Litigation filed last month by Eclipse 500 empennage assembly supplier Hampson Aerospace in the New Mexico Second District Court against Eclipse Aviation quickly turned into yet another public feud between Eclipse and one of its suppliers. Eclipse’s previously publicized battles include those with former vendors Williams International, BAE Systems, Nordam and Avidyne, among several others.
Hampson is suing Eclipse for failing to pay the supplier “in accordance with the schedule and under the terms set out” in a contract initially struck in late 2003 but amended this past February. The long-term deal has an estimated value of $380 million. As per the amended agreement, Eclipse must purchase a minimum number of shipsets from Hampson or pay for that number each calendar year by the following November 30.
Eclipse is now claiming the February agreement “was procured by fraud,” thus voiding the scheduled payment arrangement. John Thal, a lawyer representing Hampson, countered that the “fraud claim is totally without merit.”
It appears that the fraud accusation stems from Eclipse Aviation president and CEO Vern Raburn’s claims that many of the assemblies that Hampson supplied had nonconforming components, alignment problems and poor riveting, among other problems. “The empennages have needed rework due to poor quality,” he said, which “has slowed down the production line” for the very light jets.
Howard Kimberly, finance director at Hampson Aerospace’s UK-based parent company Hampson Industries, told AIN that he takes exception to Eclipse’s claim that the empennage assemblies were not up to the required quality standards. “We’re a first-tier supplier to Boeing, Airbus and Hawker Beechcraft, and we’ve recently been selected to supply the empennage for the HondaJet,” he said. “Honda has the most demanding quality standards, so I’ll let you read between the lines here.”
Thal said it is “typical” of Eclipse to blame its problems on outside suppliers rather than look within. He lays the blame squarely at the Albuquerque, N.M.-based company’s feet, saying it has “inexperienced engineers due to high turnover” and constantly changing engineering.
While he vigorously defended the capabilities of his engineering staff, Raburn did acknowledge that there have been several engineering design changes to the Eclipse 500’s empennage and other parts and assemblies but said these are “normal” in a new airplane. In fact, he said some of the empennage changes even came at Hampson’s request to make it easier for the supplier to build the tail section.
Raburn also conceded, “A lot of the problems have been caused by us speeding up and slowing down the production line” as the company tries to ramp up output. Some suppliers get annoyed with this, he said, but the vast majority understand this situation and know that there will be a “good reward” later.
Show Me the Money
The lawsuit indicates that Eclipse has made only a partial payment–in March–but has refused to pay the amount due by the end of last month, even after Hampson agreed to revise the payment schedule. Hampson’s Kimberly told AIN, “We don’t enter into litigation lightly. Eclipse has forced us to take this action, but we hope it will be resolved amicably.”
Eclipse’s chief also hopes the dispute can be settled outside the courts. “We’re continuing to talk to them about the payment schedule,” Raburn said. “We don’t want to get rid of Hampson, and I don’t believe they want to get rid of Eclipse.”
In the meantime, Hampson is still shipping empennage assemblies to Eclipse from its Grand Prairie, Texas facility. Likewise, Hampson sister company Texstars continues to deliver Eclipse 500 composite nacelles from a plant also in Grand Prairie.
Raburn told AIN that he believes the lawsuit is unnecessary since it’s a “common payment dispute that happens all the time” between manufacturers and their suppliers. The heart of the matter, he said, is that “they want to be paid for assemblies they can’t even deliver.”
He added, “This has nothing to do with Eclipse’s ability to pay; we’re paying as shipsets are delivered.” Thal disagreed: “They’ve paid for only some shipsets sent this year, and even then Eclipse has been routinely delinquent in making those payments.” He confirmed that Texstars is also experiencing related payment problems from Eclipse.
“Eclipse could be at the sucking point,” suggested Teal Group aviation analyst Richard Aboulafia, referring to the point when outgoing cash far exceeds that coming in, draining funds. “The impossibly low price of the [$1.5 million] Eclipse 500 is based on impossibly high production rates and vice versa.”
Since Eclipse has thus far been unable to ramp up production to even one aircraft a day, let alone the planned three per day, Aboulafia said, the high-volume production has failed to pan out and threatens the company’s entire business model, which “has been dubious from day one.” Aboulafia believes it’s “obvious that Eclipse will need more cash by year-end.
“The next investor in Eclipse will need to ask a lot of tough questions before handing over any money,” Aboulafia noted. “And they probably will require some kind of supervision in the form of board seats or even control over executive management.”
For Eclipse to survive as a viable entity, “It needs to raise the price of the Eclipse 500, renegotiate existing sales contracts [to include this higher price] and set more reasonable production goals,” Aboulafia concluded.