manner that will increase costs. Look at the 100LL issue, it’s not resolved in a manner that will satisfy anyone. The state of California is threatening refiners with regulations that has investors calling for them to leave the state. Are you aware of the location of the single source refinery for 100LL?
Kitplanes have long been a workaround for builders to mitigate costs of production aircraft- Labor, liability and especially recurring maintenance costs for the builder who can perform condition inspections. GA is seeing rapidly rising costs across the board, engines for example.
If Van’s is struggling given it’s advantages, then it doesn’t bode well for aviation as a whole.
Cessna tried offshoring major airframe assemblies to Mexico when they took over the Columbia from Lancair.
It didn’t go well. But Wall Street was happy, I guess, for a bit.
What are the new environmental regulation? The aerospace sector has been compliant to its he clean air act for some time. There has been no signifincant changes affecting the industry for about twenty years. So IF yiu are going to make a claim back it up. I just left the industry after
a 42 year run and had to work as an M and P engineer to bring three firms into compliance.
J Earnie… FYI, Vans Airforce forum is not affiliated with the company. It’s privately run. Removing posts regarding China cannot be taken as a statement or side-step by Vans Aircraft.
I’ve long known that and haven’t contended that it was owned by Vans.
Moderators aren’t removing posts about “China” financing, they’re removing anything that they see arbitrarily as “negative”. The folks who are upset are the builders who are in the midst of their builds with unserviceable parts, and/or sunk deposits with undelivered kits. They understand that they’ll end up unsecured creditors if Chapter 11 is declared. Removing their questions and complaints is naturally increasing their frustration.
It’s their playground, they can do what they want, but it isn’t helping. It’s also not the core problem. That lies in Van’s finding cash and a way out of the mess.
Your statement about “attempting to prevent a run on cancellations” made it unclear you were aware they weren’t affiliated. And, why would VAF “hose” their members? This is a trusted longstanding vital source to RV builders. Projecting something dark in my view is unwarranted.
Vans isn’t going anywhere. That’s my view. Too much history and future potential and I’ll stick my neck out further and say I highly doubt it will take foreign investment to help Vans through this.
Still, if the unthinkable were to happen, imagine the after-market possibilities for churning out RV parts with the outstanding kits and flying fleet.
Chinese investment may not be available given the economic and geopolitical situation. It’s what General Aviation in the US migrated to in the past, but there is no way to know if they caught it early enough that they don’t need cash, but based on the revaluation of RV’s loan to the company, it’s doubtful. Something has to give.
Hiding posts with legitimate questions and concerns doesn’t serve the membership. Evidently, it’s a vital resource only for when things are going will. That’s what is meant by “hosing” the membership. Frankly, I don’t care either way. VAF isn’t necessary for Vans to survive.
Worst case, builders would be able to go back to the old ways of doing things. The aircraft could be built out of plans, using sheet aluminum and extrusions, with vendors providing the rest, once they were released from Van’s contracts. Plenty of existing, unfinished kits to source parts from in the interim.
Just noticed a Kitplanes article that read that Michael Via will be the interim CEO. He ran Glasair when they were in bankruptcy, dumped the low winged airplanes, focused on the Sportsman (that our intrepid Marc Cool built himself), and sold the company to a Chinese firm, which recently moved the entire operation to China.
Safe to say that most of US GenAv is entangled with Chinese finance somehow, given the new CEO’s record, that might be where this is going. Hope it works. Stunning that it got this far without much warning on the situation. They must have been running pretty thin, all along.
VAF are now allowing a thread to persist on the matter, but are culling about 30% of the posts.
Another company hurting due to covid-response market distortion. They scaled up for what was a temporary, artificial bump in demand, followed by the current economic contraction (with big inflation).
That and being yet another company hurting from outsourcing to cheap overseas labour.
I hope they can hold it together. But from a market point of view, the headwinds look more likely to increase than ease.
I wonder, as well, if the drop in demand would have occurred regardless – there are a LOT of RVs out there, at some point they had to reach market saturation
In addition, the next generation (millennials) are less likely to become pilots, let alone build an airplane.
What is your basis for declaring the “current economic contraction”? There was a report out this week that the US economy grew at an annualized rate of greater than 4% in the third quarter.
Do you like bridges? I’ve a really nice one to sell ya.
Reports are nice, but you can tweak the inputs to create the desired output. The reality on the ground, however, is reality. And it ain’t pretty.
so said another way – you are just ignoring the data, putting on your tin foil hat and claiming its made up, and offering your own personal opinion and passing it off as facts.. ok got it.
It sure beats trolling the internet posting empty insults.
LuapH: +1
Actually NOT these reports are built to standards on international agreement ( not all countries) the USA has some of the most transparent economic report in the world . That comes from several sources like the World Bank, the UN, the Bank of Germany. And your opinion comes from where!?
The actual reality on the ground: business contracting or closing, jobs going away, income decreasing in real terms.
Sure, your 1% will do fine – they always do in times like this (on average). Good for them. Doesn’t help the average Joe.
Again Cameron, you are discounting the reports of job growth in recent quarters. That does help the “average Joe”. But it doesn’t play into your narrative.
Joe the Plumber, maybe?
LoL
Economies don’t grow or contract uniformly. It’s entirely possible that the aviation sector contracted while the economy at large grew.
“ the US economy grew at an annualized rate of greater than 4% in the third quarter.”
Of course it did.
When most things cost at least 4x more and government spending through the roof, you can’t help but to have “growth”.
Trouble with that growth, is that many need to choose between mortage, groceries and gas or, an RV.
Reverse your priorities, Robert. Should be RV, gas, groceries or mortgage in that order.
If you don’t relize that most American consumers are feeling economic pain and a resulting lack of confidence – then you simply aren’t paying attention or have your head is in the sand for partisan political reasons.
My last comment (above) was for Mark B
The problem with that report is that it is artificially propped up with free money still flowing, just wait.
Official economic statistics on growth are most meaningful to the people who are not the core of the population of interest; they are for investors, politicians, the ultra-rich. The fact of the matter is that right now the middle class, who are the majority of homebuilt buyers, are feeling economic pain right now. The Housing market is at record highs, inflation has shrunk discretionary income (remember that inflation is *cumulative* and the fact that the annualized rate is lower than last year doesn’t help the people whose buying power already took a huge cut over the past 2 years). The bad housing market and inflation are hurting the people who matter most to a company like Vans; future customers. Baby boomers who already got theirs and are retired or retiring, already have their orders in or will soon. They are the past and present. Gen X and millennials are more in number and are the future customer base, they’re also the ones whose future discretionary spending potential is being hurt the most by inanely expensive housing, cars and insurance. Many love to crow about how people paid higher interest in the ‘80s, but when you do the math, the higher on average principal and relative decrease in buying power (wages have not kept up with inflation) more than makes up for the ~7.5% vs 11% interest rate. You don’t need an official economic contraction for a specific market to be in trouble. Especially a market whose future customers are largely being priced out of aviation as a whole.
VERY well stated. 100% on the nose.
An RV-10 costs a half a house to build, then comes the cost of hangar, gas, maintenance, etc.
Unfortunately, middle class never has, nor ever will have much to do with aviation.
Another BAD omen for GA, in general. This may well be a ‘canary in the coal mine’ warning. I just got an advertisement for a new Lycoming 160hp engine for my 172 … ~$69K !!
I feel your pain, Larry. I have been browsing for a rebuilt or overhauled engine (IO-360) for my Cardinal RG and they are coming in at around $45K with up to 9 months delivery time. A friend just got a reman Continental for his Cessna TTX that took almost 11 months from order to final installation. His plane was AOG the whole time. As hard as the prices are to swallow, the delivery times are adding insult to injury. If Vans is having the same problems, I can see why they are in trouble.
And Van’s Air Force forums closed the thread and removed posts by people wondering where to turn to for help. I’m starting to believe that there is truth to the “RV Cult”, which just found out that it was all a Ponzi scheme.
Malarky. VAF’s owner posted he’s locking the old thread on laser cut parts while Vans is on pause- because nothing is happening on the subject until after. Today’s news-based thread is live.
They tried to grow to meet demand and using a vendor that did the laser plunge outside the finished holes did not work.
Then, the news that anti-corrosion coating was changed in the P.I. for QB kits messed up those deliveries
Folks bought high, in a market segment that is not continually expanding. It’ll settle out. Easy to wring hands and armchair QB after the fact.
It’s also easy to wring hands and pretend everything will “settle out”.
They reopened a single thread entitled “Business Announcement from Van’s Founder…” again. It’s not an old thread having anything to do with laser cut parts, and yes, members are reporting that at least a third of the posts and entire threads have been deleted. That’s merely tangential to the real problem.
The company is in an admitted unsustainable free cash flow situation. They were using deposits for kits that they can’t deliver to fund operations that are severely constrained by undeliverable, spoiled parts. The shocking aspect is Dick Van Grunsven was loaning the company cash from his personal wealth, which reveals that the company can’t obtain financing due to the failing business model.
The incoming CEO found an angel investor at Glasair while they were in Chapter 11, streamlined the product line down to one airplane, then sold to the Chinese. That’s the likely path for Van’s to survive- fewer models and a plan to assuage a much more cautious customer base.
It reminds me of Southwest Airlines. They benefitted from a long halo effect and fiercely loyal customer base, then a confluence of events caused the wings to fall off.
“The shocking aspect is Dick Van Grunsven was loaning the company cash from his personal wealth, which reveals that the company can’t obtain financing due to the failing business model.”
That is quite an unwarranted leap in logic. Perhaps Dick believes the problems are fixable, he has the personal resources, and autonomy is important. Thousands of closely held companies approach business the same way.
There’s been quite a lot of honest discussion on euroga.org.
The VAF forum always reminded me of a high school cafeteria. There was the cool kids’ table and no one was allowed to sit there. I don’t know about an RV cult but there is definately a VAF cult.
And yes, I built an RV-4 before the days of laser cut parts and match-hole construction.
That’s a good way to put it. Lots of naive “lets do an IPO” or “go fund me”, without having a clue as to the depth of the financial problem.
Posts are are still being deleted, to an infantile degree. The founder is a simulator instructor and contract hire pilot that sits in the right seat for insurance purposes. He has the right to do what he wants with his baby, but it doesn’t lend to the idea of transparency of the situation.
Just found out after 50 very successful years? Yea, right.
Next Van’s communiqué… They are being bought out by wealthy Chinese businessmen.
If Van’s is such a good deal, then American investors would be interested, wouldn’t they? or for that matter, investors anywhere.
The homebuilt market is still sort of quirky, with a lot of contenders, many of whom seem to be pretty small shops. Aside from the GA community who follow the current offerings and plans, it’s not exactly a booming industry. Lots of players, lots of offerings, relatively few customers.
One can only hope that whatever managerial decisions put them into this tight cash crunch will be corrected, and that the company remains in the hands of American investors. Perhaps EAA and AOPA can wield some of their expertise to the entire industry and come up with a plan to insure that American made GA aircraft continue to exist and operate with some sort of safety net.
I see where you are coming from, but by my observation of news coming through AvWeb, all American capital investment in the aviation industry is now 100% focused on electric urban-mobility companies. Van’s latest design, the RV-15, is based on an ICE burning a fuel the EPA seems intent on eliminating. Those investors looking to dump their venture capital on electric passenger drones are no longer interested in the proven status quo from the likes of Van’s.
However, the Chinese Communist Party, who have thus far successfully avoided the global pressure to eliminate carbon, lead and the like, have no problem investing in a company that would serve to greatly advance aviation in their country. Technology American investors say is “on the way out”, is still fresh and viable in the eyes of the CCP.
In reply to Mr. Rich K, I wonder if, at least AOPA, is REALLY interested in that or only providing promotion in the image of is president?
Cubcrafters is seeking investors, too.
Augh, sh*t!
Is Mexico a better alternative than China? I don’t know much about this market but I think Icon is down there.
I have a background in manufacturing as I used to own two factories near where Icon is located. In my opinion, it may be too late for Van’s to be saved by a Mexican manufacturing facility under Van’s control. This should have been done years ago. There doesn’t seem to be enough money or time left for such a move. Unless the Chinese get involved here.
I have a background in manufacturing *in Mexico…
Thanks Raf
I believe the concern with Chinese investment is that it is frequently the only/best option for struggling businesses because there is more than simple return on investment drivers behind the money. There is also a component of value being added by the Chinese government in an effort to access technology to accelerate Chinese domestic production in areas the Chinese government wants to reduce dependence on western suppliers for strategic/political reasons. Development of an independent Chinese domestic aerospace industry that is equal to or exceeds western capabilities is clearly at the top of that list of goals. The Chinese government has an all encompassing view of that goal. They see it as a pyramid which has world leading space, defense, and transport category design and manufacturing at the pinnacle. But the pinnacle of this pyramid requires a broad base of capabilities to develop labor, manufacturing, engineering, education, training etc. An independent Chinese domestic GA industry is a required component of the pyramid necessary to support the pinnacle. Therefore, they are willing to supply additional government capital to out bid western capital to bring identified needed capabilities under the domestic fold. That is ultimately the reason so many aviation are being successfully acquired by Chinese capital. Western governments don’t view smaller, entry level, businesses as critical pieces of support for the pinnacle of that pyramid, but the Chinese government does. They correctly realize that long term, they can’t simply steal/copy/purchase technology at the pinnacle via espionage, but they ultimately need to develop the entire pyramid domestically.
They understand Boeing, Lockheed Martin, and Delta Airlines wouldn’t exist if there hadn’t been Cessna, Beech, and Piper. If you are going to design, build and deploy F-22 and 737 equivalents – you need to be able to design build and fly lots of Cirrus Sr22s….
Thanks for this pov. It seems like it’s more than investing in a struggling company as a true capitalistic model would dictate. But in addition, perhaps even subsidize a loss for the greater good of the country. Which is why their model (with all its flaws) is pretty effective. Outlook on the next few decades vs the next fiscal quarter.
That was supposedly the impetus for the Glasair deal, to get access to the Sportsman as a trainer. The production of those kits now take place offshore, but I have no idea if the Jilin Hanxing Group is producing flying trainers in China to date.
short term thinking and how can we make a quick buck is a huge problem in the US
the Chinese think long term.
one solution is to get rid of short term capital gains reduced taxes. tax all capital gains at regular rates unless the asset is kept at least 5 years. that is a long enough time so that in order to get a good return and pay low taxes when it sells is to run the company well and make the necessary investments so the value is there 5 years from now.
closely held companies are usually much better run and the owners are always asking how is it is going to provide a good income years from now for their heirs to have something and thus the need for short term profits is balanced with long term gains.
markets like this are not fast developing like the businesses that come out of silicon valley. to make this work you need a long term view where decisions are made not only on how much $ is made this year but how much value there will be in 5 or 10 years.
Van has a great product and has been a leader in innovation and design. Hopefully this news is just about a tremor whereby lessons can be learned, adjustments made, and life goes on.
Not long ago I suggested to an American aircraft manufacturer that they buy, build, and sell Van’s kits as completed aircraft. Why reinvent the wheel when Van already has a flying and proven copy.
It’s not the end of Sport Aviation. Folks will still order plans and some sheets of aluminum and work in the garage until they’ve built something they are proud of. They did it with T-18s, Midget Mustangs, Pazmanys and they’ll do it with RVs too.
Management, management, management. Van is a great designer. He needs a slick and sharp company to purchase its kit factory and have sharp professionals managing marketing, sales and support to kit builders. I have purchased an RV-8 kit from them. I built it from scratch in 2 years. Yes, myself, all of it. I have been flying it now for 3 years. GREAT AIRCRAFT HANDS DOWN! Now, I cannot say his team is the most efficient, knowledgeable and supportive people. I have dealt with many great people over there. But some of them… OH BOY! At the time I asked myself “how is it that these guys are doing business this way”! Well, Now we know. I am not here to bash them. HOWEVER, I have seen and experienced some issues that are not acceptable and now it looks like it’s showing. I hope that they get to see what mistakes they are making, correct and move forward. Problem is, is that if you find yourself on a corner and did not see it coming it is very difficult to find out by yourself how to get out of it. If you knew what the problem was or where you wouldn’t get there in the first place. Money doesn’t solve money’s problems. He made a loan himself with the wife. That is not going to solve the problem if the problem or problems are not clear for them. Self diagnostics, how effective is that? They need experts or people that can ‘X-Ray” through the whole business and manage to streamline the whole thing. I hope for the best. I truly do.
China will buy them out.
China will win the undeclared war without firing a shot because they will own everything of any value in America.
May be You should say “any value in the Western and free world”.
Van’s popularity led to them into suddenly outgrowing their capability in very shaky times. They’re trying to deliver on sales that happened a year or two ago, but costs have skyrocketed since. Simple as that. They’ll figure it out.
“Costs have skyrocketed” because of what? Just as in almost every sector of the US economy, GREED is the issue when it comes to inflation. Supply chain my aft!
Oh please. Inflation is a result of M2 exploding due to government printing money.
The straw that broke the camels back is the laser cut parts. Vans Aircraft ignored the fact that laser is a VERY questionable process for 2024 aluminum. The laser issue has been ongoing for quite a while. Initially they tried to duck responsibility and things went south from there. The laser cut holes were cracking when dimpled. Vans tried to talk people into filing out the cracks which is criminal. The industry standard for laser is that the heat affected zone caused by the laser must be MECHANICALLY REMOVED from the part. Impossible to do for a hole 3/32 or 1/8″ diameter.
Vans has been an employee owned company for several years. I do not know anyone there but my sense is that a few of the people would not be hired by Mcjobs.
Employee ownership complicates the options going forward. Obviously, tough decisions ahead. Doubt if that ownership structure will survive.
In the written Q&A, Van’s detailed three primary causes of the situation: a combination of supply chain snarls and increased demand during the COVID-19 pandemic, which caused shipping costs to spike as Van’s hired and trained new staff to work on the increased volume of orders; a “multi-million-dollar setback” related to the use of inferior primer on parts sourced overseas, which led to corrosion “forming on a large number of quick build kits” that resulted in many parts being scrapped; and another issue with outsourced parts with holes that were laser-cut rather than punched, with customers reporting cracks around the laser-cut holes.
The only way to make a small fortune in aviation is to start with a big one.
Mr. VG seems like a great cat, and his aircraft designs have been proven by the marketplace to be superior.
BUT…
He’s not a “business” dude, he’s an aviation dude.
Using only the information presented in the announcement and remarks created by it, it seems multiple danger signs and poor decisions were “spectated” by the management. A supplier was contracted without apparent assurances their work would be to standard. The financial situation worsening to the point the company needs a bailout. These things happened months ago – and they’re only standing down to evaluate now?!?!
Had response been appropriate and timely, this whole situation would likely have never come to pass. Management should have been aware how dangerously close to the edge they were operating – at least a couple of quarters ago. That’s the job of actual management. Margins are why business happens. How can you not be aware that your margins are deteriorating? Where was management during all this? It didn’t happen overnight. Mr. VG said himself it was at least two months. This sort of assessment should have happened before any private loans – and honestly before any commercial money had been thought of.
Now sadly a bunch of folks will lose their jobs – and it won’t be the management team that watched this happen. And to be real about it, the company will be lucky if cost reduction strategies are all that happen. More likely is a complete retooling into an entity none of us will recognize.
Best of luck to y’all builders. But my experience gives me a bad feeling about the long term prospects for the company.
The end of an era. But everything is temporary.
Clearly the use of outsourced overseas venders using inferior and non-airworthy elements and methodology created this ” run on Van’s.” $$$ –>
“Van’s Aircraft has suffered a multi-million-dollar setback” related to the use of inferior primer on parts sourced overseas, which led to corrosion “forming on a large number of quick build kits” that resulted in many parts being scrapped; and another issue with outsourced parts with holes that were laser-cut rather than punched, with customers reporting cracks around the laser-cut holes. Company tests determined the parts were usable, but many customers requested replacement of affected parts, nonetheless. This has resulted in an unmanageable number of requests to replace laser-cut parts and cancel orders,” the company stated. “More than 1,800 customers are currently affected by this issue, some of whom have received more than one kit.”
“This has resulted in an unmanageable number of requests to replace laser-cut parts and cancel orders,” the company stated. “More than 1,800 customers are currently affected by this issue, some of whom have received more than one kit.”
Outsourcing: saving money at all costs.
Aviation firms from McDonnell Douglas (MD-80 ‘Trunkliner’), Boeing paying foreign companies (and yokels in South Carolina) to learn to build airplane parts to further bust their unions , and ending up with the infamous 787 ‘glitches’, Cessna with Mexican wings for the Columbia, Dornier imploding after offshoring 328 work, and now Van’s. Even on the defense side we’ve ‘outsourced’ to where IIRC if you want to buy an F-15 the wings are going to be made in South Korea, and the USN can’t sail without Chinese made computers.
The boardroom types will not rest until every manufacturing job is driven offshore, IMHO.
If he comes back and he is looking for investment. I will be happy to consider investing in a “convertible note” which is one of the best ways for a small investor to protect himself from the big money doing a cramdown.
why would I invest? Van’s is basically a good product in a good market where Vans is a leader so it should have good prospects to be successful