AeroCentury Corp. and JetFleet

THE THREE DEBTORS LEASE AND SELL AIRCRAFTS

The three Debtors in this case are:

• AeroCentury Corp.
• JetFleet Holding Corp.
• JetFleet Management Corp.

AeroCentury, the main debtor, has been listed on the New York Stock Exchange since January 1998. It acquired the JetFleet entities through a merger in October 2018. The combined company purchases, leases, and sells aircraft assets, which are primarily used regional aircraft with acquisition prices of between $10 million and $20 million.

As of the date the companies filed for bankruptcy, they owned 13 aircraft. Six are functioning on operating leases, five are aircraft that the Debtors are trying to sell, either in whole or for parts, and two are operating on financing leases. The Debtors are actively working with at least six different airlines in five different countries.

DEBTORS DEFAULTED AS EARLY AS SEPTEMBER 2019

The Debtors entered bankruptcy with over $83 million in secured debt. AeroCentury has not provided any information about any other types of debt, so we do not know what the company owes in taxes, to vendors, or to its ownership group. What the company has disclosed is that it has been battling secured creditors through various defaults since at least September 2019.

Beginning all the way back in December 2019, the Debtors hired B. Riley Financial, Inc. to market and sell some or all of the Debtors’ assets. They say that the sale process was going well in the first quarter of 2020. In fact, AeroCentury states that it had received at least two bids for its assets that would have paid its secured debt in full. However, as with so many others, COVID-19 disrupted AeroCentury’s plans.

As the airline industry saw drastic decreases in demand, the potential buyers for AeroCentury’s assets backed out. As a result, AeroCentury was forced to continue facing a preexisting liquidity crisis that was only exacerbated by market conditions caused by the coronavirus pandemic. AeroCentury reports that its third quarter earnings for 2020 were down 85% as compared to the same quarter in 2019.

A QUICK SALE OF AEROCENTURY IS CONTEMPLATED

AeroCentury intends to use its bankruptcy case to market and sell some or all of its assets to reorganize its business around any remaining assets. The company has already filed a motion asking the Court for permission to start this sale process. It has indicated that it hopes to conclude a sale within about two months of filing for bankruptcy.

Why could a sale work now when they’ve been unsuccessfully trying to sell since December 2019? Well, there are a few things going AeroCentury’s way now that weren’t true before:

1. The bankruptcy laws provide potential buyers with a lot more protection and comfort than an out-of-court sale can provide.
2. Secured creditor MUFG Union Bank, N.A. has agreed to act as a “stalking horse” or back-up bidder, which will encourage potential buyers.
3. Airline industry executives, including the CEO of United Airlines, have recently revealed that domestic leisure demand has almost entirely recovered, making AeroCentury’s assets much more marketable.

In order for any return to go to unsecured creditors, the bidding process will have to go well, so this is encouraging for the company and its creditors.