New investor secured, Eclipse adds manufacturing facility
Eclipse Aviation secured a new source of financing from Etirc Aviation that resulted in sale of a minority stake in Eclipse to the new investors. The deal also includes a second assembly line in Russia scheduled to begin operating late next year. Etirc Aviation, a subsidiary of Netherlands- based investment and development firm European Technology and Investment Research Center, invested “substantially” more than $100 million in Eclipse in exchange for the minority stake, the right to build the assembly plant in Russia and distributorship rights to sell, service and provide training for the Eclipse 500 in 60 countries in Eastern and Western Europe, Russia, the CIS and Turkey.
Etirc Aviation, based in Luxembourg, is now the largest equity investor of Eclipse Aviation, and Etirc CEO Roel Pieper has been appointed non-executive chairman of Eclipse Aviation’s board of directors. Former chairman Red Poling remains on the board.
The opening of a plant in Russia was foreshadowed in a June 2005 article in Russian newspaper Izvestia, which claimed that a Russian aircraft factory would build airplanes “designed by [Microsoft chairman] Bill Gates.” The article said that Pieper had proposed manufacturing the Eclipse 500 at the Aviastar facility in Ulyanovsk, which used to manufacture Tupolev airliners. When Eclipse and Pieper announced the recent $100+ million investment in Eclipse, Pieper said that Ulyanovsk was a strong candidate for the planned Eclipse assembly facility.
Eclipse president and CEO Vern Raburn, who used to work for Microsoft, said that money from the Etirc investment had already begun flowing to Eclipse in late December 2007. In the same month, Eclipse received FAA certification of the Avio NG avionics platform for the Eclipse 500 and by the end of the year had delivered the first Avio NG-equipped Eclipse 500.
Avio NG is not yet fully functional, with GPS capability still pending. Other Avio NG optional features, such as a third AHRS, Skywatch HP, Class B TAWS, DME, ADF and mode-S transponder with diversity capability, will be available via software upgrades early this year, according to Eclipse.
The Eclipse 500 is also not yet certified for flight into known icing conditions; the company expects to achieve that certification by the end of this year’s second quarter. Eclipse 500 test airplanes were busy with ice-shape tests and actual icing flights last month.
The Russian assembly plant and Etirc’s distributorship don’t dilute the work that Eclipse’s Albuquerque, N.M. headquarters will continue doing to fulfill the company’s 2,650-jet order book. Sales in Etirc’s territory should add to that order book, and Etirc will deliver airplanes to its customers from the Russian factory.
Eclipse will supply all parts used to make the Russian-built 500s and all parts–including those provided by vendors–will flow through the Albuquerque factory. “We’re not planning to ramp down production in Albuquerque,” said Raburn, adding that the factory plans to hire 700 more people and has already rehired nearly all of those laid off during a production adjustment last year.
Raburn emphasized that while Etirc is now Eclipse’s largest equity investor and Pieper the board chairman, Etirc will not control Eclipse and no Etirc employees will work at Eclipse. “It’s really a partnership,” he said. “We’re not merging the companies. It is a fundamental acceleration and expansion of the Eclipse business plan.” The Russian plant will be a public-private partnership between Etirc and the Russian government, according to Pieper.
According to Raburn, the main reason for the Etirc investment is that “we exited 2007 with some fundamental challenges. We were clearly short of funding.” As
a temporary measure, last November Eclipse offered position holders a special price of $1.25 million for their Eclipse 500s in exchange for the buyers each putting up a $625,000 deposit. New buyers were offered a similar deal, a price of $1.4 million for a 60-percent deposit of $840,000. The offer ended December 14, and Eclipse says it raised $30 million in short-term financing. Still, Raburn said, “We needed to come up with an additional source of funds.”
The investment by Etirc makes more sense when considering demand for the Eclipse 500 in the European and Russian markets. “Demand outside the U.S. really surprised us,” Raburn said. “It’s four to five years ahead of what we expected.”
“It is a huge territory that is economically exploding,” said Pieper. “We are underestimating what that means.” Pieper is confident that Russia is the best place
to build the Europe-bound Eclipses. “We tried other parts of the world,” he said. “When looking at China and India from a general aviation standpoint, both have
a long way to go. China does not have a heritage of aviation. The airspace is still controlled by the military. India has a massive infrastructure challenge.” But Russia, he said, “has the greatest aviation heritage outside the U.S.”
Etirc Aviation announced an order for 180 Eclipse 500s last May. Etirc’s plans
for the aircraft included setting up air-taxi operations for clients who want to serve markets in Eastern and Western Europe and Turkey, although Etirc hasn’t released any details about these nascent companies. Pieper, however, told AIN recently that all of the 180 Eclipse 500s that Etirc ordered are spoken for “and more.”
Eclipse will realize “significant additional financial benefits…as agreed commercial objectives are realized” in the agreement with Etirc, but the Albuquerque OEM declined to reveal further details about these benefits or what the commercial objectives are. While the majority of Eclipse sales have been in the U.S., the company expects the U.S./international split eventually to reach 50-50. An Eclipse spokeswoman said that one Eclipse 500 is currently operating in the UK.
Since Dec. 31, 2006, Eclipse produced and certified 104 Eclipse 500s, although “IOUs” for complete functionality remain pending on those airplanes, including aerodynamic and larger fuel tank modifications to the airframes of the first few dozen jets. Eclipse plans to complete those mods and the Avio NG upgrades at no
cost to owners this year, as well as completing known-icing and EASA certification during the first half of the year.
While the manufacture of more than 100 business jets in one year is a rapid initial production rate for a new aircraft manufacturer, Raburn expected more than that and acknowledged that Eclipse didn’t reach promised production levels. While vendor problems contributed to some of the production problems, Eclipse’s own capability was also a major factor.
Todd Fierro, vice president of manufacturing, joined Eclipse 11 months ago and since then has focused on standardizing the production process so that it more closely matches an automotive assembly line like that of his former employer, Ford Motor Co. Last August, the company completely changed the production process, he said, and since then has tweaked the process to improve output and make it more flexible. “Because it’s flexible,” Fierro said, “we can expand or rearrange to improve efficiencies.”
Eclipse technicians are close to manufacturing one jet per day, Fierro said, and should achieve that milestone by the second quarter. The processes that he has helped develop, however, have been validated up to a 2.5-airplane-per-day rate. The assembly technicians are working a four-crew shift, keeping the Albuquerque factory open 24 hours a day, seven days a week.
One crew works a 3-4-4-3 day shift and the other a night shift, which means a technician works three days on, four off, four on, then three off. The result is 180 days off per year, a schedule similar to that used in the nursing industry, and it allows full use of the factory floor without having people work more than 40 hours per week.
In early January, S/N 107 was getting ready for its first engine run before going to the paint shop. The serial numbers aren’t in sequence, so 107 wasn’t necessarily the 107th built. In the nearby initial assembly plant, aircraft 146 appeared to be the latest under construction. Eclipse paints its airplanes before sending them on production test flights, then delivers the airplane; other manufacturers fly the airplane first, then add paint. Eclipse has reduced the time to paint to two days and it has four paint booths running round the clock, with two additional booths standing by for added production.
“Our big mistake in 2006 was hiring experienced aerospace professionals,” Raburn said. The approach that Fierro brought to the production line “is not understood or recognized in the aviation industry. If you expect a repeatable, rapid pace, you can’t have variability.” Raburn said that he understands now how important it is to prevent allowable tolerances from expanding during the manufacturing process. “Our aviation experts had no idea,” he said.
Standardizing the workflow was the number-one accomplishment, Fierro said, as was instilling a standardized mindset in the workforce. At the same time, it was critical to make sure that tooling used to manufacture the Eclipse 500 didn’t introduce variances. One jig, for example, is mounted on wheels to speed the assembly process. But it was found that the wheel apparatus wasn’t holding still, which could introduce a variance in the assembly tolerances of the part being assembled.
The part might have been within the engineering tolerances, but any time something is built to the outer limits of a tolerance it runs the risk of pushing something else out of tolerance, thus causing expensive rework. The wheeled jig, therefore, is now stepped up onto solid blocks while its parts are assembled, thus keeping tolerances in the right part of the allowable range.
“I’m pretty proud of what we built,” said Raburn.