A perusal of the first rounds of court documents filed in the Chapter 7 Bankruptcy of Skystar Aircraft reveals a company that was dealing with massive debt and some business practices that appear, at the least, problematic.

A number of Skystar customers report having bought Rotax engines from Skystar in the past year, but had been delayed weeks or months in delivery... even though Rotax tends to deliver engines fairly quickly -- so long as they are paid.

The documents reveal a company in severe disarray, and with virtually no hope of recovery in its's current form. Listing assets valued at $1,149,624.48, the records indicate that some $400K of that amount is invested in intellectual property such as design properties (Engineering data and business intangibles), and another $400K in inventoried parts. Tooling and jigs were valued at $200K.

These three valuations (comprising $1M) have been deemed "optimistic" by industry observers -- especially the engineering data and tooling values.

Far more disturbing are the lists of debts... over 200 entities in all, many of them customers who had paid for kits oo components, and often well into the five figure range. Only two creditors are UCC secured (giving them first shot at any funds arising from the eventual liquidation of the company).

Former Skystar owner Phil Reed and Mimi Plumb are credited with secured debts totaling $588,750. None of the industry observers we've talked with feel that the assets will fetch anywhere near that amount of money... leaving Reed and Plumb pretty much to take whatever the auction gets.

Even if there is anything left over, there are two priority non-secured claims that will be paid before any of the other creditors get a taste... the IRS and the State of Idaho tax authorities.

In other words, unsecured creditors are pretty much left with expectations of little or no compensation... the usual case in such turbulent bankruptcies.

The records do bring up a lot of questions. The ultimate indebtedness of this company appears to be approximately $1,679,558.66. It's obviously been in big trouble for quite a while, and one wonders why engine orders were taken, and not shipped for so long, and whether such big-ticket items were propping the company up.

It seems a legitimate question... One abandoned customer complained on a Kitfox email list, "Who else was told a few months ago by Crystal Loveland that our Rotaxs were a few months from delivery? Being that my listed claim amount over on the lazair website is nothing near the cost of the engine, does this mean my engine money is in the hands of Rotax? And I would assume that when my engine (that my money paid for) arrives in Idaho, it will be sold off to give me a few bucks and cover the lawyer fees."

While there is the possibility that some customers with engine orders and the like, may be allowed to get some priority for their claims, those claims would be subject to challenge, and are unlikely to be very easy to pursue. In the meantime, there are a number of questions that are unlikely to be answered before the first hearing on this matter takes place next month. How this company got so messed up, and why it was allowed to become so debt-loaded, are likely to be questions that creditors will pursue -- though the answers they receive are hardly likely to mollify them.

ANN will have more information shortly.

FMI: www.skystar.com