Magellan Aerospace, Middletown - Chapter 11 Case Summary

Business Description

Headquartered in Middletown, Ohio, Magellan Aerospace, Middletown, Inc. (the "Debtor") is an Ohio corporation that operates an aerospace manufacturing facility in Middletown, where it manufactures jet engine nacelles, exhaust components, and heat-resistant space products.

• The Debtor is wholly owned by Magellan Aerospace USA, Inc. ("Magellan USA") and sits within a broader family of aerospace manufacturers.
• The Debtor employs 109 people.

The Debtor's financial performance has deteriorated in recent periods:

• In 2025, the Debtor generated approximately $26.3 million of annual gross revenue but recorded a net loss of $8.5 million.
• In 2026, through June 30, 2026, the Debtor generated approximately $16.8 million in revenue but recorded a net loss of $2.8 million.

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Corporate History

The Declaration notes that much of the Debtor's early history was compiled from available documentation and third-party historical research, that the Debtor undertook diligence to attempt to confirm it, and that statements concerning this history should not be deemed admissions by the Debtor.

The Debtor traces its origins to the aviation craze that followed Charles Lindbergh's 1927 solo trans-Atlantic flight, as Americans sought to become pilots and businessmen nationwide looked to ride the growing wave of aviation enthusiasm. On or about November 7, 1928, Robert A. Taft—future Ohio Senator and son of former U.S. President William Howard Taft—founded the Aeronautical Corporation of America, the entity that would eventually become the Debtor, together with a group of prominent Ohio businessmen.

• Despite its name, the corporation had no aeronautical product to sell until it was introduced in 1929 to Jean-Alfred Roché, then the chief civilian engineer at McCook Field—the first U.S. military aviation research center—who would go on to become the Head Aeronautical Engineer of the U.S. Army.
• Roché had designed and attempted to market a single-seat personal airplane but, before the aviation boom, had been unable to find the investor capital to produce it. The Debtor bought Roché's design in exchange for stock and a board seat, adapted it for mass production, and released it as the C-2 Scout in 1929—just as the stock market collapsed.

Early Aircraft Production

Despite the Great Depression's impact on airplane manufacturers, the C-2—affectionately nicknamed the "flying bathtub" for being lightweight, simple to fly, and affordable—was a success and arguably America's first successful "personal" airplane, helping to popularize general aviation and inspiring the growth of flying schools and clubs.

• In 1931, the Debtor introduced the C-3 "Collegian," a two-seat version of the C-2 that allowed personal-plane owners to carry passengers and gave financially strapped flight schools the option to buy inexpensive trainers.
• By the mid-1930s, the Debtor led the U.S. in light aircraft production. The Scout evolved into the Chief and Super Chief in 1937, and the new Model 40 Chief commenced in 1938.
• A major flood in 1937 destroyed the Debtor's original Lunken Airport factory and early blueprints, prompting a move to Hook Field Municipal Airport in Middletown, Ohio. The Debtor changed its name to Aeronca Aircraft Corporation in 1941.

Wartime and Postwar Operations

• In the lead-up to and during World War II, over 1,000 Aeronca aircraft were placed into training service under U.S. military programs to train young Americans as pilots. One model, the L-3 Grasshopper, saw extensive use in both the Pacific and European war zones, serving as an aerial commanders' observation platform, close-in reconnaissance aircraft, artillery spotter, emergency medical evacuation ambulance, and small cargo and personnel transport, among other tasks.
• Post-war, the Debtor returned to civilian aircraft production with popular models including the Champion, Chief, Super Chief, Defender, and Arrow. However, despite high production rates and demand, a postwar recession and market pressures led the Debtor to exit the light aircraft business in 1951. The Champion design—one of the most popular personal airplane designs in American history—was sold to Champion Aircraft Company, later passing through Bellanca and American Champion, which continues to manufacture consumer airplanes.

Transition to Aerospace Structures

Following its exit from aircraft manufacturing, the Debtor shifted focus to high-strength engine and airframe structures for commercial, military, and space applications, building on a specialty it had already developed in brazing and bonding heat-resistant aircraft components.

• The Debtor's high-temperature, brazed honeycomb structures shielded the command modules used in the Apollo lunar space program and, decades later, the Space Shuttle.
• The Debtor changed its name to Aeronca Manufacturing Corporation in 1950, and in the late 1950s acquired Longren Aircraft Company, Inc. ("Longren") with the Debtor as the surviving entity. Longren had operated an aerospace production facility in Torrance, CA, which continued to operate under the Debtor until it was sold in the early 1990s.

Corporate Structure and Ownership

The Debtor is an Ohio corporation first formed in 1928. Originally the "Aeronautical Corporation of America," it changed its name in 1941 to "Aeronca Aircraft Corporation," in 1950 to "Aeronca Manufacturing Corporation," and subsequently to "Aeronca, Inc." (the Declaration inconsistently identifies the year as 1966 and 1969). It continued under the Aeronca, Inc. name until 2012, when it became Magellan Aerospace, Middletown, Inc.

• Through a series of corporate transactions ending in the mid-1990s—beginning with a 1986 transaction with Fleet Acquisition Corporation—the Debtor became part of the Magellan family of companies and a subsidiary of Magellan Aerospace Corporation ("Magellan Corp."). (The Declaration dates the start of this series inconsistently, as both the mid-1980s and the late 1980s.)
• Magellan USA, a Delaware corporation, owns 100% of the shares of the Debtor. Magellan USA is owned by Magellan Aerospace Limited ("Magellan LTD"), an Ontario business corporation, and each of these companies is in the business of aerospace manufacturing.
• Magellan LTD is owned by Magellan Corp., an Ontario business corporation and holding company that is publicly traded on the Toronto Stock Exchange under the ticker "MAL.TO."

Recent Developments

• In 2000, fueled by a new jet exhaust systems contract, the Debtor began an $11 million, 10,000-square-foot expansion and renovation of its Middletown facilities. The Debtor invested millions to engineer and develop a new exhaust system for the Airbus A340 and the then-brand-new A318 aircraft in collaboration with another company, was awarded the exhaust system for the Airbus A380, and was fulfilling a similar follow-up contract for the Boeing 747 and 767. Production of the A340 ceased in 2011.
• In 2012, the Debtor officially changed its name to Magellan Aerospace, Middletown, Inc. In 2016, it enhanced its brazing and honeycomb capabilities through the acquisition of Benecor Inc.'s assets, and in 2017 the Debtor and an affiliated company were awarded a contract to design, develop, and manufacture exhaust systems for the A320neo PW1100G-JM nacelle, with first units expected to enter service in 2022.
• In 2020, however, that program was cancelled by the customer, and other projects such as the A380 and Boeing 747 wound down shortly after. Over the last number of years, the Debtor's revenue has decreased year on year as a result of the winddown of these contracts.

The Debtor's impact on American aviation continues to resonate today. Every two years, the National Aeronca Association—an organization dedicated to supporting the design and preserving the history of Aeronca aircraft—convenes at Hook Field in Middletown, Ohio, where all of the Debtor's postwar planes were produced.

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Operations Overview

As part of a larger family of aerospace manufacturers, the Debtor benefits from substantial shared services, centralized expertise, economies of scale, greater purchasing power, reduced overhead costs, operational efficiencies, and enhanced financial and strategic resources that reduce expenses and improve its ability to compete for business.

• The Debtor does not pay for separate insurance and is instead covered by broad policies paid for by its corporate parent.
• Despite these efficiencies, the Debtor has been losing money for several years.

Customer Concentration

The Debtor cannot simply seek out new clients, as the aerospace industry has a limited number of institutional buyers.

• 80% of the Debtor's revenue comes from its top three clients.

Workforce

The Debtor employs approximately 109 individuals (collectively, the "Employees"), comprising 105 full-time, 2 seasonal, and 2 corporate charge-back.

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Prepetition Obligations

The Debtor is fully owned by Magellan USA and has no secured debt and no public debt. Rather, its obligations consist of unsecured debt owed to Magellan USA, legacy environmental liabilities, and trade debt owed to its suppliers, employees, unions, and others.

Unsecured Debt

• The Debtor carries substantial unsecured indebtedness, including funded loans from Magellan USA in excess of $80 million.
• In addition, the Debtor owes approximately $1.8 million to suppliers, $450,000 to its employees, and $500,000 to its retiree medical plan, as well as additional trade debt.

Environmental Liabilities

Two governmental authorities have issued environmental cleanup orders directed at the Debtor, among other entities. The Debtor has already expended more than $13 million complying with these orders and defending against related lawsuits and expects to incur an estimated $10 million over the next six months.

• The City of Torrance ("Torrance") commenced an action concerning environmental contamination at the Torrance Properties. Following trial, a jury found the Debtor and a co-defendant jointly and severally liable to Torrance for over $5.2 million in past investigation and cleanup costs. The jury also found the Debtor liable for 25% of the Torrance Properties' remediation costs, subject to the court's final determination.
  • Remediation costs are estimated to range from $25 million to $64 million.
  • The jury issued additional advisory verdicts on statutory and equitable claims, including a recommended contribution of approximately $1.9 million from the Debtor to a co-defendant and third-party plaintiff. The court has not entered final judgment, and the Debtor's ultimate liability remains subject to further proceedings.
• On February 12, 2026, the California Department of Toxic Substances Control (the "DTSC") issued an Imminent and Substantial Endangerment Determination and Order (the "DTSC Order") directing the Debtor, as a Respondent, to implement immediate interim measures to mitigate indoor air concentrations of trichloroethylene ("TCE") and protect human health at 310 Euclid Avenue, San Diego, California (the "Langley Property"), the adjacent 149-unit residential apartment complex, and all other properties impacted by migrating hazardous substances (collectively, the "San Diego Property").
• If the Debtor stops paying the environmental vendors needed to comply with the DTSC Order, the Declaration states that it would face a penalty of $25,000 for each day of noncompliance.

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Events Leading to Bankruptcy

Business Challenges and Declining Revenue

Over the past few decades, a number of the Debtor's key contracts have ended or are winding down, and the Debtor has struggled to secure significant new business, resulting in decreased revenue.

• Following its 2000 investment of $11 million in a 10,000-square-foot expansion and renovation of its Middletown facilities, the Debtor developed exhaust systems for the Airbus A340, A318, and A380, as well as a follow-on contract for the Boeing 747 and 767. Production of the A340 ceased in 2011, the A318 in 2013, and the A380 in 2021.
• The final Boeing 747 was produced in 2021, and Boeing plans to end commercial production of the 767 in 2027, although some military production will remain.
• The Debtor has continued to adapt and improve its capabilities—enhancing its brazing and honeycomb operations through the 2016 acquisition of Benecor, Inc.'s assets and maintaining numerous industry certifications, including ISO 9001—but has not been successful enough to replace lost revenue, partially due to events outside its control. In 2017, for example, the Debtor and an affiliated company were awarded a contract to manufacture exhaust systems for the A320neo PW1100G-JM nacelle, with first units expected in service in 2022, but that program was cancelled by the customer in 2020.

Legacy Environmental Liability — Torrance, CA

The Debtor faces significant compliance and litigation costs stemming from legacy environmental liability at the Torrance Properties.

• Longren Aircraft Company began operating, initially as a limited partnership, at an industrial site in Torrance, CA ("Torrance Property 1") in 1954, renting the property from Torrance, and was incorporated as Longren Aircraft Company, Inc. in 1956. In the late 1950s, the Debtor, then named Aeronca Manufacturing Corporation, acquired Longren with the Debtor as the surviving entity and thereby assumed liability related to Torrance Property 1. The Debtor's operations there ended in 1987.
• The Debtor also subleased and operated at a nearby industrial site leased from Torrance in the late 1960s and early 1970s ("Torrance Property 2," and collectively with Torrance Property 1 and neighboring impacted properties, the "Torrance Properties").
• The Debtor was named in litigation commenced by Torrance concerning environmental contamination at the Torrance Properties and is subject to a Cleanup and Abatement Order issued by the California Regional Water Quality Control Board ("RWQCB"). The assertions made by the RWQCB in that order are subject to a pending administrative petition filed by the Debtor and were also the subject of the trial described below; the Debtor has previously undertaken certain investigations under RWQCB oversight in the area where it formerly operated, and since the trial has been in discussions with the RWQCB regarding additional work it anticipates performing in certain of those areas. In March 2026, the parties completed a four-week trial.
  • The jury also issued advisory verdicts on statutory and equitable claims, including a recommended contribution of approximately $1.9 million from the Debtor to a co-defendant and third-party plaintiff and a finding that the Debtor was liable for 25% of the Torrance Properties remediation costs, both of which remain subject to the court's final determination.
  • The Debtor is awaiting the court's ruling and entry of final judgment. Depending on that ruling, the Debtor could face additional obligations, including payments to Torrance and other parties for past costs, as well as responsibility for future cleanup costs and regulatory oversight.

Legacy Environmental Liability — San Diego, CA

• A corporation originally known as the Langley Corporation and its successors operated an industrial facility in San Diego, CA (the "Langley Property") allegedly from 1953 to the early 1990s, when it undertook a voluntary environmental assessment and cleanup in order to sell the property to the Jacob Center for Nonprofit Innovation on May 15, 1998, after receiving a No Further Action letter from the DTSC. Elevated levels of TCE vapors were subsequently discovered in buildings on the Langley Property and on the adjacent 149-unit residential apartment complex, resulting in the DTSC Order.
• The Declaration states that the Langley Corporation was incorporated in California in 1939 and that, in 1983, an entity identified in the source as the "Langly Corporation" acquired the Langley Corporation, with the Langly Corporation surviving. In 1989, the surviving corporation entered into a strategic transaction with Fleet Acquisition Corp., changed its name to Fleet Aerospace, Inc., and assumed liability associated with operation of the Langley Property.
  • Fleet Aerospace, Inc. directly owned the Debtor until 2018, when the Debtor acquired Fleet Aerospace, Inc., with the Debtor surviving and assuming Fleet Aerospace's liabilities concerning the Langley Property.
• The Debtor did not contest and has been complying with the DTSC Order, undertaking and paying for investigation, mitigation, and remediation (the "Work") or facing significant fines. The Debtor's environmental consultants have advised that the cost just to satisfy the investigation and remedial feasibility portion of the DTSC Order will exceed $12 million.

Environmental Insurance

Because the asserted environmental liability goes back many decades, the Debtor has undertaken substantial diligence to identify potential insurance coverage.

• The Debtor has identified certain policies providing some coverage for the Torrance Properties and is attempting to locate policies related to the San Diego Property. Certain insurers have provided coverage subject to a reservation of rights, while others have been less cooperative.
• Although the insurance proceeds should provide significant coverage, with a collective total of over $100 million in policy limits, delays and denials by many carriers have made it difficult to comply with the numerous environmental demands.

Liquidity Crisis and Loss of Parent Funding

In the second quarter of 2026, the Debtor began to recognize that the obstacles it faced—including environmental litigation, professional fees, and business headwinds—were creating an unsustainable situation, further exacerbated when Magellan USA made clear that it would no longer fund the Debtor's continued losses on an unsecured basis.

• The Debtor engaged Manatt, Phelps & Phillips, LLP and Rock Creek Advisors, LLC ("Rock Creek") to assist in developing potential solutions. As it became clear that substantial funding would be needed for both operations and extraordinary expenses, including professional fees, the Debtor attempted, without success, to obtain third-party financing. The Debtor solicited proposals from sources outside its capital structure, including well-known commercial banks, credit funds, and specialty lenders that routinely provide debtor-in-possession financing; no third party contacted was interested in providing such financing other than Magellan USA. As a result, Magellan USA agreed to provide additional funding during the chapter 11 case, subject to court approval.

Post-Petition Financing

Having determined that it could not operate without continued funding and that Magellan USA appeared to be its only available financing source, the Debtor entered into a Debtor-in-Possession Term Sheet (the "DIP Term Sheet") with Magellan USA, as lender, shortly before the Petition Date.

• Under the DIP Term Sheet, Magellan USA agreed to provide a revolving credit facility (the "DIP Facility") of up to $20 million to fund operations and administrative expenses, with $2 million available upon interim approval and the balance available upon final approval.
• The facility carries terms significantly better than what would otherwise be offered by a third-party lender: the Debtor will pay interest at SOFR plus 1.5% and will not pay any origination fee, commitment fee, standby fee, original issue discount fee, prepayment fee, or exit fee. The only fee the Debtor will pay is the reasonable fees actually incurred by the lender's attorney.
  • The Debtor will, however, roll up Magellan USA's prepetition unsecured loans at a rate of three-to-one. The roll-up will become effective only upon entry of the final order and will be calculated based on amounts drawn by the Debtor. According to the Declaration, it will not harm other secured creditors because there are none.
• As the Debtor's independent director and sole member of the special committee formed to review, negotiate, and approve related-party transactions, Michael I. Goldberg alone led discussions on and approved the proposed financing on behalf of the Debtor, subject to court approval.

Path Forward

The Debtor intends to use the chapter 11 case to preserve its business as a going concern and maintain employment and customer relationships by addressing legacy liabilities and ongoing liquidity concerns through transparent, lawful, and court-approved mechanisms.

• The Debtor intends to explore all available restructuring alternatives, including a chapter 11 plan of reorganization, a sale of substantially all assets pursuant to section 363 of the Bankruptcy Code, or other strategic transactions, and has not yet determined which path it will pursue.
• Intending to move expeditiously, the Debtor has been working with Rock Creek to design and prepare a comprehensive marketing process, expects to begin contacting potential buyers within the next week while further considering a standalone reorganization, and anticipates making a decision and returning to court to begin executing the appropriate strategy within the next 2-4 weeks.

First Day Relief

The Debtor filed several first day motions intended to prevent immediate disruption and preserve the value of its business during chapter 11.

• The Debtor seeks interim and final approval of the DIP Facility, including authority to borrow up to $2 million upon interim approval.
• The Debtor seeks authority to continue its existing cash-management system and maintain its existing bank account at City National Bank, continue using existing checks and business forms, and waive certain bank account requirements under the U.S. Trustee's Region 9 Guidelines and section 345 of the Bankruptcy Code. The Debtor has already requested that City National Bank deactivate the more than 20-year-old daily sweep to Magellan USA, such that the account will no longer sweep shortly after the Petition Date.
• The Debtor seeks authority to pay and continue employee compensation and benefit obligations, including accrued wages and bonuses, paid time off and severance, expense reimbursements, prepetition payroll taxes and deductions, payments to third-party administrators, and all union obligations. Its approximately 109 employees were expected to be owed approximately $350,000 in accrued prepetition wages and $100,000 in related prepetition taxes.
  • Employee withholdings average approximately $55,000 per week in the aggregate; approximately $110,000 will have accrued prepetition but not yet been remitted, and all such amounts become due within 21 days of the Petition Date.
  • To the Declarant's knowledge, no single employee has accrued $17,150 or more in wages as of the Petition Date; the Debtor will seek authority by separate motion to pay any amount above that cap.
• The Debtor seeks to prevent interruption of utility services and proposes an earmarked utility deposit equal to approximately 50% of its estimated monthly utility costs; its average monthly utility obligations are approximately $65,000.
• The Debtor also seeks a 30-day extension, resulting in a deadline 44 days after the Petition Date, to file its schedules and statement of financial affairs; approval of case-management and expedited-hearing procedures; designation of Michael I. Goldberg as the responsible person; authority to redact employee addresses; and authority to retain Stretto, Inc. as notice, claims, and solicitation agent.