Law360 (September 24, 2020, 5:21 PM EDT) -- A California company that makes metal parts for the aerospace industry hit Chapter 11 Thursday in Delaware, blaming the COVID-19 pandemic's impact on travel and the grounding of hundreds of planes made by Boeing for its financial problems.
Impresa Holdings Acquisition Corp. said in its initial filings that when international aviation regulators grounded Boeing's 737 Max fleet and the airplane maker subsequently cut back production on the plane, its largest source of revenue was eliminated. Coupled with further damage done to the aviation industry by COVID-19 travel restrictions, the debtor lost millions in revenue.
"As a result of the pandemic, the debtors' customers began to schedule out deliveries of parts on orders for which the debtors have already made cash investments to procure materials and labor," Impresa CEO Steven F. Loye said in a first-day declaration. "With the entire industry facing challenges from COVID-19, it became increasingly difficult for the debtors to conduct normal business operations."
The company operates under supply contracts with aviation companies, with Boeing being its largest customer. A year ago, Boeing was making more than 50 737 Max airplanes per month, but after deadly crashes in October 2018 and March 2019 killed more than 300 passengers and crew members, the fleet was grounded and Boeing eventually cut back its production plan significantly, Loye said in the declaration.
Production on the plane stopped completely in January 2020 and challenged Impresa's cash flow, as it had already made significant investment in its production lines for the 737 Max parts, according to the declaration. Production of the plane has resumed at a smaller scale, but it's now subject to an intensive certification process by the Federal Aviation Administration before it can be returned to flight status, Loye said.
These global events have left the debtor holding the bag for $10 million worth of materials it no longer needs or has the ability to pay for, he said.
In response to these financial challenges, Impresa slashed about 30% of its workforce and obtained $2.1 million in Paycheck Protection Program loans from the Small Business Administration. These and other efforts stabilized the company's cash flow, Loye said, but Impresa was still left with legacy debt obligations to 737 Max suppliers it had no way to pay.
Impresa was left with no other option but to pursue a Chapter 11 filing and a going-concern sale of its assets and operations, with equity owner Twin Haven Special Opportunities Fund IV LP serving as a stalking horse bidder with a $10 million offer, Loye said. The debtor anticipates closing on a sale by mid-December if court approvals for bidding procedures are obtained.
The company comes to court with about $23 million of secured debt owed to Twin Haven arising from a pair of note issues. In 2019, Loye said the company had $43 million in revenue.
A first-day hearing on initial motions for relief, including a request to use Twin Haven's cash collateral to fund its operations, has been set for Friday morning before U.S. Bankruptcy Judge Brendan L. Shannon.
Impresa began operating in 1973 as Venture Aircraft and expanded through a 2012 acquisition of Swift-Cor Aerospace. It then changed its name Impresa Aerospace, according to Loye.
Operating from a production facility in Gardena, California, Impresa provides machined parts, fabricated components, assembled parts and tooling for the aerospace and defense industries. In addition to Boeing, the debtor's customers include Spirit AeroSystems, Raytheon, Northrop Grumman, Cessna, Lockheed Martin and Gulfstream. It has provided parts and components for Boeing's major airframes, including the 787, 777 and 747 as well as the Airbus A380 and Gulfstream's G550 and G650 planes.
Impresa is represented by Robert J. Dehney, Matthew B. Harvey, Paige N. Topper and Taylor M. Haga of Morris Nichols Arsht & Tunnell LLP.
The case is In re: Impresa Holdings Acquisition Corp. et al., case number 20-12399, in the U.S. Bankruptcy Court for the District of Delaware.
--Editing by Adam LoBelia.
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