Hawker Beechcraft received approval Friday from the U.S. Bankruptcy Court for the Southern District of New York to continue to pay employees as well as vendors and suppliers for goods and services it receives after the date it filed for bankruptcy protection.
The approvals were requested in first-day motions and will allow the company to operate its business during the reorganization process, it said.
On Thursday, the company filed for Chapter 11 reorganization, a move to lighten the burdens of $2.5 billion in debt and about $125 million a year in cash interest expenses. Officials have stressed that employment will not be directly affected by the bankruptcy, and that they will continue to fill orders and serve customers. The company employs about 6,000 worldwide, including 4,700 in Wichita.
The company said in court documents it will use $400 million in debtor-in-possession financing negotiated as part of a prearranged restructuring to meet the obligations.
In a filing with the court, Hawker Beechcraft said it owes more than $225 million to about 1,600 vendors for goods and services. The company is asking the court to pay up to $81 million, or about 35 percent of what’s owed, to its “most essential” vendors and suppliers. That’s the amount the company estimates it may be required to pay to make sure it receives a continued supply of essential goods and services, it said.
“But the debtors (Hawker Beechcraft) and their advisors will undertake substantial efforts to attempt to limit the actual payments to an amount that is substantially less,” it said.
The company declined comment late Friday afternoon.
Hawker Beechcraft is concerned that many of its vendors will threaten to withhold shipments or modify the terms of their existing contracts unless they receive payment for past goods and services, the filing said. Many vendors may try to put the company on a cash-in-advance basis, it said, “which the debtors estimate could drain their estates of approximately $150 million that would otherwise be available for other funding needs during the critical first weeks of the debtors’ bankruptcy.”
So far, about 330 suppliers have attempted to change the terms under which they provide goods and services, and Hawker Beechcraft fears more will try to do the same. Therefore, the company is asking to prevent that “compression of terms” and is asking for flexibility.
First, it is asking the court for approval to pay four groups of “essential” vendors.
The first group is suppliers who have shipped materials within 20 days of the date it filed for bankruptcy.
Next are shippers and warehousemen needed to obtain delivery and release of goods, raw materials, parts, components, materials, equipment and other items, and to third parties who could put liens on property, such as money for customs duties and related fees.
The third group is foreign creditors not subject to U.S. bankruptcy law but who might refuse to provide necessary goods and services.
Lastly, it’s asking approval to pay other “critical vendors” not falling into one of the other categories.
Hawker Beechcraft is asking the court to take action against vendors that threaten to withhold parts or services under their contracts unless they receive payment for goods and services provided before the company filed for bankruptcy. In that case, it’s asking the court to require those vendors to appear and show why they shouldn’t be held in violation of bankruptcy codes and required to return previous payments.
That shifts the burden of proof, said Ed Nazar, a bankruptcy attorney with Redmond & Nazar, by assuming guilt.
“It takes for granted that there’s a violation,” he said.