A bit of Holiday Cheer....

Vern spoke at the VLJ Forum in November and dispensed the Raburn brand of wisdom to an attentive audience. In this holiday season, the world is troubled in so many ways. If only we could sit at the feet of the master to receive more revealed truth. Civilization is blessed in that Raburn is the gift that keeps on giving.

Vern is speaking in February at a seminar held by the Journal of Air Law and Commerce. The Journal is the oldest scholarly periodical in the English language devoted primarily to the legal and economic problems affecting aviation and space; it has a worldwide circulation with more than 2,300 subscribers in 54 countries.

We are lucky to have received an advance copy of Vern’s prepared remarks:

“Good morning, ladies and gentlemen, dudes and dudettes. My name is Vern Raburn. Some have called me the Father of the Very Light Jet – I’m not sure about that but I would certainly be named in any paternity suit. Others have identified me as the Grand Panjandrum or Exalted Vizier of the VLJ Revolution. I accept this with my characteristic modesty and note that I received the Collier Trophy and Cabot Award.

The name of the Journal contains the words Air, Law and Commerce and I’d like to address each of these topics. I’ve had a lot of experience with air, especially heating it to temperatures well above ambient. I have considerable involvement with the law… in fact my legacy is keeping a whole herd of lawyers busy in Delaware and elsewhere.

It is commerce that I would like to address in detail. Some have questioned our success during my tenure at Eclipse Aviation. We did spend quite a bit of money. In fact our spending would exceed the gross domestic product of some small countries. But these funds were invested wisely. The list of technical advances incorporated in the Eclipse 500 is awesome: cutting-edge avionics, brakes, tires, windows, pitot tubes, trim tabs, throttle quadrants, digital engine controls, bleed air systems, environmental controls and novel metal welding techniques.

However in spite of brilliant design and execution, our company was laid low by the global economic crisis. It is clear now that Eclipse Aviation was the miner’s canary in the worldwide financial meltdown. We were the recession’s earliest victim and the skies would be darkened with VLJs had we not encountered these impossible conditions. I expect that MBAs for generations to come will study our business case.

I am heartened by the financial bailout package just announced for two of the big three automobile makers. I have an appointment with President Obama about Eclipse Aviation – the company may not be too big to fail, but it is too important to let slide. I have soap in my hole; er no, no. I have hope in my soul that Barrack Obama will listen to my appeal. After all the Eclipse 500 is the greenest jet out there and the only one able to sequester carbon as it flies.

Thank you, and now I will take a few questions."

As usual, I'll remind our readers Black Tulip is our resident satirist, and that the tulip mania peaked in the Netherlands during the 1630s. The black tulip was the most sought after, until found to be biologically impossible. 

A call to arms

I got this two days ago, from within the group formed to represent the '10%' depositors, who had requested refunds. Since it's hard to get any good news out of EAC these days, I thought the following deserved greater visibility, and requested permission to make a headline out of it. For those of you to whom it is addressed, I can only recommend you follow the advice given, as there seems little alternative at this stage. However, you are all adults, so must make your own decisions. I provide this platform willingly, in a sincere effort to help, not hinder, the E5C efforts to coordinate the response by owners and others affected by the EAC Chapter 11.

Shane

Fellow Eclipse Deposit Refund Seekers 

During a conference call which occurred last Friday, December 12, 2008, legal options were discussed as how to proceed with the Eclipse Aviation Bankruptcy. A firm with experience advanced a "Constructive Trust" theory. For the group's benefit we sought out opinions with three additional law firms. The three law firms were presented with the facts, contracts, refund information and associated emails. The three law firms firmly believed that the Constructive Trust theory had no legal basis and no chance of success. The phrase bandied around was "throwing good money after bad money."

The other legal option would be to become an unsecured creditor. With the amount of liabilities versus expected assets the likelihood is the unsecured creditors would not see a single cent from the sale of the assets.

This leads to the question to what is the best option available for those seeking refunds. After much consultation it appears that the least financially damaging option would be to seek reinstatement to a depositor status (withdrawing the refund request). This would allow the depositor seeking refund to join the ranks of the depositors not seeking refunds, 60% depositors and aircraft owners, which would be most likely considered executory contract holders. The Newco would then have the option of denying the executor contracts, accepting them as is or accepting them with new terms.

Being treated as a depositor would allow you to have more options to realize value if ETIRC or another asset purchaser is successful. The recent EASA certification may also create value for position holders.

The E5C board has been working diligently to pre-negotiate the status of those contracts which are likely to be considered executory contracts. E5C has created an Ad-Hoc committee which has representation of those individuals seeking refunds.

If you have not joined the E5C you should do so immediately: www.eclipse500club.org. The individuals that have 60% deposits and aircrafts have much more to lose financially than those with 10% deposits. The 60% depositors and aircraft owners have been asked to contribute $4500 to the group for legal/financial representation. This new group is called the Ad Hoc Customers Committee. Those of us that have 10% deposits (both seeking refunds and not seeking refunds) have been asked to contribute $2250 towards the fund. Since this would appear to be the best legal option you are urged to join the club and contribute towards the legal fund. The Ad Hoc Customers Committee is committed to protecting all our interests.

Sincerely,

Alex Amor

Light at the end of the tunnel?

UPDATE ONE

I got this from a 'reliable source' during today (Thursday 11th) and pass it on. As always, it's nice to have a first hand account of these events, in a timely manner.

Shane

Thursday 11th 18.15 GMT

Formation of the Unsecured Creditors Committee
A very interesting day, with a few unexpected surprises.

Per procedure, on Monday December 8th the US Trustee sponsored the formation of the "Official Committee of Unsecured Creditors". There were about 50 people in the conference room when I slipped among those standing in the back. The group was probably 25% creditors or proxies, 50% attorneys and accountants looking to get hired by the committee, and 25% interested gawkers.

The Debtors Team (saying Debtor is so much more apt that saying Eclipse) and the Trial Attorney and Analyst from the US Trustee's office took their place at head table. The Trial Attorney provided a brief introduction on process, and then the Debtors were asked to provide a statement.

To set the scene, Mark Borseth (Debtor CEO) and Bruce Castle (Debtor "In"-House Counsel) were flanked by their hired guns from Allen & Overy ("Out"-House counsel from NYC) and Young Conaway (local counsel). Borseth looked like it was an imposition that he had to be there, and slouched in his seat like my 6th grader. Castle had that deer in the headlights look as he surveyed the standing room crowd. Such a struggle to fly first class from Albuquerque and stay at the Four Seasons with your $700 per hour lawyers.

The Debtors' attorneys feigned having a stack of briefs but in reality had nothing prepared. They spoke maybe 75-100 words TOTAL, lasting maybe 30-45 seconds. The only question pertained the Debtors' requested deadline for objections to their proposed Sale Procedures. Trying to appear magnanimous, the Debtors' Council agreed to another day or day and a half. But in reality he came off as even more arrogant.

At that point, the Debtors Team was asked to leave the room, and the Trial Attorney set out to form the committee. Present were a few big creditors (Hampson, Precision Aerostructures, Pratt & Whitney) and maybe one or two smaller ones. Represented by lawyers/proxy were a few more big creditors (DayJet, LeBarge, etc.) and possibly a few owners.

Notably absent were any actual owners or depositors of any denomination. More notably absent was any significant response to the questionnaire sent to the 20 largest creditors, but available to all. The guys who have made noise for years, and are clammoring to get what is owed them couldn't be bothered to make a day trip to Wilmington.

The Trial Attorney spent a little over 2 hours interviewing the creditors that showed up in person, and calling those that responded to the questionnaire. The Trial Attorney and Debtors Team returned around 2:00 pm, Borseth resumed his slump, and the committee members were announced.

The rest of us were kicked out of the room while the committee had a chance to ask questions of the Debtors. Must have been really grueling, as the Debtors were coming out the door after maybe 3 minutes.

At that point, the committee set about interviewing the law firms and accountancy firms that came in search of work. Kind of like ambulance chasers for the bankruptcy crowd. We all waited in the hallway while each of seven or eight firms made their pitch. In the end, and at around 4:30 pm, the committee chose Morrison-Foerester (attorneys) and Chanin Capital (accountants).

The discussion in the hallway was quite spirited and informative. Remember that except for us few lurkers, they were all lawyers, CPAs, etc.

>> Why didn't any owners or depositors show up? Possibly they felt that Tuesday's hearing on forming separate committees for owners, depositors, etc. would be successful. In the end, the Trustee selected three owners and/or depositors, but none of them were present, much less active in the fight for standing and ultimate recovery. The opinion was that the vocal owners and depositors could have had BOTH three seats on the basic committee AND the opportunity for successful motions the next day.

>> Did everyone see that the Debtors' filings completely ignored the Unsecured Creditors Committee? How could they do that? The UCC is standard, especially in this type of case. Arrogance pure and simple! The Debtors spent pages detailing how warrantee claimants, depositors, JetComplete subscribers, and even recent employees were now considered unsecured creditors, but didn't even mention that group in the filings.

>> What is with the Debtors' proposed timeline? They want to close the sale in 26 business days from the filing, a period that includes three federal holidays and two extended religious holidays. They also claim to be aggressively marketing the company. Yeah right. Every lawyer in the hallway had a stack of objections in hand. All vowed to make that farce get a serious shake up.

>> Who really believes that Pieper and Mann are disassociated, arms length, buyers? While most didn't have the depth of knowledge yet, they all knew about Roel and his son at ETIRC, Roel and his partner on the Eclipse BoD, the play of Al Mann over the years, the Russians, the supposed Spaniards, the basketball team, etc. The discussions of his forcing the company into bankruptcy just to get the assets at the firs sale were rampant. They all knew of the recent EASA certification, and its greater value in Europe than in the US.

>> Who devised the financing schemes used over the years? Looks like Al Mann put money in, and then took lots of money out over the years. Looks like Roel Pieper had convertible debt, which converted again, and again. Maybe the secured creditors are not so secure. If there were note conversions for some, should it have applied to all? Plus, the supposed $28M offered by EclipseJet was felt to be funny money. Debtors expect to get the $20M in DIP returned, along with $1M in expenses, a $4M break-up fee, and $3M+ in other shenanigans. Offer $28M in cash and list $28M in refunds in the same filing, now that is arrogant and stupid.

>> Who was the "other bidder" that everyone has heard exists? It supposedly is lead by a former Eclipse executive.

In the end, the opinion among the lawyers and accountants waiting in the hallway was that for anyone to get anything, the company must be sold and reorganized, and not allowed to drift into liquidation. There is money in the mix, likely money to recover from the coffers of Al Mann and other Board members, the Russian money, the ETIRC resources, etc.

The only thing needed to unravel the whole mess is time. The Debtors know that and are trying to ram the process through and get out of town (aka the USA) before the law comes a calling. The creditors know that and are trying to slow down the train so that sunshine may prevail.

Best legal opinion we overheard was to petition the Court for a Post Hoc valuation and settlement. Allow the sale to go through, escrow the cash purchase amount (so it isn't useable to immediately pay RP's moving trucks), value the company after the "substantial outside investment" closes, and pay off all of the creditors and owners.

It just might work.

That was from yet another 'friend of the blog', which I'm sure you all will join me in expressing our thanks.

The (now second) item reached me during the 'night' of Wednesday 10th December. I'm not in a position to recommend any course of action, especially to those of you who've hired a lawyer, but this chap seems to offer hope. He's also had contact from several of you, especially readers of the blog, who may have struggled to find a US based firm to take on your case. 

And he says nice things about me!

A small note for those of you tempted to rely on email. In this spam filled era, it might be an idea to send a fax or make a phone call, as this process is very time critical and you don't want to get lost in the crowd.

So, if you are a '10% depositor who requested a refund', give Tim a whirl. After all, you've nothing to lose at this stage....

Now, if there are other groups out there who are representing suppliers, staff or anyone else with an interest in EAC, feel free to contact the blog.

eclipsecriticng@gmail.com

I'll be happy to help, if I can.  Just remember I live in Ireland (in the GMT zone), and I travel a fair bit....

Shane

07.45 GMT Thursday 11th December 2008

Eclipse 10 Percent Deposit Holders Have the Opportunity to Recoup Funds

We would like to thank Shane Price for posting our prior message and giving the motion to appoint a refund creditor's committee the best chance of success possible. The size of this blog's readership was plainly apparent from the many email responses to that message, a number of which spanned the globe. We hope Shane will post this further message.

As most of you know, the Judge was unwilling to appoint a committee of refund deposit holders at the expense of the bankruptcy estate. However, the Judge appeared receptive to our argument that Eclipse held the refunded deposits in trust for the 10% deposit holders. Simply put, our legal theory is that once the deposit holder timely elected a refund of his or her money in response to the June 2008 letter from Eclipse, that money no longer belonged to Eclipse and Eclipse could not spend it. We argue that those funds should not have been spent on operating expenses and should have been segregated and returned. We believe the theory to be a sound one and therefore, we have decided to proceed and see if there is suitable interest on the part of the 10% deposit holders to collectively pool their resources to file a complaint against Eclipse based upon our constructive trust theory and various other claims. At this juncture, we have indications of interest from about 40 refund deposit holders. Further support would be extremely helpful. If you are an individual that made a timely election for a refund of your deposit in response to the June 6, 2008 letter from Vern Raburn, which provided you with that option, yet you did not receive those funds, we would like to present an avenue for you to recoup those funds. Please email me at tmcculloch@gordonrees.com for further information as soon as possible.

Once again, we thank Shane Price for allowing us a voice on his widely read forum.

Sincerely,

Timothy McCulloch/ Senior Counsel
Gordon & Rees LLP
111 W. Monroe Street, Suite 1111
Phoenix, AZ 85003
email: tmcculloch@gordonrees.com
info: my vCard
Main Phone: (602) 794-2460
Direct Phone: (602) 794-2467
Mobile: (602) 568-5291
Fax: (602) 265-4716

Time to reflect

UPDATED SUNDAY 7th December 00.23 GMT

Eclipse Refunds: For The Ten-Percent Deposit Holders

To anyone who placed a 10 percent deposit on an Eclipse 500, and timely elected to receive a refund in response to Eclipse Aviation Corp.’s June 6, 2008 letter, yet never received a refund before the company declared bankruptcy on Nov. 25, 2008: On Tuesday, Dec. 9, 2008, the court overseeing Eclipse’s bankruptcy will consider motions to appoint an “Official Committee of Refund Deposit Holders.” Deposit holders Bill Hewitt, Bradley Investments Inc. and Don Buttrum, all of whom timely elected but never received refunds, with assistance from the law firm Gordon & Rees LLP, will seek the appointment of a committee to represent those individuals/entities that placed a 10 percent deposit.

It’s the ad hoc committee's opinion: individuals or entities that placed a 10 percent deposit on an Eclipse 500 have different legal rights and remedies, separately from the other creditors and deposit holders. An independent committee made up of representatives from those who placed a 10 percent deposit should be created to ensure that those interests are protected. If you're an individual or an entity that placed a 10 percent deposit but didn’t receive the requested refund, e-mail Timothy McCulloch tmcculloch@gordonrees.com for additional information.

December 2008 will be a pivotal month in the history of Eclipse Aviation. The recent past has seen a radical decline in deliveries, with only two FPJ's finding victims, sorry, customers in November. Clearly the Chapter 11 declaration at the end of last month was a long predicted outcome and is clearly designed by the BoD to shed the onerous parts of the business at the lowest possible cost. Another Airworthiness Directive comes into effect on the fourth of this month and a string of suppliers are in serious trouble having relied on now worthless promises of payment. The good people of New Mexico are down $19 million, and the rest of the original investors have been fleeced for in excess of (self confessed) one BILLION dollars. Owners are on record as having paid almost $300 million for product that can only be worth a third of that. Depositors are in the hole for sums between $150,000 and $1,000,000 each and former employees have been cut off with no recourse. The list goes on, but life is too short....

So let's tally the 'good vibes'

It's possible that Roel Peipers' plan might work, leading to a  restart of production in ABQ in the early part of 2009. But only IF his plans get past the bankruptcy judge AND the key suppliers stay on board. He also needs to prove there are enough orders at what will clearly need to be an even higher list price and finally, he has to avoid someone else putting in a spoiler bid. It's possible that one of the existing vendors might do a 'Beech Starship' and simply close the whole show down in an effort to avoid future liabilities. And don't forget, Wedge is lurking. If he won the bidding auction in January this would surely destroy whatever remains of the 'goodwill' stakeholders still have in the project.

There are still a group of depositors who are 'pot committed' and will hang in for anything that they can get. Remember, some of these guys have been waiting for up to 8 years, so what's another couple of months? Likewise the owners who've already got one (or more) and know that the possibility of selling on is negligible until the situation is clearer. These two groups have slightly different agenda's but are likely to continue passive support, as long as it's not costing them more money.

Speaking of money, those of you owners who've not paid your CPI or Jet Complete yet are in for a rude shock. While Chapter 11's principle purpose is to protect a company from it's creditors, those who owe it money are in for the cattle prod treatment until they stump up what's been invoiced. Better hire good lawyers, boys and girls. OK, so this is not 'good news' for those owners affected, but it's positive for the company.

First, an appeal

It appears that there is a willingness to support the depositor/owner group from within the blog. While I laud this sentiment, I would remind ALL of you that one man stood up for this blog when we were threatened by EAC in April of this year. I should also remind you that an EAC employee who's only failing was to speak the truth was also picked on by Wedge at the same time. I speak of course of Brian Skupa. If anyone wishes to make a contribution to any of the above causes, please route it though Gunner

a.k.a.

Rich Lucibella

Publisher
SWAT Magazine
5011 N. Ocean Blvd
Suite 5
Ocean Ridge, FL 33435
Tel: 800.665.7928 Ext 704
Tel/Fax: 561.337.1551

This gentleman has demonstrated with his own hard earned cash, an excellent lawyer (thanks again, Norman) and the belief in doing the right thing, that he can be trusted to distribute any monies in an appropriate manner.

Update for creditors

Second is the unsecured creditors meeting but you better get a move on. It's on Monday next, December 8, 2008 @ 11:00 a.m. in Room 5209 of the J. Caleb Boggs Federal Building on 844 King Street, Wilmington, Delaware 19801. Remember, if you're not in, you can't win, so get yourself represented if you can't make it in person. I'm quite sure that comments posted will keep us up to date with 'progress'.

The latest AD

We know the AD for the 'carbon build up' issue (effective 4th December 2008) limits the FPJ to FL370, even with both engines running. What people should really be aware of is the limits imposed by the AFM for 'One Engine Inoperative - Service Ceiling'. Since the problem which the AD is addressing is exactly that situation, I thought it valid to share with you the relevant data from the FPJ's AFM. At ISA -20C, with 5, 760lbs on board, the service ceiling is 23,250' on one engine. Better be carful in warmer spots, as at ISA +20C you're only good to 7,750'. At those sort of FL's you're in traffic and lots of weather. Where's the fun in that?

Ex employees of the company

There are a number of ex employees who've been left as unsecured creditors, a few of whom have contacted the blog email seeking like minded people. If you are in this position and want to make contact with others, one of those affected has set up the following email address, execlipser@gmail.com as a 'rally point'. Please use it to get together, as we know from our experiences here that acting in unison works better than individual responses. Ask the Wedge, who must still be regretting suing the blog.

An eBay auction

FPJ owners are trying anything to raise a few dollars on the back of their purchase. How about bidding for a ride in a FPJ.? Be careful about this, you might win...

The 'mythical' s/n 266

On the 26th of July 2008, an 'Experimental CoA' was issued to EAC for this aircraft. This was well out of sequence. For example, the 'last' FPJ (delivered on the 21st of November) was s/n 259 and that only appeared on the FAA database for the first time on the 18th of August. The importance attached to '266' is twofold. First, it's been used by EAC to show off the 'final' configuration to customers and suppliers in a effort to drum up support. Second, as the self declared first 'completed' aircraft it was going to be the benchmark for all upgrades as well as the reference configuration for all future production. What will happen to this orphan now? Will it be dumbed down to lower people's expectations, or simply vanish in the fog of war created by Chapter 11? I suspect we will be 'surprised' by it's departure to 'Russia' in the near future...

A personal observation

Clearly, I could go on. And on, and on. But I won't. Last week we saw reaction from suppliers, customers, staff and the owner/depositor to the main event, and the subsequent debate on the blog. As predicted, once cash ran out, the merry go round came to a screeching halt. Smaller suppliers are in a bad way, staff are in a no win position, depositors have been formally notified of their losses and owners have a aircraft worth a lot less than they thought, with an uncertain future looming for all. Events this month will determine if the proposed bail out stands up to scrutiny. I hope that everyone 'escapes' from this mess with the best outcome possible.

And finally (for this post)

On Tuesday 11th April 2006, Stan Blankenship started this off with a comprehensive post detailing the obvious flaws in the 'story' being sold by EAC. You can review it here, but for me, one key line stands out:-

"The obvious conclusion is that this program can only pay off with delivery rates unprecedented in the industry."

How true that statement turned out to be. Indeed it will still apply to EAC V 2.0, if that gets going next year. One thing is pretty certain though. Whatever happens, this blog will continue to keep a close eye on things, and will probably be accurate in predicting the final outcome.

Shane