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Aviation Safety Resources

Background

Aviation Safety Resources (“ASR”)/Pioneer/Strong collectively manufactured and sold parachutes and related products for military and commercial applications. Despite a long history of supplying products to the U.S. Department of Defense, NASA, and private aerospace companies such as Boeing, SpaceX, and Lockheed Martin, the companies ultimately succumbed to a series of financial and operational challenges in 2023.


SOURCES OF DISTRESS

  • ASR, the holding company of Pioneer and Strong, filed for bankruptcy as a direct consequence of its disastrous acquisition of Pioneer from Zodiac, a French aerospace and defense conglomerate. In March 2022, ASR acquired Pioneer from Zodiac under a Stock Purchase Agreement that financed $2.2 million in acquisition-related debt.

  • Pioneer's distress was rooted in a disadvantageous cost structure – largely related to a Mississippi facility that lost money on a gross margin basis – and mounting financial obligations in the form of a $1.8 million underfunded pension claimed by the National Retirement Fund and over $1 million in acquisition debt owed to Zodiac.

  • Strong filed for bankruptcy because a sale under the Bankruptcy Code was necessary to avoid contagion from Pioneer into Strong’s operations.

  • Across all levels, the company suffered from key operational deficiencies:

    • At the time of Asgaard's retention, the company had no CEO, COO, treasurer, controller, or accounts payable manager, and only a part-time CFO

    • The company had only one plant manager, despite operating four distinct manufacturing facilities across three states

    • Not only was financial information limited in quantity, but any existing records were produced without adherence to GAAP or CAS accounting standards

  • For these reasons, this case presented much more complexity than a typical Subchapter V – but Asgaard nevertheless moved forward to prevent the inevitable liquidation of a business closely tied to our nation’s safety and defense.



Retention & Interventions

Upon engagement in April 2023, Asgaard’s initial focus was to stabilize operations and finances. The interventions made by Asgaard brought the company from imminent liquidation to a break-even position on operations by August 2023 – a mere four months after the engagement began.


CONTRIBUTIONS

  • Asgaard professionals used the scant documents they could find, in conjunction with employee interviews across the companies’ four locations, to create a 360-degree picture of the companies’ operations and their respective cash inflows and outflows per week. This mainly took the form of a running 13-week cash flow model.

  • Asgaard recommended and facilitated the closure of Pioneer’s Mississippi facility and the subsequent consolidation of manufacturing operations into three remaining facilities in Connecticut and Florida to capitalize on manufacturing efficiencies. This reduced the debtors’ cash burn rate by at least $300,000 per month.

  • Asgaard also identified major cost savings through the following recommended changes:

    • Shuttering ASR’s Kentucky headquarters

    • Selective executive layoffs in Connecticut

    • Rationalizing certain expenses

    • Repairing the company’s contract-bidding process to ensure future work was bid at profitable levels

  • Finally, Asgaard’s role as financial advisor further increased going-concern value through the identification of approximately $1.4 million in government-issued federal Employee Retention Tax Credit (ERTC) refunds available to the company.



Results

With improved operating performance and the pending federal refund, the companies filed for Chapter 11 bankruptcy on November 1, 2023, to execute going-concern sales of substantially all operating assets of Pioneer and Strong. However, the companies’ precarious liquidity position prevented hiring additional professionals to assist in the bankruptcy process. This resulted in Asgaard performing services of both a financial advisor and investment banker.


KEY ACHIEVEMENTS

  • Asgaard assisted the debtors in obtaining a $600,000 DIP credit facility, which enabled the companies to continue their ordinary course operations, avoid liquidation, and preserve value for an eventual asset sale.

  • Asgaard sourced the distressed companies’ network of suppliers and customers, comparable industry peers, and financial sponsors to compile a list of prospective buyers.

  • This sale process ultimately resulted in Asgaard transitioning Pioneer and Strong to two customers, SpaceX and Paradigm. The sale closed on December 8th, 2023, only 5 weeks after the petition date.

  • Total proceeds from this sale – assuming full collection of the ERTC refunds – were close to $7 million. This valuation resulted in the following recoveries:

    • 100% recovery to all secured, administrative, and priority claims at the Pioneer and Strong levels

    • 71% recovery to Pioneer unsecured and trade claims on a blended-rate basis

    • 68% recovery to Strong unsecured and trade claims on a blended-rate basis



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