Chapter 11 is wrenching experience for troubled company

The economy was surging, airplanes were jammed, and Fields Aircraft Spares Inc. was flying high. A perfect time, it seemed, for the distributor of aircraft parts to expand.

But it wasn't. And just months after the Simi Valley-based company acquired two of its suppliers, business plummeted so badly that Fields wound up filing for Chapter 11 bankruptcy protection.

"Man, let me tell you, I lost a lot of my hair worrying about this," recalls Allan Fields, the company's chairman and chief executive. "It was the worst experience of my life."

Next month will mark the two-year anniversary of the Chapter 11 filing and despite the airline industry's troubles stemming from the Sept. 11 terrorist attacks, it appears as if Fields will pull through. The restructuring allows the company to be profitable on lower margins.

Even so, what happened to Fields Aircraft is a case study in how a company can quickly find itself in a cash shortfall that endangers its very existence. In the current economic climate, it's a lesson worth remembering. "You can't take for granted that a problem will be short-term," concedes Fields.

The story wasn't supposed to turn out this way.

A former Internal Revenue Service agent, Fields ran a private tax practice before buying a small aircraft parts supply firm in 1987. The next year he bought a larger supply company. Annual sales, which had been in the $2 million range in the 1980s, ramped up to $24 million by 1998, the company's best year.

As the airline industry grew, Fields Aircraft became a recognized supplier of passenger jet parts to airlines operating out of Los Angeles International Airport and Burbank Airport. It's a 24/7 operation because parts have to be shuttled back and forth within a short time frame. "All the major airlines were our customers United, TWA, American, you name it," explains Fields.

From its 80,000-square-foot Simi Valley warehouse, Fields Aircraft would supply thousands of parts that airlines needed. Or they would be obtained through a network of suppliers, "from a little part that could fit in your hand, to wing flaps or rudders that are 28 feet long," says Fields.

Why not keep growing? In 1998, Fields leveraged his company, whose shares had been trading on the Nasdaq, and acquired two aircraft parts manufacturers.

One was Flightways Manufacturing Inc., which made plastic parts for the interiors of aircraft, such as trays and overhead storage bin doors. The other was Monrovia-based Skylock Industries Inc., a maker of a variety of latches, locks and other hardware for aircraft cabins and doors.

As it turned out, Fields' timing was seriously flawed. The reason: airlines were so busy that they didn't want to take any of their jets out of service to have them refurbished. As a result, demand for parts plummeted.

Business for the plastic parts manufacturer fell from $1 million a month to $100,000. "Yet every month the airlines would say, 'Just wait, we will do it.' That made us hold on a lot longer than we should have," says Fields.

Red flags were evident when the company reported an operating loss of $50,000 for the first quarter ended April 2, 1999, compared with operating income of $586,000 for the like period a year earlier. At the time Fields acknowledged the delays in refurbishing planes, but said there would be relief by the third and fourth quarters.

By then, however, the damage was done. Fields Aircraft was $20 million in debt, accruing at an annual interest rate of 9 percent. In addition to principal and interest payments on the debt, Fields had acquired a larger warehouse.

By October, the company's credit line was over-advanced as a result of slow sales and a slowdown in the payment of receivables. Without that credit line, Fields was unable to receive merchandise, which resulted in more lost sales.

Looking for a way to save his company, Fields that month hired business turnaround expert Bruce Ballenger of Ballenger Strike & Associates in West Los Angeles.

"The level of distress at that company was very serious," Ballenger remembers. "You had a lender who was frightened and not willing to continue lending into the situation. There was no sense of how severe the drop in revenue was going to be. There was a facility that was bigger than needed, and a landlord that was unhappy because rent payments were late, real late."

In November of that year, Fields Aircraft filed for Chapter 11 bankruptcy protection, and Ballenger began throwing out options, none of which was palatable to Fields. Fields Aircraft, formerly listed on the Nasdaq, became a pink-sheet stock.

In U.S. Bankruptcy Court, the company won time to maneuver creditors cannot seize assets, but rather must make appeals to the Bankruptcy Court judge, who approves a reorganization plan. The idea of Chapter 11 is to get a company back up on its feet and running. Still, the experience is a bitter one for most executives used to calling the shots.

Closing down or selling operations meaning large-scale staff dismissals were the only available exit routes. But Fields balked. Ballenger had to make a case as to why some bloodletting was inevitable.

"Several times the banks wanted to foreclose and liquidate," says Ballenger. "They were getting nervous and pushy. We had to do something."

"What Bruce did was get my frame of mind into the right position," says Fields. "He helped me to see that if I didn't make changes, I would lose everything and wouldn't help anybody."

The company's workforce of 250 was slashed. The biggest move was to shut down the Flightways Manufacturing operation and terminate all 130 employees, according to Neil O'Hara, a senior vice president at Fields Aircraft.

The assets of Flightways were sold to Flightline Products, a Santa Clarita-based company also in the airline service trade. Until Sept. 11, the plastics manufacturing operation "was doing well. The airlines were going back to refurbishing their interiors," noted Fields.

New investors, associated with a New Jersey company named Octagon Process, bought Skylock as a separate operating company. Octagon also took a majority equity position in Fields Aircraft.

Today, Fields employs a workforce of only 15, O'Hara says. As for Fields himself, he remains chief executive. The company is more or less back to its original pre-acquisition form. It is not nirvana, but better than total defeat.

"They say that more than two-thirds of companies that file for Chapter 11 never come out. We will come out probably in November, our two-year anniversary," Fields says.

Revenues, once down to $200,000 a month, have climbed back to $700,000. "We have been able to get back to positive EBITDA (earnings before interest, taxes, depreciation and amortization). We still have a reputation for excellent service to the major airlines of the world," he adds.

The Sept. 11 terrorist attacks' impact on the airlines industry did cut sales dramatically for a couple weeks. "For one week there, I don't think we had almost any orders," says Fields.

But business has been steadily increasing, and the month of October should come in at more than 60 percent of normal, despite a weak first week. "We are restructured to run very lean," says Fields. "Besides, the airlines are not going to stop flying forever."

Lessons? "Well, hindsight is always 20-20. Now I would probably cut my losses sooner. You can't take it for granted that a problem will be short-term," says Fields. "But I would sure never like to go through a bankruptcy again."

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