On the heels of EASA certification, Eclipse files for bankruptcy protection

 - December 29, 2008, 7:00 AM

Eclipse Aviation filed for Chapter 11 protection in U.S. bankruptcy court in Delaware on November 25, leaving creditors holding $702.6 million in claims. The move closely followed two major achievements in the company’s history, EASA certification of the Eclipse 500 very light jet and FAA certification of the Avio NG 1.5 avionics system. Eclipse estimates that total liabilities at the time of bankruptcy exceeded $1 billion, confirming estimates of the amount the company spent to develop, certify, produce and support the Eclipse 500.

For the owners of the 259 Eclipse 500s delivered before the bankruptcy, this move means that there is not only no clear path to the upgrades their airplanes need to become fully functional but also that they forfeit any funds paid to Eclipse for the JetComplete maintenance cost-per-hour-program and other ongoing costs such as subscriptions to Jeppesen nav databases. The Avio NG 1.5 upgrade, flight-into-known-icing equipment and other upgrades that every Eclipse 500 needed were all to have been paid for by Eclipse because the airplanes were delivered in some state of incompletion.

More seriously affected by the bankruptcy are the deposit-holders for Eclipse 500s, many of whom paid hundreds of thousands of dollars to Eclipse for undelivered airplanes. Some of them had requested refunds of deposits and filed lawsuits, but bankruptcy places all of those claims low on the priority list.

One claimant has a particularly painful story. Phil McCabe paid in full for Eclipse 500 S/N 260 on the morning that Eclipse Aviation filed for bankruptcy but before the time of filing. Instead of handing him the keys, according to a lawsuit filed by McCabe’s company, Gulf Coast Commercial, on December 8, an Eclipse noteholder instructed Eclipse not to hand over the airplane. As of the middle of last month, nothing had happened except that a judge ordered Eclipse to maintain and insure the airplane.

For Eclipse, the next step is the auction of its assets, scheduled for this month. The company has already signed an agreement with majority owner Etirc Aviation for it to purchase the assets, but a second company is said to be interested as well. Eclipse founder Vern Raburn, who left the company in July, confirmed that he is not the second bidder. Until the auction takes place, Eclipse has been running on up to $20 million worth of court-approved debtor-in-possession financing provided by Etirc and shareholder Al Mann. If Etirc and Mann don’t win the auction, the winning bidder would have to repay them any debtor-in-possession funds spent.

The bankruptcy leaves a number of suppliers holding outstanding bills, including wing manufacturer Fuji Heavy Industries ($31.8 million), empennage maker Hampson Aerospace ($31.3 million), engine manufacturer Pratt & Whitney Canada ($30.1 million), Albany Engineered Composites ($6.9 million), DayJet ($6.2 million), TW Metals ($5.9 million), Chelton Flight Systems ($4.9 million), instrument panel maker Innovative Solutions & Support ($4.3 million) and landing-gear maker Mecaer ($4.3 million). Etirc Aviation/Eclipse chairman Roel Pieper hopes that if his company wins the bidding, it will be able to work with deposit-holders and suppliers to allow the company to survive. “We will clearly honor and be fair to the customers in the best way possible,” he said, “and we’re going to be very fair to the suppliers. We have to find a way to go forward together.”

A group of Eclipse 500 owners and position holders for the Eclipse 500 and 400 have formed an ad hoc customer committee to represent their interests during the bankruptcy and try to negotiate with prospective purchasers of Eclipse’s assets.

Meanwhile, owners of the 259 Eclipse 500s delivered thus far may end up having to spend their own money to upgrade their jets to the final configuration. One Eclipse expert estimated the costs, if parts were available, at roughly $325,000 per airplane for flight-into-known-icing and the full Avio NG 1.5 package (IS&S panel and dual Garmin 400w navigators).