Tom Haines

Making sense of the Eclipse drama

November 25, 2008 by Thomas B. Haines, Editor in Chief

You need a score card to keep up with the Eclipse Aviation developments over the last couple of weeks. Two weeks ago the struggling company missed payroll and some workers walked out. But then it got some funding and was able to meet payroll early the next week. Then, great news last week when the company announced that it had received EASA certification and certification of the much needed Avio NG 1.5 avionics system.

As I reported in my pilot report on the Eclipse 500 VLJ in the August issue of AOPA Pilot, Avio NG 1.5 turns the EA500 from a “near jet” to a “real jet.” The 1.5 upgrade places dual Garmin 400 navigators into the panel and upgrades the autopilot to give it the capabilities you would expect from a jet.

This week’s news that the company has filed for Chapter 11 bankruptcy protection so that it can keep operating is not exactly a surprise, except maybe in the timing. As I noted in my column in the December issue of Pilot, more than one forecaster was projecting the company would cease operations in the first quarter of 2009. However, the bankruptcy filing may actually buy Eclipse some time to secure enough funding to allow it to emerge free of debt and with a trimmed down business model that allows it to be profitable on a couple of hundred units a year instead of the need to manufacture 1,000 or more a year.

What’s not clear yet is the impact of the filing on current position holders with deposits paid, those who have been seeking refunds since Eclipse raised the price substantially last summer, and those owning the 200 or so Eclipses already produced who need warranty coverage and long-promised Avio NG and other upgrades. My guess is that they will end up at the bottom of the creditors’ list. [Update: Eclipse late Nov. 25 notified Eclipse 500 owners, deposit-holders and those seeking refunds from deposits that they were mostly out in the cold. Warranties won’t be honored nor will contracts related to JetComplete maintenance programs. The individuals will be considered unsecured creditors. For more details, see a copy of the customer letter obtained by AOPA Pilot.]

At this point the only certainty is that there’s more to come in the Eclipse Aviation drama. Stay tuned.


14 Responses to “Making sense of the Eclipse drama”

  1. Ken Stallings Says:

    Seeking bankruptcy protection isn’t what should anger the entire aviation industry. What should anger everyone is the clearly immoral actions taken to leave existing customers totally out in the cold. This is in keeping with the accepted business practice of today’s era — to do everything to reward shareholders of stocks and do practically nothing to take care of your paying customers, who’s money it is that fuels the stock values in the first place!

    In my view, given Eclipse’s plans, they should not practice business anytime in the immediate or long term future. Who in his right mind would provide to Eclipse any of their money? These are not insignificant financial investments these customers made. I sincerely hope the bankruptcy courts refuse to go along with this scheme and deny Chapter 11 protection without requiring actions to refund deposits and honor financial commitments made to customers.

  2. Ed LeGault Says:

    I warned everyone several months ago that the “leadership” of Roel Pieper only leads to the dismantling of companies and the sale of assets. If anyone ever works for a company and Mr. Pieper comes in as CEO… run fast because the end is near. History repeats itself again.

    My heart goes out to the owners of existing aircraft and those losing their deposits and pre-paid services. There has got to be a better way to get early buyers in line for new products like expensive aircraft. This will just make it more difficult for the next new manufacturer to make a start in the aviation world.

  3. Sean Fields Says:

    The good taxpayers of New Mexico can kiss their “investment” goodbye. The US employees of this monstrosity will soon see their jobs depart to Russia. The arrogance of this corporation knows no bounds.

  4. Phil Solomon Says:

    The timing of the chapter 11 filing straight after the European approval is not in the least coincidental. Companies planning for chapter 11 (yes this would have been planned in detail) will often time the bankruptcy to its maximum advantage. In this case the EASA certification has very kindly been paid for by those hapless customers and suppliers who have money owed to them. A filing before EASA certification would have required money from the new company which would have been secured as opposed to the “free”, unsecured money, pre-bankruptcy.

    In countries such as the UK, Directors can be held personally responsible for debts incurred if they continue to trade once it had become clear that the company cannot meet its obligations “as and when they fall due” (in other words insolvent). The US code encourages companies to trade in ways that many consider irresponsible including allowing insolvent companies to choose when they file and even allows the continued ordering and receiving of products that the company knows will not be paid for.

    A number of people will make a significant amount of money from this bankruptcy and a much larger number will be thrown into financial distress. Do not expect any sympathy or assistance from the Chapter 11 process. The first thing the company will do is appoint their pre-agreed attorneys and other advisors, bring in friendly financial backers and ask the judge to allow them to continue to manage the business (“Debtor in possession”). The amounts paid to each of these “in possession” stakeholders will generally make your eyes water.

  5. Ronald Says:

    Makes you just want to go back to the Experimental/Homebuilt days.
    What a bunch of scum bags these CEO’s are. I hope they never sell another plane.

  6. Paul Tipton Says:

    Chapter 11 is just a form of legal theft. The suppliers, employees, and customers will all be left to swing in the wind with little or no recourse.

  7. Sidney Snith Says:

    Wow, you never saw this sort of behavior from Piper during their hard times. Sure makes you appreciate guys like Beech and Cessna. It always did look like a foreign job to me. Ten years from now it will be referred to as the Russian built Eclipse. Say what is the Russian word for an eclipse?

  8. HeloCaptain Says:

    I agree with Phil, “The US code encourages companies to trade in ways that many consider irresponsible…”

    It is unfortunate that the most irresponsible officers of this corporation are going to leave with full pockets while the customers, suppliers and employees (if any are stupid enough to hang around) will end up having to purchase their own KY lube.

    While I generally do not wish good karma upon attorneys, I do hope that some lawyer can figure out a way to successfully make the corporate officers “feel the pain,” with the best outcome being some personal RESPONSIBILITY.

    Tis a shame the way that the U.S. culture (as evolved by our nanny federal government) encourages, “not my fault” irresponsibility.

    [Gee, maybe Eclipse should just self-identify as a bank and get bail-out money. It worked for AmEx!]

    Unfortunately, I think that Eclipse’s actions will have fatal consequences for the entire VLJ concept.

  9. Carl Rossi Says:

    Being the owner of a Columbia-now Cessna-400, and having lived through Columbia’s Chapter 11, I thank my lucky stars that the company was purchased by Cessna whom, in contrast to Eclipse, went out of their way to assure us Columbia owners that all warranties would be honored, parts would be available, etc.

    Question-where was the aviation press when this story was evolving? With the exception of ahighly critical article in Aviation Week last year, and the recent Teal Report, I cannot recall reading anything other than encouraging and in some cases glowing coverge of Eclipse and how it was going to “revolutionize” aviation. It didn’t seem to bother many of the reporters that the company would not offer demonstration flights in the aircraft to the press, did not do a good job of explaining the numerous program delays (I was at AOPA in Palm Springs in, I think, 2004, just after the first “flight” of the 500 with its original engines, when it was already obvious to the company that the engines were inadequate, but of course the sales force was touting the “ongoing flight test program” and specifically denying any problems with the engines. Yeah, it’s marketing, but its also lying), and inexplicibly spent time and $$$ developing the 400 before even getting the 500 certified. Makes one wonder about the independence of the press…..and brings back painful memories of other debacles, like the BD-5…..

  10. Buster Offutt Says:

    Where is the ”BAILOUT” money for these guys?

  11. Joseph Reiplinger Says:

    I can’t understand the logic of throwing your potential customers to the lions. How will the NEW company ever obtain customers? Are there really people out there that would be willing to pay money to a business that clearly demonstrates ability to lie, cheat and steal?

    Being witness to such nonsense should shake up any potential customers. I keep hoping that reason will prevail and the public will realize that our no responsibility society must come to an end.

    It’s not okay that padding of select pockets with money STOLEN from customers or suppliers.

    What happened to morality? It appears that has been replaced by the code of whatever you can get away with… A legal license to steal. No consequences.

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