Background
Tods Aerospace Limited, a component manufacturer in the aerospace sector, had long-term contracts that, although once profitable, had become loss making in the face of rising prices and reducing margins. It was also experiencing losses arising from problematic new projects. The parent group had funded these losses while the company sought to negotiate with customers and reduce costs. But with little sign of progress, FRP was engaged to conduct contingency planning for an insolvency of the company. As negotiations drew to an unsuccessful close, the parent group could no longer justify further funding without the prospect of a return to profitable trading.
Action
Our Restructuring Advisory team began intense negotiations with the company’s key customers to secure funding for the costs of the administration, including an initial three-month period of trading. Tods Aerospace Limited was placed into administration, and marketed for sale as a going concern. Initial interest in the sale was strong; however, the onset of the COVID-19 pandemic was devastating for the aerospace sector, and demand for the company’s product – driven largely by engine flying hours – was hit particularly hard, as fleets were grounded worldwide.
The team worked closely with the business and advisers to overcome the operational challenges of safely running a manufacturing operation during lockdown, and implementing home working and social distancing measures. While negotiations with interested parties continued, the uncertainty over the future of the aerospace industry ultimately precluded the sale of the business as a whole, and the company’s customers opted not to commit further funds.
Outcome
While a sale of the business as a whole was not achievable due to the extenuating circumstances caused by COVID-19 and its impact on the commercial aerospace sector, the administrators were able to sell the defence division of the business to Cobham Mission Systems securing the future of half of the workforce with the buyer occupying both of the company’s locations. This sale generated significantly higher realisations than the alternative break-up value of the assets, while avoiding landlord liabilities. Debtor realisations were also protected, resulting in the full repayment of the company’s invoice discounting facility with a considerable surplus on the ledger.
The sale generated significantly higher realisations than the alternative break up value of the assets, while avoiding landlord liabilities.Andrew Sheridan Restructuring Advisory