Eclipse formulates new plan for ‘operational excellence’

 - September 5, 2008, 6:19 AM

The corner office at Eclipse Aviation’s Albuquerque, N.M., headquarters has gone strangely quiet. After years of missed deadlines, and facing rising pressure from customers, government regulators and investors, the company retreated to the tall grass last month as executives pondered how to reboot the ailing very light jet maker.

Conspicuously absent: Vern Raburn, Eclipse founder and former CEO, who was ousted by investors in June and soon thereafter severed all ties with the company.
In his place is Dutch investor and former Compaq executive Roel Pieper, who plans to use the Eclipse 500 jet to develop air-taxi networks in Europe and Russia, and whose mantra, since he unexpectedly took the company’s reins at Oshkosh, has been bringing Eclipse to a state of “operational excellence.”

The man Eclipse vice president of sales and marketing Mike McConnell three years ago referred to as a “loosely connected” Russian sales partner has a lot on his plate.
Two years since it received FAA type certification for the Eclipse 500, the company has yet to generate a profit for its investors, who have poured an estimated $1 billion into it since 1998.

Re-establishing the Industry’s Trust

At one time the company projected that it would have delivered more than 1,000 jets by now, but so far fewer than 250 have actually made it to customers, and all of them will require multiple expensive and time-consuming upgrades to avionics, de-icing boots, autopilot systems and other hardware and software as those improvements are integrated into newly produced aircraft.

Meanwhile, the FAA had planned a routine audit of Eclipse’s manufacturing processes in August, but there is some talk that the House Committee on Transportation and Infrastructure in July directed the Department of Transportation’s Office of the Inspector General to look into FAA inspectors’ claims that the certification was rushed. Raburn, characteristically, chalked up the move to political grandstanding by the Transportation Committee’s chairman, Rep. James Oberstar (D-Minn.).

“All I can attribute this to is the silly season of politics, when everyone is running around, particularly people like Oberstar, trying to make themselves look good,” he said at the time. The result was expected to be a tough audit, scheduled for August 18, of Eclipse’s 2006 type certification, but AIN understands that word came down from on high at the agency that the audit would be postponed until this month (see box at left.)

Raburn had said much the same in June when the NTSB urged immediate inspections of Eclipse 500 thrust levers after an incident in Chicago in which a pilot was unable to control the engines.

Pieper will also have some other important feathers to smooth–Eclipse’s suppliers, customers and the general aviation industry at large, which has watched closely as Raburn’s dream to mass-produce software-dependent jets using manufacturing techniques cribbed from the computer industry failed to live up to his brash projections of 1,000 airplanes a year. (So far the company has managed to produce at most one airplane per day.)

Raburn famously criticized suppliers publicly, starting with former engine supplier Williams International in 2002. After a payment dispute with empennage builder Hampson spilled into a courtroom late last year, he attributed the company’s delays in reaching production goals to suppliers’ delays. Others, such as Pennsylvania-based flat-screen display manufacturer Innovative Solutions & Support, have said Eclipse’s production delays have caused them financial pain, as well. Then there are Eclipse’s customers, some of whom have waited for their Eclipse 500 for several years beyond its original expected delivery date.

Though the airplane itself appears to be generally well liked by pilots, rumblings about high pilot workload, wonky software, less-than-robust tires and inoperative equipment have surfaced. More recently, a carbon buildup problem with the jet’s Pratt & Whitney Canada PW610F engine has Eclipse and Pratt engineers working on a fix. Nevertheless, the Eclipse fleet has logged tens of thousands of hours thus far with no serious accidents.

In another widely criticized move, Eclipse early this year sued nearly 30 people who had posted comments to a Web site that were disparaging of the company. Raburn maintained that the purpose of the lawsuit was to identify violators of company nondisclosure agreements, such as customers or employees, not, as some assumed, to rein in criticism.

Meanwhile, the price has more than doubled since the jet was unveiled in 2000, and the company has raised hackles by requesting additional deposits from customers before beginning construction of their aircraft. Eclipse customers had until the end of last month to cancel their orders, after the most recent price hike to $2.15 million, but the cash-strapped company recently told AIN it was delaying the tendering of customer refunds–along with modifications to avionics and other promised upgrades to existing jets–until the close of its most recent financing round. Eclipse has not indicated exactly when that is likely to happen.

The move was part of a major belt-tightening that included laying off approximately 650 employees last month–leaving 1,100 at the company–and that may have reached even the break room, with reports that Eclipse had removed its free soft drink machines, a vestige of its dot com-era beginnings.

When the lawsuit against the blog commenters was quietly dropped last month, the company cited its newly reformatted executive team’s refocused priorities.

One of Eclipse’s most important customers, Florida air-taxi firm DayJet, announced in May plans to mothball half of its fleet of 28 Eclipse jets, lay off more than a third of its workers and hold off on a planned expansion after failing to raise a much-needed $40 million investment round, something CEO and cofounder Ed Iacobucci blamed on current economic conditions. DayJet has said it plans eventually to purchase 1,400 Eclipse 500s for air-taxi services, and its retrenching called into question the accuracy of Eclipse’s continuing claims of an order book for more than 2,500 airplanes.

Three weeks after EAA AirVenture Oshkosh, the former Microsoft executive announced in a terse e-mailed statement that he had decided to decline a vice chairmanship offer from Pieper’s Dutch company, European Technology and Investment Research Center (Etirc), where he would have “assisted in the global expansion of the Eclipse 500.”

An Eclipse spokeswoman on August 14 dismissed speculation that any other key executives had left the company in Raburn’s wake.

Pieper wasn’t officially part of Eclipse until early this year, when his company, Etirc, invested $100 million, giving him a seat on the board. However, his connection to the company extends farther back, to 2005, when Izvestia Daily, a Moscow-based newspaper, identified Pieper as an Eclipse executive and quoted him as saying that the New Mexico company would start manufacturing its twin-engine jets at a largely dormant Tupolev airliner factory in western Russia.

Eclipse’s McConnell at the time said none of the story was true, and called Pieper neither an employee nor an investor but a “friend” of Eclipse with an agreement to sell the airplanes in Russia, Belarus and the Ukraine. He said then the story about the plant likely stemmed from “miscommunication.”

Etirc has since announced plans to build a second Eclipse plant in Russia to serve that market, leading again to speculation that the company would move its entire operation there. On August 14 Eclipse issued a statement to employees and customers that said executives were working on a plan to achieve “operational excellence,” and that a “plan to profitability” would be forthcoming by the end of last month.

The company also said it has no intention to move its production facilities outside the U.S., a statement it later clarified to specify New Mexico, where the city and state have given the company attractive leases on a number of airport-area buildings, $45 million in tax-abating industrial revenue bonds and direct equity investments of about $19 million.

Eclipse concluded its statement by saying it would “not be releasing any further information or conducting interviews surrounding this media alert at this time,” marking the second time in as many weeks it had pre-empted the elaboration to the media Raburn was known for.

Pieper was out of the country, and an Eclipse spokeswoman said no other executives would be available to comment for this story.