Story ID: 
Post-Vernal Eclipse faces myriad challenges
By: Matt Thurber
Caption: Eclipse Aviation supplier Albany International revealed on August 19 that Eclipse “has indicated that it was substantially reducing production of the Eclip
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Eclipse Aviation supplier Albany International revealed on August 19 that Eclipse “has indicated that it was substantially reducing production of the Eclipse 500 jet, and planned purchase of components from [Albany Engineered Composites] and other suppliers, for the remainder of 2008 and the first half of 2009.” Although Eclipse Aviation declined to comment about this information, Albany International added, “Based on information provided to date by Eclipse, purchases of AEC components are thereafter expected to return to and then exceed previous levels.”Another key Eclipse supplier–Innovative Solutions & Support, manufacturer of the flat-panel display at the heart of the Eclipse 500’s Avio NG avionics system–is also facing reduced revenues from Eclipse’s production problems. According to investment research firm Boenning & Scattergood, “We believe this production cut will weigh heavily on the results of IS&S and will likely prevent the company from meeting its FY08 revenue guidance of $34 million. In addition, we believe the company’s FY09 revenue streams will likely be at risk and suspect the company will struggle to maintain a positive ramp in its quarterly revenues in FY09.”Eaton’s Argo-Tech unit, which supplies fuel components to Eclipse, is “following the situation,” according to an Eaton spokesman. “As far as what’s going on there, it will have little or no impact on our being a $13 billion company, [although] it’s a major program from the standpoint of being a supplier to Eclipse. It’s unfortunate that they’re in that situation. We always hope that our customers will be financially healthy so that we can continue to work with them.”Software supplier Right Hemisphere provides logistics programs to help Eclipse manage its manufacturing, supply chain and maintenance processes. According to a spokeswoman, “Right Hemisphere has not been notified by Eclipse of any plans to reduce its production.”Pratt & Whitney Canada manufactures the Eclipse 500’s PW610F engines. According to a P&WC spokesman, “We’re working closely with Eclipse to understand and assess their needs.”Owners and OperatorsWhile Eclipse Aviation has said it would not be conducting interviews about its production plans until they had been resolved, a company spokeswoman did say that Eclipse was scheduled to hold a conference with its suppliers during the week of August 25 to 29. “Our drive for operational excellence includes a review of our production process and ramp rates, and a disciplined approach that will make Eclipse Aviation’s vision sustainable,” she told AIN.Eclipse Aviation is faced with a conundrum: the faster it builds airplanes, the faster it loses money. When the company raised the price of the Eclipse 500 very light jet on May 30 to $2.15 million, the additional $500,000 that buyers would have to pay after about S/N 500 prompted some to ask for refunds, to which they are legitimately entitled when a price change occurs.The situation creates two problems for Eclipse. First, how does the company keep buyers of 500 and later serial numbers from canceling their orders and, second, how can it manufacture another 200-plus Eclipse 500s efficiently enough so that it doesn’t lose more money? The company’s decision to raise the price acknowledges that Eclipse wasn’t making enough money when the airplane sold for $1.52 million. Add another $500,000 and subtract some reasonable profit margin, and it’s obvious that the company loses money for every pre-S/N 500 jet that it makes. And it’s equally obvious that manufacturing the next 200-plus jets is going to be a severe financial strain on the company, hence all the talk about revamping the production process before this issue went to press.Eclipse’s other big problem, however, is the order book after S/N 500. New chairman and CEO Roel Pieper said in late July at the EAA AirVenture show that there have been no changes in the Eclipse order book, which the company has publicly stated stands at more than 2,600 jets. But even if Eclipse has orders for only, say, 1,000 airplanes, what is the incentive for the holder of position number 501 if the price is $2.15 million? Assuming that buyer could obtain a refund of his $150,000 deposit, he could easily buy a ready-to-fly Eclipse 500 today for $1.7 to $1.8 million or a position from another holder of a S/N 250 through 500 aircraft for a small premium on the $1.52 million price tag.The return of deposits has been an ongoing problem for Eclipse. No one outside Eclipse knows how many buyers have asked for deposit refunds, but three have contacted AIN and expressed concern that the manufacturer had not yet returned their money (as of August 20). Another, Fort Wayne, Ind.-based Geiger Excavating, has sued for the return of the $150,000 deposit made in 2000 for an Eclipse 500, claiming Eclipse moved Geiger’s delivery date in a $773,762 pre-production deposit demand, and wouldn’t change it back.A lawyer for one of the deposit holders participated in an August 5 conference call between Eclipse and buyers and owners. According to the lawyer, Pieper told the listeners that Eclipse wasn’t in a position to make refunds and that it wouldn’t be prudent to do so, given the company’s cash-flow situation. Pieper promised to send a letter to owners and buyers outlining Eclipse’s short-term financial plan, but he added that he didn’t think the refund policy would be established until November.In an August 1 note to Eclipse customers, the company revealed the following:• As of August 1, Eclipse had completed 13 percent of 37 performance modifications to early serial number (pre-39) jets and 24 percent of 72 scheduled Avio NG modifications (new IS&S instrument panel but not the Garmin 400W navigators).• Eclipse postponed additional performance and Avio NG modifications for up to six additional months. • Flight-into-known-icing modifications will start on September 1 on aircraft already equipped with Avio NG, and all icing mods should be done by next year’s first quarter. Jets that don’t have the Avio NG modification may be delayed in receiving the icing mods.Eclipse is discussing the creation of additional third-party service centers in Albuquerque, N.M.; Atlanta; and Chicago. Eclipse’s first third-party service center is Harbour Air in Vancouver, Canada, an appointment that signals that Eclipse has made a 180-degree turn from its previous plans to handle all maintenance and modifications on its own. Harbour Air will also be doing the icing mods.In an August 14 letter to employees, Eclipse COO Peg Billson said, “The leadership team at Eclipse is working fast and furious to define the new goals of the company and ensure we become profitable and sustainable. We are evaluating every aspect of our operations and spending to determine what changes and improvements are required. We know you are all very anxious to understand how this may impact you. Because we are getting a rare opportunity to create Eclipse Version II, we are taking the extra time to get it right. Therefore, don’t expect to hear any specifics before the end of the month [August]. If it can be sooner it will. As has been our policy, we will let you know as soon as we possibly can.”Pilot ResponseThe one group that seems most enthusiastic about Eclipse is the pilots who have gained some experience in the very light jet. Pilots interviewed for this article love flying the Eclipse 500; they love its economy and they’re completely happy with the performance. Michael Press, president and CEO of Single Pilot Jet Management of Chesterfield, Mo., started his Eclipse brokerage and pilot training company two-and-a-half years ago and has been involved with more than 200 Eclipse transactions since then. Press has also logged 300 hours in his Eclipse 500, S/N 4, which was at Eclipse’s Gainesville, Fla. service center last month getting its 300-hour inspection and the performance modification package installed. Press also owns a small amount of equity in Eclipse Aviation, although he doesn’t have high expectations of receiving a return on that investment. “My payoff was building this business around the Eclipse,” he said. “That’s paid all kinds of dividends, a lot more than I’m going to make on the stock.”While he has experienced some of Eclipse’s growing pains, Press said, “It’s still a great airplane as far as I’m concerned. For the last 100 hours it’s been reliable. The first 100 hours were pretty shaky.” He is happy with the service at the Gainesville center, but as more Eclipses enter service, getting a slot in the busy shops is becoming more difficult.Press is getting only about 100 landings on a set of tires, a problem that other owners have complained about, but he said that Eclipse is working with Michelin on a new tire design to alleviate that problem.Overall, he said, “this airplane is one of the safest airplanes I’ve flown and the easiest I’ve flown. It’s like any other airplane: if you mismanage it or do something stupid you’re going to pay for it. You’ve got to know what you’re doing.”Press finds his Eclipse 500 flies most efficiently at 35,000 feet burning about 400 pounds per hour of jet-A and cruising at 350 to 360 knots for a range of 1,000 to 1,100 nm. “It’s a sweet spot,” he said. Press participated in the August 5 conference call. “I’m optimistic that it’s going to work out,” he said. “I’m concerned like everybody else is. The owners, whether deposit holders or owners, all have a stake in the company. I think Roel Pieper has got a vision where he wants to take the company; it’s a little different from what Vern [Raburn] had. Hopefully he’s successful and can pull it off. The main thing for the owners and stakeholders is that it keeps getting built and the company stays viable. A lot is going to depend on getting European certification, and once they do and get some sales, that’ll certainly help.”Former US Airways pilot Steve Cirino has also tied his fortunes to the Eclipse and is an official Eclipse 500 mentor pilot. He runs an aircraft management company called Rocky Mountain Sport Jets, based at Akron-Canton Regional Airport in Cleveland. Cirino is most impressed with Eclipse’s mentoring program, which by certification requirements mandates specific training practices and mentoring for new Eclipse 500 pilots. “They’re not waiting for an accident or a problem,” he said. Cirino has flown about 650 hours in Eclipses, trying to build experience to make himself more valuable as a mentor and advisor. “The airplane, for the most part it’s pretty reliable,” he said. “It’s got a few problems, but they’re working through it. It does everything they say it will do; it’s fast, quiet and economical. I’ve got to hand it to Vern, they gave him a lot of static, but he did a heck of a job with this.”What about Vern?Eclipse founder Vern Raburn made a lot of promises and miraculously kept the company going for 11 years while burning through what some estimate to be $1 billion. Under his leadership, the company brought the Eclipse 500 to market and launched another jet, the single-engine 400, at a time when many thought the money should be used for more important items like finishing outstanding issues on the model 500. Whatever people think of Raburn, no one can dispute that he launched and brought into production the first viable lightweight personal twin-engine jet, a remarkable accomplishment on its own and one that heralded an entirely new category of small business jets that established manufacturers have pursued vigorously. The announcement on the first day of EAA AirVenture in Oshkosh, Wis., July 27, that Eclipse’s latest round of funding mandated Raburn’s departure from Eclipse, caught the entire aviation industry by surprise. “The show is ending for me,” Raburn said. “I’m not a quitter; I have no choice but to accept the terms. We’ve accomplished goals that were impossible. We totally confounded the experts. I’m extremely proud of that.”“It came as a big surprise,” said Jack Pelton, chairman, president and CEO of Cessna Aircraft. “I hope they can weather this storm. It’s critically important; competition is good. I don’t want to see people lose confidence in this industry.”Bruce Holmes, former NASA chief strategist and now director of air systems research at Eclipse air-taxi operator DayJet, witnessed Raburn’s farewell speech at Oshkosh. “Everybody who innovates winds up displaced by the transition from creation to operation,” he said. “Vern has pulled off one of the biggest miracles in modern aviation history. Without Vern, DayJet wouldn’t be here.”Eclipse pilot and broker Press admitted that Raburn “probably sold [the Eclipse 500] too cheap and gave them away for too little. I think a lot of owners believe that he did a great job. It’s going to be around a long time because it is a great design. He deserves a lot of credit for that, pulling it off; it wasn’t easy. I’m not sure the Mustang or the Embraer or even single-engine jets would have been built as fast as those other companies came in if Eclipse failed. It kind of woke up the industry; they said, ‘Hey, there is a demand for small jets, and we’d better get into the market.’”