One Aviation’s protracted journey through Chapter 11 bankruptcy might soon come to an end, although not in the way originally intended. The one-time manufacturer of the Eclipse 500/550 very light jet appears headed for new ownership following court approval of its request to part ways with Citiking International US in favor of a Section 363 sale of the company's assets to a new buyer.
U.S. Bankruptcy Court Judge Christopher Sontchi ruled September 3 to allow One Aviation to proceed with an expedited sale of its assets to SEF OA LLC, a newly-formed Delaware entity backed by real estate venture SE Falcon.
The company filed an emergency motion August 28 to move ahead with a Section 363 sale of its assets to SEF OA LLC. The move effectively shut out Citiking, which had served as debtor-in-possession (DIP) of One Aviation since its October 2018 bankruptcy filing and has supported the company’s service operations throughout the process.
However, “Citiking has not provided any of the required exit financing and has told me and senior management of the debtors that it is now unable to do so,” stated a declaration by One Aviation board member James Patrick Carroll that was filed in conjunction with the emergency motion.
In his ruling, Sontchi determined doubts of Citiking’s financial efficacy were valid. He also berated the Chinese-backed entity for its failure to take One Aviation out of bankruptcy and refuted counterarguments blaming the latest delays on the coronavirus pandemic. "I think this frankly is an example of Covid being used as an excuse where it lacks merit," he said. "The reality is that Citiking has insufficient cash to close [this transaction.] There is no path forward with Citiking."
Sontchi acknowledged the "very unusual circumstances" in granting the sale request, which came over objections from Linda Casey with the Office of the U.S. Trustee, who termed the sale plan “not fully baked.” However, the judge noted the alternative was to force One Aviation into liquidation after laboring nearly two years to emerge from reorganization under Citiking. A hearing to approve the final sale plan is scheduled for September 29.
Expedited Bankruptcy Hurdles
Officials with One Aviation and Citiking had initially promised a short trip through Chapter 11 via a prepackaged bankruptcy plan to be completed by the end of 2018. That timeline soon encountered stiff headwinds, including moves by the unsecured creditors committee (UCC) and later the trustee to drop Citiking’s plan and force the company into liquidation.
Citiking successfully staved off those efforts, in part by leveraging its own Section 363 sale proposal in June 2019 to convince reticent parties they stood to gain more by allowing its plan to move forward. That plan earned court approval last September and was scheduled to become effective no later than December 1; that date also passed without any further progress, as Citiking awaited approval of the sale from the Committee on Foreign Investment in the United States (CFIUS).
The company cleared that hurdle in March. However, as the onslaught of Covid-19 stifled international commerce, it then became known that Citiking faced difficulties negotiating a new asset-based loan with debtholders to fund One Aviation’s transition out of Chapter 11.
Barring further developments, SE Falcon will now handle that transition and take control of the Albuquerque, New Mexico-based company, although to what end remains unknown. Requests by AIN for comment from One Aviation CEO Alan Klapmeier and Joseph Torres, listed in court documents as the managing member at SEF OA LLC, were not returned.
Current Eclipse owners also face uncertainty about what these developments might mean for the continued support for their aircraft. That’s not a new feeling for those who’ve weathered the turbulence from the 2009 liquidation of the original Eclipse Aviation, the subsequent formation of Eclipse Aerospace and that company’s 2015 merger with Kestrel Aircraft to form One Aviation.
"As someone who has been a depositor and then owner since 2000, I have been both hopeful and skeptical for 20 years," Ron Lebel, board member and forum moderator of the Eclipse Jet Owner and Pilots Association, told AIN. "That hasn't changed with the SEF offer [and] having a non-aviation sponsor for the 363 purchase keeps me skeptical."
Lebel emphasized owners' primary concerns lie with continued parts and service support for the more than 250 Eclipse jets flying around the world. "While robust supplies and service providers have emerged outside of the company," Lebel stated, "there are still things that are only available from the holder of the TC, [including] engineering expertise and intellectual property."
However, he also expressed optimism that SE Falcon will enable One Aviation to thrive in a manner Citiking could not. "Based on the DIP budget that has been published SEF understands what is needed in the short term, so I’m hopeful they have the resources and commitment to support the fleet while they work toward their future goals," Lebel concluded. "Eclipse owners love our planes—that’s why we still own them despite the troubled corporate history."