Sometimes, it pays to be unpopular

Karen Di Piazza has a long history covering EAC. As a matter of routine, EAC refuse to answer questions from her, and Vern (it is said) would swim across a river full of alligators to avoid talking to her.

Myself, I feel the alligators would have crossed a busy highway to avoid Vern, but I digress.

Earlier this week Karen published the following on CharterX. As usual she has hit the central point in her own piece.

The key is safety. If I have to extract one sentence it would be this one.

"All I know is that every time I've had to fly the Eclipse, I'm truly scared."

I would also draw your particular attention to the Teal Group report on EAC. It makes grim reading, especially for any potential investor in the project.

Teal Group's Richard Aboulafia's First Eclipse Aviation Report
By Karen Di Piazza

Before we address the Teal Group's first report on Eclipse Aviation Corp.'s business plan, authored by Richard Aboulafia, vice president of analysis, aviation insiders have said that because Eclipse, manufacturer of the six-place Eclipse 500 very light jet has halted production for 2008 (last aircraft to be produced is serial no. 267, with no. 266 produced a long time ago), awaits funding, they feel it's a no-brainer that the company is doomed to declare bankruptcy.

During recent conference calls with its customers in September and October, Eclipse admitted that unless it gets "funding in October or November," it wouldn't have the funds to refund customer deposits made on the EA500 or its four-place EA400. During conference calls with its customers, Eclipse downplayed numerous lawsuits filed by customers. As of this writing, new lawsuits have been filed against Eclipse. Industry Headline News has requested of Eclipse numerous times to respond to allegations; however, the company refuses to do so.

Cash-strapped Eclipse doesn't have the money for parts needed to fix customers' aircraft, it tells customers during conference calls. Linear Air's CEO William Herp confirmed to Industry Headline News that of the four EA500s managed by Linear Air, "We're operating two Eclipses; we didn't include the EA500s in our recent profits, so we're OK. Yes, we had to let 15 employees go, which is very unfortunate. We wouldn't be surprised if Eclipse filed for bankruptcy." Linear Air ordered 30 EA500s. Herp said that his company is not dependent on the Eclipse 500 for future financial success.

Recently, a corporate pilot who is typed rated in several FAR Part 121 and 135 aircraft as captain, with extensive flight hours, said, "When I have to fly the Eclipse, I am on the edge of my seat waiting for the next disaster to take place. For instance, I've been flying for over 30 years and have never had to go on emergency oxygen, except during routine training. Since flying the Eclipse, I've had to go on emergency oxygen twice now due to fumes in the cockpit and in the cabin. Eclipse seemingly has no idea how to fix these aircraft problems. Flying at 41,000 feet, you don't have much time to deal with these continuous, on-going, very serious issues. All I know is that every time I've had to fly the Eclipse, I'm truly scared."

This is the typical story we hear we hear from experienced, professional pilots.

And then there's DayJet, Eclipse's former star, the largest air taxi operator in the world, which we reported on May 2 had ordered 1,400 Eclipse 500 jets. DayJet has since gone out of business. On Oct. 20, Eclipse sent emails to its customers stating that it was acting as "DayJet's broker," to sell DayJet's fleet of 28 abandoned planes. But the best part of this report is really about Richard Aboulafia's report on Eclipse.

Thanks Karen, a well thought out piece. You may contact Karen Di Piazza at Karen@bizandaviationpub.com for any feedback you'd like to send her about her article.

Read the Teal Group report carefully. It's a PDF file, which you can 'save as' and digest in your own time. Here are two snippets for those who need encouragement to make the effort:-

First, commenting on the DOT IG investigation.

The IG stated: “This isn’t about a certification process riddled with flaws…What this case is about is an accommodative approach to a new manufacturer using new technology and a new business model to put a high-speed, high-altitude jet in the hands of relatively inexperienced private pilots.”

Second, the difficulty in predicting what might happen to the company.

Keeping up with this program has become a surreal experience. Irrational investors make forecasting difficult, but socialist governments make it even tougher. The latest post-Soviet five-year plan calls for the Russian government to fund an Eclipse line in Russia. This is not a business decision made by the private sector, and therefore we can’t predict whether it will be provided. We also don’t know when the money will be provided. With numerous lawsuits from suppliers and customers, Eclipse faces the prospect of involuntary or voluntary bankruptcy.

From the 'inbox', which you all know as eclipsecriticng@gmail.com

We all saw the Teal report here. Richard missed the round of financing that happened in summer of 2007 which was another $275M of debt financing. This is what makes up the total $550M of senior secured debt. That amount, plus another $550 million in private equity, together with sundry other inputs drives the investor funds towards $1.2 billion.

Add what the customers have paid in already (about $320 million) plus the remaining deposits (about $60 million), you can see where this has been a party worth more than $1,500,000,000. Supplier activity is harder to measure, but they must have invested heavily. This could easily drive the TOTAL amount spent close to $2 BILLION plus the involvement of thousands of people's lives. All for 250 odd aircraft delivered so far.

These are expensive jets!

I think we can all agree that this last line is an understatement of historic proportions....

UPDATED FRIDAY 24th October 22.34GMT.

The DayJet birds made headlines again. I sure hope they find a home shortly, as they are in real danger of clogging the market unless they do. My hunch is that FPJ Inc have little choice at this stage and will have to take anything around the $850,000 DayJet agreed to pay originally. The following from AIN Online, which is a great source for business news.

OurPlane Makes Play for Former DayJet Eclipse 500s
By Chad Trautvetter

London, Ontario-based OurPlane–a fractional provider of “new light aircraft,” including Cirrus SR22 piston singles and one Eclipse 500–today made a bid to purchase the entire fleet of 28 Eclipse 500s formerly operated by DayJet. OurPlane, which also has a separate standing order for 21 Eclipse very light jets, said it submitted a “fair offer reflecting the current market value for the Eclipse jets.

Company president and CEO Graham Casson told AIN that the bid is more than JetsAmerica’s previous offer of $500,000 each but less than $1.5 million apiece. If its bid is accepted, OurPlane plans immediately to begin selling quarter shares in the jets for less than $449,000, with the first ones likely to be based at its locations in Southern California and the New York City area.

Additionally, Casson said the very light jets would enter service in the first quarter next year after their interiors are upgraded to the LX version and, at minimum, the DayJet logos are removed from their exteriors. OurPlane, which has 12 locations across the U.S. and Canada, is “confident that Eclipse will follow through in the final modifications and refurbishment that are due on these and all Eclipse aircraft.

And finally (drum roll, clash of symbols, trumpets)

THAT ALL IMPORTANT COMPETITION

You will remember I posted a fantastic prize offer on this thread. The correct answer to the question 'what would Vern's FPJ have on the tail' is, I'm reliably informed, 'N500VR'. I'm glad to report that I've saved myself a lunch bill, since none of you got it exactly right.

However, since a number of you posted very well thought out 'suggestions' I prepared to offer the following contributors a pint (of Guinness, naturally) in my favorite pub.

N0PE (short for No Hope)

N00NE (pretty clear, I think)

N505TU (Several variants of this one....)

CR-APJET (from the Cape Verde Islands!)

NOTVLJ (Pretty much sums it up)

NYETJET ('Russian' entry)

And last, but not least

0 + 0 = 1+ (our principle 'European' correspondent, and my personal choice)

You all know who you are, and how to contact me. I'll be very happy to pay for the 'prize'.

We look forward now to our long weekend here in Ireland, with lots of fireworks. Come to think of it, some of the 'rumblings' out of New Mexico would suggest that this won't be the only place with the odd explosion over the next few days. Stay tuned...

Shane

Darkening skies in Albuquerque

Eclipse Aviation, under it's previous 'leadership', boasted that thousands of FPJ's would darken the skies. With production down to one aircraft a week and falling, this boast seems yet another EAC failed promise.

But there is more.

Customers are frustrated.

Not only have EAC failed to produce aircraft at the rate they said themselves was required for the plan to work, they are LOSING customers, some of whom now 'enjoy' the status of unsecured creditors. These are the people who have requested deposit and/or progress payment refunds after the price increase in August. As far as I can tell, only those who had money in the Frankenjet (a.k.a E400) have had cash back from Roel. As a group these people are mad at EAC and have joined forces to seek the refund they are entitled to. One of them sent Mike McConnell (President of all that Peg is NOT President of) an email last week, seeking answers to specific questions. So far, he has not had the good grace to reply. Herewith the list:-

Mike,
1. It was reported that Eclipse had issue a certain amount of refund checks and those checks were not honored by the bank. Has Eclipse made good on those checks?
2. How many depositors have had their money refunded?
3. Have there been any concessions to those seeking refunds? Partial refund? Aircraft at reduced prices? Etc?
4. What intellectual rights have been transferred, assigned, pledged to ETIRC during the last 12 months?
5. If a cash infusion does not occur within 30/60/90 days what contingency plans does Eclipse have? How long can you operate?
6. Recent releases on “Russian Funding” have been non-cohesive. What is the amount? Have any funds been received? What contingencies are attached to the Russian funding? When is Eclipse “US” expected to receive these funds?
7. Eclipse stated that a majority of vendors are in place to resume production. Yet at least one major vendor (empennage) has closed the facility that manufactures the empennage. How do you plan on handling critical vendors that are no longer willing to provide products to Eclipse?
8. Other than harming the secondary marketplace what financial interest does Eclipse have in the ex-Dayjet fleet?
9. A number of depositors are talking about forcing involuntary bankruptcy. Does Eclipse have contingency plans if this occurs?
10. How many 60% progress payments has Eclipse collected above serial number 266?

Pretty heavy stuff, especially from a customer, I think you will agree. A lot of us would like to know the answers to some of these questions. If anyone 'out there' would like to share their views in confidence, email me at eclipsecriticng@gmail.com

Staff have doubts

The internal sources on the 505 continue to contradict the public utterances of Mike, Peg and Roel. As is normal in any business, especially one that it trying to restructure, cash is king. Let's examine the 'traditional' sources of EAC funding. Sales of aircraft. Well, the picture here is bleak in the extreme. Activity here has all but ceased. After refund requests are taken out of the picture, EAC have not had a deposit on a single FPJ for 9 months.

Think about that.

It gets worse. Roel and his merry crew have talked about '$200 million' investment required to get to profitability. Currently, creditors (including refund requests) are 'overdue' just over $170 million and total liabilities (including secured lending) exceed $650 million. In the midst of a general liquidity crisis I think it's fair to say that '$200 million' is less than a third of what is actually required.

Internally, politics are causing friction. The senior management have been promised 100% bonuses if the company gets to 'cash flow positive' in Q1 2009. Sales staff are being promoted by Mike, who seems to think he's the 'real' President, and CV's are flying around the industry from specific people. These are the ones you would expect to know the likely short term outcome, but they still appear to be keen to 'jump ship'.

Lets work this through. The Frankenjet is on hold, which is hardly surprising given that the initial burst of under 100 deposits (only $25K, btw) has been decimated by almost 50 refund requests. The FPJ has a remaining order book of 440 units (at best) with a number of those positions for sale in the aftermarket or likely to vanish when buyers can't get the loans they need. The largest single 'order' outstanding is from Roel himself, to provide air taxi services in Turkey, and it's not even properly deposit backed. The company has had to repossess 28 second hand units from DayJet, and carries a significant bad debt as a result of this failure. Plus of course the difficult task of finding buyers for these 'used' FPJ's without further damage to the already fragile order book.

I can't see this mess appealing to another investor myself, can you?

UPDATED Thursday 16th 20.15hrs GMT

Seems someone in ABQ reads the blog and has a problem with the deposit on the Frankenjet. Glad to see they recognize the ConJet for what it is, by the way. Anyway, the FULL deposit on at Oshkosh was $100,000, not $25,000. My fault. They are also in denial about the 'zero orders in 2008' bit, so I told them where to find their own records. Perhaps they will believe me, if they bother to check.

The FAA and that DOT IG saga

A group of FAA stalwarts are surprised that the transcripts of last month's hearing in Washington have not made the appropriate web site yet. So they posted some video on youtube. Have look at one in particular, from a lady called Maryetta Broyles. She gives a first hand account of the pressure the original FAA inspectors were under, to 'get it done' for Eclipse. At a time when the FAA were under severe budget pressure, her group were told that 'money was not a problem' and were instructed to stay at EAC no matter what. There are other people who are worth a look at the same site

This major issue hasn't gone away you know. It's only on hold until after the U.S. Presidential election.

Current spending

You've all read about the $106 mil contract with CSC for IT outsourcing. Well it seems this is just the beginning as there will be another contract signed with IBM for an undisclosed 'small fortune'. The primary objective is to make SAP functional as it is currently, well, broken. I know that some here will be familiar with SAP, but for those of you who are not, it's major claim to fame is 'end to end' integration of all aspects of manufacturing. From this seat, all I know is that a number of 'household names' that my company deal with have thrown it 'under the bus', primarily because they could not understand the software. So, another yet another 'disruptive' idea from EAC. A company that can't sell aircraft uses software no one can understand NOT to build the volume it needs to survive.

I'm reminded of what has to be one of the best one liners in modern cinema, from 'As Good As It Gets' when Jack Nickleson's character, Melvin Udall is approached by the receptionist in his publishers office. She asks "How do you write women so well?" He replies "I think of a man, and I take away reason and accountability"

Owners in contact and possible future direction(s)

As you know, I keep in touch with the different 'groups' with interests in the Eclipse Aviation story. Clearly that starts with those who post here and continues with Eclipse staff and suppliers. I also have regular contact with journalists and, last but not least, owners. One who contacted me recently made several points, most of which agree with what 'we' are doing here. He did suggest that we 'widen' the blog to include discussion of other VLJ's.

My initial reaction, personally, is that I have my hands full keeping up with one company. I also have a sneaking suspicion, voiced here before, that this blog will be the last resource available to owners of FPJ's when EAC closes its' doors for the last time.

The question is a fair one however, and I think it's time to have an open discussion. October was always touted as the month that EAC had to secure it's funding, or shut down. Before that event occurs I would be interested to hear what the blog thinks. Suggestions that have crossed my line of vision include focus on another (jet) aircraft, with names like Honda and Piper floating around, as well as a more general VLJ forum.

Being a blog, it's a discussion we should have 'in the thread'....

Shane

NBAA and all that

Well, it's been a lot of fun hearing from all of you who attended. I think it's been the best few days for information in a while, so I've decided to bring everyone up to date.

Al Mann

Well known as a serial inventor and latterly investor, Al is one of the most significant people in the past 10 years at EAC. He's currently a Director, as well as a significant shareholder. During the most recent restructuring I had several independent reports of his presence at ABQ, and he also took delivery of a very early s/n FPJ for his own use. Needless to say, anything he does in aviation is bound to attract attention, so when I first heard about a possible 'air taxi' venture, my antenna sprung to attention. I now have several reliable sources linking Mr. Mann with Van Nuys and a 'very light jet' company. My only problem with this is that it appears this 'company' is currently flying a Mustang, prior to commencing service.

Say it ain't so, please. His fellow members on the EAC BoD will be most disappointed if it's true....

Vern Raburn

This you will enjoy. Vern has his very own FPJ, or at least the use of one. He naturally went to NBAA in it, and attended various stands and other events at the show. In an effort to appear important he went in disguise, wearing a beard and casual clothing. A number of people failed to recognize his eminence, and one who did (after a double check) said he 'looked like a mountain man'. The usual rabble, including Zoom, were trailing around after him, lap dog fashion. Vern, in a desperate effort to attract attention, regaled anyone who would listen with tales of Microsoft and Bill Gates. What any of this had to do with EAC or even aviation in general was beyond my (limited) comprehension.

Vern did, however, give an interview to Aviation Week, which is available as a podcast here. Needless to say, nothing is his fault, everyone else was to blame, the suppliers were useless etc etc.

Maybe the disguise was a genuine attempt to avoid angry depositors, several of whom were hoping for a quiet chat....

Aha, you say, what of those 'Depositors'?

First, I've been quietly in contact with a number of them for some months now. They are not in a good place, as EAC have made it very clear that a) any attempt to force bankruptcy will be resisted and b) even if successful, they will get nothing. Second, a number of these people are convinced that it will be possible to 'nail' the officers of the company for fraud. If that were to happen the consequences for EAC senior managers will be unpleasant, at the very least, and likely very expensive. So, what are their options? Most are not short of a few dollars and will proceed to purchase something else which has two undesirable effects for EAC. One, they lose the order(s) and two they strengthen their competitors. Finally, by acting in this dishonorable manner they have created 'bad blood' which will hang around long after the company ceases to exist. The outcome will not be good for the value of used FPJ's.

The 'Jets America' offer

A chap called Brandon Carlson of Jets American, one of the most successful brokers for FPJ's and a man who's had the odd brush with EAC in the past (and I do mean odd) issued the following letter addressed to the finance company with the first lien on the DayJet birds on the 1st of October. I've clearly removed any sensitive information, as I know the banking system worldwide is in enough trouble already...

I am pleased to inform you that ____________________ (Buyer) is offering Pratt & Whitney / UT Finance (Lien Holder) $500,000 (Five Hundred Thousand Dollars) for (1) one Dayjet Corporation Eclipse 500 aircraft.

1. Buyer agrees to deposit an earnest $100,000 refundable deposit into an escrow account with xxxx xxxxx of Oklahoma City, OK. (escrow agent) upon written notification to Brandon.Carlson@jetsamerica.com .(Buyers Agent) of acceptance of this offer by Lien Holder.

2. Lien Holder understands and agrees that this is only an offer to purchase an Eclipse 500 aircraft from Lien Holder and that Lien Holder shall consider this offer non-binding to the Buyer until a formal aircraft purchase agreement can be mutually executed between the Lien Holder and Buyer.

3. Buyer agrees to pay all escrow fees incurred as a result of this transaction. Escrow fees shall not exceed $2,000 (two thousand dollars) for this transaction

We've discussed this on the blog, and some think $500k is too much for these birds. However, I'm reliably informed that 13 people produced the $100k to show they were serious, which is pretty impressive. I'll be curious how this pans out, and will of course keep the blog up to date.

An interesting new group

Mark was kind enough to email the blog (eclipsecriticng@gmail.com) with the following, which I told him I would be delighted to post as part of my next headline. It just shows how well read 'we' are and that Cessna buyers are a clever bunch of people. No, not just for buying a Mustang, but for doing their research properly.

"Shane, this is not directly related to the Eclipse 500, but something I wanted to make you aware of. I am writing to tell you about a new group I have formed for Citation Mustang owners called the Citation Mustang Owners and Pilots Association (CMOPA). 

You are welcome to participate in the group or even in its formation, as I am actively seeking ideas and help. If you run across others that may be interested please let them know we are out here. And if you ever make it to Houston, please look me up, as I would love to meet you over lunch or dinner.

Sincerely,

Mark J. Baumgartner"

The Parting Shot

EAC always exuded class and style when dealing with staff.

Not!

But this takes the biscuit. It's in the 'Termination Agreement' otherwise known as the waiver, which all ex employees end up signing. Naturally, a copy has made it's way to me. One paragraph stood out:-

"On your termination date, your stock grants will cease vesting. If you wish, you may exercise

your vested stock options anytime prior to 30 days from your date of termination, or the
expiration date of the option, which ever comes first. If you do not exercise your options before that time, the vested options will expire." 
OK, let me work this through. The company, which has no money to pay refunds to customers, has shed half its staff, slashed production by 80% and increased the price of the product by 40% wants to sell stock to a person who's just signed a termination waiver?

Only one word for it. Someone at EAC is just plain bonkers....

Another headline, another milestone.

This is Number 50 in the series I've been responsible for since taking up the baton. The future looks bright and the blog is now widely quoted and discussed. I probably shouldn't tell you, but even the Eclipse Aviation web site for customers called E5C has taken up reposting from here!

Take good care of your friends and wrap up warm before you venture out. I will anyway, as I head to my local pub for a pint (or three) to celebrate....

Slan go foil,

Shane

DayJet Folds and Eclipse Aviation Struggles to Survive

By Karen Di Piazza /Senior News Editor/ Airport Journals/ Oct. ‘08

Original article here

Without notice, on Sept. 19, Boca Raton, Fla.-based DayJet Services LLC closed its doors. DayJet, with a fleet of 28 three-passenger Eclipse 500 very light jets, was forced to discontinue service after being unable to raise funding. Although the per-seat, on-demand air taxi operator listed 28 VLJs, it wasn’t fully utilizing more than seven to 10 aircraft on a regular basis.

Currently, DayJet’s abandoned aircraft fleet is parked outside at Eclipse Aviation Corp.’s Gainesville, Fla. maintenance facility. The lien holder on the planes is United Technologies Finance, subsidiary of United Technologies Corp., which also owns Pratt & Whitney Canada, the engine manufacturer for Albuquerque, N.M.-based Eclipse.
Although Ed Iacobucci, DayJet’s cofounder and CEO, attributed the company’s fall to the current financial crisis, he laid some of the blame at Eclipse’s doorstep.

“It failed to install missing equipment or functionality or to repair agreed technical discrepancies in accordance with the terms of DayJet’s aircraft purchase contract,” he said. “It’s unfortunate that these developments have come at the same time our nation has fallen into the most serious capital crisis of our lifetime. Regrettably, without access to growth capital, we have no choice but to discontinue operations.”

Unable to honor refunds for customers who paid in advance for trips, DayJet said for those who used credit cards, they should contact their credit card companies.

Many in the aviation industry have questioned why Iacobucci didn’t pull the plug on DayJet five months ago, after its unsuccessful campaign to raise $40 million led to laying off 100 of the company’s 260 employees. Cash-strapped, yet bullish on his company’s ability to overcome a serious financial blow, he said DayJet was “far from dead.” He indicated that he’d keep about 12 aircraft and would sell the rest off. He also hinted that DayJet’s airline-like reservation software system could be licensed or sold.

Despite DayJet becoming the first per-seat charter operator, promoting its online booking system to member companies, under the radar it was selling traditional on-demand charter trips, hopeful to increase revenues. Whole plane charter efforts were in effect for a good six months before the company’s financial crisis hit rock bottom. Even though the company didn’t make it, Iacobucci said it demonstrated that customers will sign up, purchase and become frequent users of this new service.

“The DayJet per-seat, on-demand model works,” he said.

Since service launch, DayJet said it had built a membership base of more than 2,400 regional travelers, flying more than 9,000 segments totaling more than one million miles, and that it had a 95 percent on-time performance record.

DayJet planned a mammoth operation

On May 2, 2007, for the first time, Traver-Gruen-Kennedy, vice president of strategic operations at DayJet, confirmed to this journalist that in 2002, under the name of Jetson Systems, not DayJet, 1,400 EA-500 orders were placed. During that time, Gruen-Kennedy said that although the colossal order was placed, the company would first operate 300 VLJs within a two-year period. But because the 1,400 orders existed, at least on paper, they were used during a 2005 New Mexico State Investment Council meeting, which prompted the state’s private equity program to purchase more than $3 million of Eclipse Series F preferred stock. Since that funding, the state invested much more into Eclipse.

For years, aviation analysts have said they doubted there was any substance behind the 1,400 orders. To this day, Eclipse has refused to make its order book available, for verification of orders and cancellations. With the Eclipse 500’s price now reaching $2.5 million, and with the 1,400 orders gone, aerospace analysts are skeptical about the company’s likelihood of survival. Eclipse’s marketing plan was based on mass production with a VLJ in the $1 million range.

A buyer in the wings for DayJet aircraft

Scottsdale, Ariz.-based JetsAmerica Inc., a new air charter company that also does aircraft sales, management and acquisitions for positions on VLJs, has offered to purchase 15 of DayJet’s aircraft for $500,000 per plane. On Oct. 2, Brandon Carlson, president and CEO of JetsAmerica, told this journalist he’d talked with UTF on Sept. 29 about his offer.

“This is a cash offer,” Carlson said. “These aircraft aren’t worth more than $500,000, because they need a lot of work. Most need basic Avio NG avionics, flight into known icing (FIKI) upgrades and other modifications.” Without basic Avio NG software installed on the aircraft, FIKI can’t be installed.

“My investors are aware that purchasing these VLJs is a risk; in today’s market, it takes a ‘special buyer.’ When you have investors with cash, the deal is hot then,” Carlson said. “UTF said it’s the ultimate decision maker on price and purchase contracts; however, Eclipse has involvement.”

He said Eclipse is helping UTF access the value of these aircraft.

When asked if the plan was to purchase all 28 VLJs, Carlson said that was the goal. With all of the maintenance issues involved with these planes and because so many retrofits and upgrades need to be installed, Carlson said, aside from the purchase price being offered for each plane, a significant amount of money would be spent on getting these aircraft up to snuff. He added that he was confident the offer would also satisfy UTF’s investment in the aircraft.
“DayJet paid about $850,000 for each aircraft; we hope our offer will be accepted,” he said. “Right now, we manage three Eclipse 500 jets, and if our offer is accepted, we’d like to have JetsAmerica perform the aircraft modifications.”

Eclipse: financial woes, customer complaints and future

During the same afternoon that DayJet announced it was ceasing operations, Eclipse was holding a conference call with its customers, claiming it hadn’t heard about the closure of its largest customer. However, as the call went on, Eclipse admitted to a customer, DayJet “isn’t in our current financing plan.”

Roel Pieper, Eclipse CEO, told callers that the company still anticipated obtaining millions of dollars in funding, so it could continue operations. He said that initial financing attempts were made with institutions from around the world, but now, they’re down to a small group for further analysis.

“The small group consists of the top players in the financial world,” Pieper said. He added that these people aren’t affected by the worst financial times we’ve seen, and that they have “committed funds and committed budgets.”

“Each of the players we’re talking to do financing deals on their own; that’s actually what we like,” he told anxious customers on the other end of the phone.

Pieper said that Eclipse was committed to closing a new round of funding in October.

“We continue to talk to our suppliers and to work with them, to ensure we understand their concerns, and so they know where we are. We plan to talk to them when new financing closes. We’ll publish a new schedule as soon as we can—when we’ll be back up,” he said. Pieper added that it was his belief that the company was on track and would be able to ramp up production of aircraft next year.

Peg Billson, Eclipse’s newly appointed president overseeing the production division, brought up the Sept. 17 House Transportation and Infrastructure Committee’s aviation panel hearing. The hearing focused on the Federal Aviation Administration’s rush of its issuance of a provisional type certificate, followed by a full TC and production TC on the EA-500. Billson told callers that the Department of Transportation’s inspector general had said the “aircraft was safe.” Calvin L. Scovel III, the IG, specifically stated that his office’s investigation “did not focus” on if the VLJ was safe or not.

The IG said that initial investigation results showed a combination of FAA “actions and inactions,” indicating that the agency expedited the certification processes for the VLJ to meet a September 2006 deadline. Scovel said that the FAA chose to certify the EA-500 and other VLJs using certification requirements for general aviation aircraft, rather than the more stringent certification requirements for larger transport aircraft.

“However, in a post-design certification ‘lessons-learned' internal review of the Eclipse project in August, FAA managers acknowledged that the general aviation certification requirements were ‘inadequate to address the advanced concepts introduced on this aircraft,’” Scovel said. FAA management testified that the Eclipse VLJ was certified meeting compliance.
FAA inspectors that worked on the VLJ project testified against their senior management, claiming they were pressured to OK the aircraft, though they expressed that numerous safety issues existed. Ignoring this, the FAA issued its full TC for the EA-500 on Sept. 30, 2006, a Saturday, which isn’t common. The production TC was issued on April 26, 2007.
Testimony uncovered that Eclipse set the certification date and that the FAA treated the plane maker, rather than the flying public, as its customer. Testimony also revealed that Vern Raburn, founder and former CEO of Eclipse, was personally involved with demanding a certification date and met with Marion Blakey, former FAA administrator, regarding requests.
According to testimony, when Raburn realized the plane wouldn’t receive full certification in his time frame, tied to financial funding, it was agreed a provisional TC would be granted. FAA inspectors objected but were overruled by Washington. Blakey personally presented Raburn with the provisional TC on July 27, 2006, during EAA AirVenture. Based on testimony, Eclipse’s funding was tied to achieving certification within 30 days from the time Pratt & Whitney obtained certification on the engine used in Eclipse’s VLJs. FAA field inspectors testified that management told them, “We’re here to save a company.”

When the EA-500 received its TC, the FAA granted the TC allowing EAC IOUs, including software design functionality. Testimony disclosed that many IOUs weren’t remedied quickly enough. Today, several IOUs are outstanding. FAA inspectors in the field believed that the aircraft should’ve never received a provisional TC.

The IG testified that the European Aviation Safety Agency “declined” certification on the EA-500.

“That’s not true,” Billson told callers. “We’re closing on EASA certification right now; EASA pilots will be at Eclipse in mid-October to fly the final configuration of the airplane. We expect EASA certification within a couple of days after that.”

EASA certification, she said, will satisfy commercial use of the VLJ in Europe, which she forecast would follow within two months after basic certification.

Billson said Eclipse is working on its final Avio NG 1.5 software certification, which includes Garmin 400 avionics; the company needs to present an aircraft equipped with upgraded avionics to the EASA. She said that although Avio NG 1.5 is late (a third certification attempt), the company “identified the root cause” of the “transponder switching and frequency switching issue,” and that the redesigned software “has been certified” and is currently being tested.
The company also addressed pilot complaints about aircraft tires blowing out. Eclipse said it expected certification on improved tires in November, after EASA/Avio NG 1.5 certification. However, Eclipse said after it obtains certification on a new tire, modifications would have to take a backseat due to the company’s financial shortcomings; all resources are going towards an EASA compliant aircraft.

Additionally, Billson said that sometime during the week of Sept. 22, Eclipse was scheduled to undergo an audit of its production certificate. She said the audit was a normal, regulatory 18- to 24-month event, which should last about nine days.

Mike McConnell, newly appointed president and general manger overseeing the customer division, gave Eclipse’s customers updates on production and delivery of aircraft.
“We’ve slowed our production for the next several months to stabilize our current financial situation,” he said.

Then McConnell dropped the bomb on the direness of the company’s production schedule.
“The last aircraft slated for delivery in 2008 is serial number 267,” he said.

He said that the company planned to produce two planes a day in 2009. McConnell said that if Eclipse can meet the new milestone production, it would only face a delay of up to nine months. He acknowledged that some owners have paid their 60 percent deposit but still don’t have a plane; without cash infusion into the company, position holders aren’t likely to get their VLJs.
Although some customers want their deposit money back, they were informed refunds aren’t being distributed yet.

Eclipse also shared with customers that in addition to its Canada-based third-party service center that will install Avio NG 1.5/ Garmin with GPS and FIKI, it recently signed contracts with two other companies in the United States. Although modifications will be paid for by Eclipse, it said customers who’ve had aircraft for the last year would come first.

Responding to a caller’s question regarding if the company had qualified technicians to install upgraded avionics, etc., the manufacturer said it would attempt to hire former or new employees. Eclipse recently reduced its workforce down to about 1,000 employees.

Another caller, who has a position on serial no. 264, said he was due to take delivery of his VLJ on Sept. 15, and expressed frustration. He also said he’s been under contract for about five years.

“I can’t get anything out of your customer service department,” he said. He said that since no. 267 would be the last aircraft produced in 2008, he wanted to know when his plane would be delivered, and would it be equipped with Avio NG 1.5 and FIKI. Eclipse responded that no. 264 would be scheduled for assembly by the end of the year, “providing it could complete no. 267 by 2008.”

The caller became furious with Eclipse after being informed that his aircraft wouldn’t have Avio NG 1.5 and would only have FIKI. Eclipse told the caller that Avio NG 1.5 aircraft stopped at no. 266.

For whatever reason, Eclipse has either manufactured aircraft or has installed various components into some aircraft out of sequence. Serial no. 266, which had been equipped with the upgraded avionics, was on static display during EAA AirVenture.

Trying to verify current serial numbers in production or aircraft that had been delivered, to get an idea of when he’d get his VLJ, the caller demanded to know if no. 253 had been delivered. Eclipse claimed it had and that no. 254 was scheduled for delivery during the week of Sept. 22.
The caller also wanted to know how many aircraft the company was delivering, as he believed “deliveries amounted to two or three a month.” The company responded that although it didn’t shut down deliveries, it was “trickling” along with production. The customer asked why his plane couldn’t remain at Eclipse after assembly and have Garmin avionics installed. Eclipse officials responded, “We won’t have parts.”

On Sept. 29, Eclipse emailed its customers a 12-page brochure outlining a few issues of concern. One of the reasons the company said it lacked spare parts for service was because “suppliers cut back due to perceived uncertainties regarding Eclipse’s future.”

Another caller, laying claim to serial no. 356, was told his aircraft wouldn’t likely be on the assembly line for up to nine months—hinging on the company’s ability to secure new financing.
A position holder who has requested a refund remarked that he was concerned about the “lack of financing information” coming from Eclipse. Pieper responded that the company was trying to act in a responsible way, yet didn’t answer the caller’s question with any specifics.

 

Unsatisfied with Pieper’s response, the caller asked how refunds would be handled, in light of Eclipse’s reluctance to communicate. Pieper reiterated that future financing was the key to being able to pay refunds.

In response to another caller’s question regarding if the Eclipse 400 project was a go or not, Eclipse said it hasn’t begun the certification process. The company also said it hasn’t spent any of the deposit money for the four-place, single-engine VLJ.

When a caller expressed concern regarding several lawsuits launched against the company over refunds, Eclipse downplayed the significance and didn’t provide details.

The conference call only allowed about 20 minutes for Q & A.

Eclipse’s September e-broadcast also mentioned that “engine surge events” have occurred on five aircraft. The company additionally said that “recent anomalies” have occurred on Avio NG aircraft, but didn’t say how many aircraft were involved.  

On Oct. 1, Eclipse emailed customers advising them that the next conference call would be held on Oct. 10.

The Russian factor

On Sept. 23, Eclipse released a press release stating that it had gained approval and financing for its Russian production facility for $205 million. The financing, led by Vladimir Putin, prime minister of Russia and recent former two-term president, will oversee the financing, which is owned by the country.
Eclipse said that production of its 500 model would take place at the Russian facility in 2010, with a projected 800 jets a year. It claims that production of the VLJ in New Mexico will continue in full, prior to and following Russian operations.
There’s been no final word about funding of Eclipse’s U.S.-based manufacturing plant.

Thanks, Karen, for permission to use this article here. That's an excellent summary of the 'story so far' and worth taking the time to read it in full. One quote stood out for me:-

Carlson said. “UTF said it’s the ultimate decision maker on price and purchase contracts; however, Eclipse has involvement.”

In my opinion these three words are key to finding out WHAT 'involvement' Eclipse Aviation has here. Is it a 'buyback' clause, given by EAC to the UTF to facilitate the deal? Do they retain exclusive rights to service the aircraft, which would make the offer to upgrade them difficult to fulfill?

Just in case anyone needs reminding, Karen has a long history of keeping an eye on EAC. Long may that continue....

UPDATED 7th October

I've added a link to the original article, updated the formatting here to reflect same and wanted to add the following on behalf of the author. EAC have refused to answer questions from Karen Di Piazza for a considerable period. But that's their problem, not hers'. She's only asking questions on behalf of her readers, after all.

Shane

EAC stumbles on...

"SUMMARY: The FAA is adopting a new airworthiness directive (AD) for certain Harco Labs, Inc.  part numbers 100435-39, 100435-39-001, 100435-40, and 100435-40-001 pitot/angle of attack (AOA) probes installed on, but not limited to Eclipse Aviation Inc. Model EA500 airplanes. This AD requires you to incorporate information into the Limitations section of the airplane flight manual (AFM) that will allow operation only under day visual flight rules (VFR) and allow only a VFR flight plan. This AD also requires you to test the pitot/AOA probes for heater performance and replace the pitot/AOA probe if it fails the heater performance test. This AD results from several reports of airspeed disagree caution indication due to blockage from freezing condensation within the pitot/AOA system. We are issuing this AD to detect and correct improperly performing pitot/AOA probe heaters, which could result in blockage within the pitot/AOA system from condensation freezing with consequent incorrect indication of impact air pressure (airspeed/AOA). This blockage could lead to the stall warning becoming unreliable and the stick pusher, overspeed warning, autopilot, and yaw damper to malfunction."

Ooops, not ANOTHER one. Between the previous AD's, the SDR's, which prompted the FAA's own SCR and the numerous reports of false CAS messages, PFD's going blank, burst tires, stuck throttles and the rest I'm beginning to wonder how much longer this show will go on.

There is another serious issue 'lurking' in the elevator trim actuators and/or control software. I have reports of at least three separate instances where these failures resulted in 'unscheduled' landings, one of which involved a declaration by the pilots of an emergency. EAC have told the FAA that they are 'changing supplier' of these parts, but I've also been told that the 'new' parts are proving unreliable in the field. Another example of 'disruptive technology'...

I don't know about you, but I'm kinda losing track of the limitations of the FPJ. They seem to have been one of the contributing factors in the effective demise of DayJet. Herewith a quote from their press release announcing the cessation of operations:-

"This shutdown is a direct consequence of the company’s inability to arrange critical financing in the midst of the current global financial crisis. The company’s operations have also suffered as a result of Eclipse Aviation’s failure to install missing equipment or functionality or repair agreed technical discrepancies in accordance with the terms of DayJet’s aircraft purchase contract."

That's pretty black and white in laying the blame at EAC's door. Yes, their funding was suspect, but they were not helped by the limitations imposed on operations by 'missing equipment'. Sure makes you wonder who will buy the 28 FPJ's lined up outside the EAC shop at Gainsville FL.

And another thing. Chad Trautvetter at Aviation International News reports that UBS, the bank charged by Roel Pieper CEO at EAC with finding "$200 million" in funding is reporting a '30%' decline in the biz av market. That will make it real easy for UBS to pitch the idea to prospective investors won't it? I'm sure they will put this information front and center with any client who expresses an interest. Matt Thurber, also at AIN, has provided a valuable report on the DOT IG hearings. These two excellent aviation journalists have 'bookended' the challenges facing Roel Pieper right now.

Those depositors/position holders who requested a refund are between a rock and a hard place. I've maintained contact with a number of them since they were 'officially' notified that they were not getting any money until/if the new funding mentioned above became available. EAC have played 'hardball' with these people, making it quite clear that any attempt to force repayment could result in bankruptcy for EAC and result in the loss of their deposits/progress payments. Despite these warnings, at least one has proceeded into court, where the outcome is awaited with interest in many places.

Several reports reach me from reliable sources that the 'brain drain' continues at the factory. The remaining aviation professionals are leaving as soon as alternative employment becomes available. Almost 20% of middle managers took advantage of a company offer of two months salary to leave on or before Friday last. Not a great offer, but better than nothing, which is what those left behind appear to be heading for. Seems the only business booming in ABQ these days is aviation headhunters hiring hotel rooms to hold interviews....

It's coming up to 9 months since this blog, the 'NG' version of Stan's original, kicked off. In that time, 48 headline posts (including this one) have generated almost 10,000 comments. A Google search for 'Eclipse Aviation' lists this site second only to the EAC home page. Suppliers, customers, staff and 'interested parties' are in regular contact via email or on the phone. Journalists, industry watchers and aviation professionals are regular readers and sometime contributors. We've even had a headline post from the self describe 'Cardinal', Ken Meyer who is an FPJ owner and leader of the fan club for EAC.

Not bad for a specialist blog, I think you'll agree. Let's all try to keep it relevant, focused and most important, moving forward. EAC always wanted to be leaders in disruptive technology. I pretty sure 'we' were not part of their vision!

Wherever you read this, enjoy your work, play as hard as possible and cherish time with friends and family.

Shane