I think you lock in the price when you make a deposit.
So covid comes and a TON of people lock in prices.. and inflation hits and it takes time to service the deposits, by the time they are serviced its underwater...

The gist of the story is when an order was placed (and the price locked in), it looked reasonably profitable, but by the time the kit was built and shipped, most of the profit had been eaten up by inflation in the couple of years between kit order and kit production/shipment. On paper ($7,500 cost/$10K price) they made $2500. In reality ($9500 cost/ $10K price) they made almost nothing.

I saw a very similar issue with my business quickly post covid.
We manufacture a product from raw material and have a long-ish lead time .(10-16 weeks at the time). We require full payment up front.
We had a rush of orders during the lockdown that at the time of order were very profitable. By the time we ordered raw materials they had shot up 30-50% and our profitability went out the window for a large chunk of orders.

Luckily our lead time isn't years long and we caught the problem relatively quickly, but we ran several months in the red because of it and I've seen the same thing several more times since then (We monitor it much more closely now, but it certainly caught us off guard the first time). We had a very similar problem a little later with freight, basically overnight freight rates went through the roof when we had already charged a flat rate for freight built into our pricing. OSB pricing for building crates went from $7/sheet to $56/a sheet in the span of a month.

We were able to adapt and make changes to make it all workout but I (like Vans) did not raise prices for my customers as we agreed on a price at that time. Plenty of my competitors did raise prices after an agreement, but on principle if we agreed to a price I'm going to honor it, it may not be "business 101" but it's the honorable thing to do if you're able.

I imagine vans went through the same basic process, but their profit margin is lower, lead times are longer, and they made 2 critical mistakes with their outsourcing which is what pushed them over the edge.

I suppose my point here is that you can look from the outside and say "how could these idiots let this happen, it's business 101" all you like, but when you're in the middle of it and trying to do right by both your company and your customers it's not quite so black and white. In the end they made some poor decisions and are now paying the piper (or the customers are unfortunately)

It’s a really good point and you’ve done a good job of making it and in the interest of fairness, needs to be said. After all, Vans has been the poster child for success in aviation for decades.

However, the financial decision making is only a part of the challenge they face, I would argue the laser cut part problem is the biggest. It’s all such a bummer.

It’s a really good point and you’ve done a good job of making it and in the interest of fairness, needs to be said. After all, Vans has been the poster child for success in aviation for decades.

However, the financial decision making is only a part of the challenge they face, I would argue the laser cut part problem is the biggest. It’s all such a bummer.

The issue I have isn't with honoring existing price guarantees as best you can. The problem was continuing to give price guarantees for years after they should have realized they couldn't predict their costs.

Things are also very different if you ask the customer to pay in full upfront. In that case you really have to honor the price you charged. Dropping the price lock would mean not taking money upfront which could be a major cash flow problem for the business.

In Van's case they were taking deposits. They could have changed the policy and made deposits refundable if the price increases by more than x% and you choose not to buy. Or any number of other solutions that wouldn't leave you selling product at a loss because you locked in prices over a year ago in an uncertain market.

The other issues were continuing to take orders and trying to rapidly increase production capacity when they were already overwhelmed, and not admitting to the laser cut issues until 1800 kits were shipped. Both are variants of denial.

There is so much emotion wrapped up in this, I don’t know how they overcome that problem in itself.

As pointed out in the vansairforce forums, there really isn’t a good replacement for the Vans lineup, so many folks will stretch to make it work if at all possible. The real test will be whether the 70% of existing orders retention assumption in the reorganization plan projection comes to fruition.

When I woud describe Vans to someone a main point was always "they have more than 10,000 completed airplanes". That increasing number is a part of the companies identity. Had they increased by 10 -20%, which would still have been challenging, they would not be in this situation.

The most difficult word to say to a customer, especially one waving money at you, is "no".
No. I cannot increase production beyond....
No. I will not put a plant in a foreign land, or use an overseas supplier.
No. There is not a premium for getting it done on your (unrealistic) timeline.

In my experience saying "no" to anything that risks compromising standards has always been the right thing to do. Following this story reinforces that belief.

Is it safe to order a Vans sweatshirt?

No

It's not clear that's the case, since they published a spreadsheet with green, yellow, and red flags for certain parts in certain locations in certain models. So it would seem that the red ones are not fine.

Reading between the lines, it appears that the laser cut parts met the dimensional specifications, but were never built into a structure, which is when the cracks appear at the rivet holes. So parts good, assembly not to spec.

I think it was more due to the laser cutting notches in the hole outside wall. The laser hardened hole edge could have been mostly eliminated by drilling out to the correct hole size before riveting but the notches were still there. This should have been noticed by someone at Vans because they are visible.

It looks like the part dimensions were right but the laser cutting vendor sped up the process by having the laser cut into the material starting at the hole edge not the center of each hole and working around and out from there. This start point caused a notch on the edge of each hole and the cracks.

The first shipment of parts should have shown the problem. But for some reason it continued. Not sure why they didn't notice it unless all the parts were back ordered for a long time and all shipped in one container load? By then were they were already incorporated into quick build kits in the Philippines?

My Hangar neighbor owns the factory in the Philippines that makes all the quick build kits. He’s a wonderful guy. we chatted today and they are in full force making replacement parts to mitigate this mess. He is sending a team of Filipinos over to Oregon to fix a bunch of the quick built kits that are already done. all the control services and fuel tanks are getting scrapped and they are going to replace the rear wing spars and other critical items. Shockingly, it is extremely difficult to get the workers visas. I will withhold my political comments on that.

He said they are paying their bills. I think it’s all going to work out fine.

Your neighbor owns the factory that created all the defective LCP? What exactly are these “Filipinos” supposed to do in Oregon? Builders reported that LCP holes, even ones that had been filed to correct the notch from the abysmal work done at the Philippine factory, still cracked when riveted. As I understand it, everything is to be replaced with punched parts.

You mention scrapping all the control surfaces and fuel tanks. I take that to mean everything in inventory. What about the ones already installed on builders planes or assemblies? And something about “replacing rear wing spars and other critical items”. Do you mean on completed planes or assemblies or do you just mean scrapping parts in inventory?

I wonder how builders that already installed the defective products from the Philippine plant will be compensated for their wasted work. On Vans AirForce, builders are posting comments about filing damage claims against Van’s. I think they said there is a Jan 15 deadline with the the Court. In bankruptcy they just become another creditor I believe. But since the Philippine factory is not in bankruptcy (as far as I know) perhaps they will also file against the Philippine factory legal entity especially if it is owned here as you point out.