Continuing turbulence puts Eclipse on defensive
A little more than two years have passed since the Eclipse 500 very light jet received FAA certification, and since then manufacturer Eclipse Aviation (Booth No. 250) has climbed the dizzying heights of volume business jet production and faced the challenge of insufficient funding to carry out its mission to build thousands of new VLJs.
The pioneering company, which launched the very light jet era less than a decade ago when it started taking orders for a new breed of personal jet, reached a peak in July of this year, building nearly one Eclipse 500 VLJ per day and delivering more than 245 since entry-into-service began in late 2006.
Achieving FAA type and production certification is a remarkable accomplishment for a new jet manufacturer, but a series of setbacks have plagued the company since the summer. Company founder Vern Raburn was forced out of the company on July 28 and, shortly after, Eclipse asked financiers for another round of funding. Eclipse then laid off about 650 employees and another 190 contract workers. As a result of the upheaval, aircraft position-holders have asked for refunds (and four have sued) and suppliers have started complaining publicly about delayed payments from Eclipse.
To add to Eclipse’s woes, on August 11 the FAA launched a special certification review of the Eclipse 500, which is unprecedented in that these types of reviews usually are done following a significant accident or series of accidents. The situation is also unusual because the review was begun such a short time after the airplane’s FAA certification on Sept. 30, 2006. There had not been any fatal accidents in Eclipse 500s as of mid-September, although one was destroyed in a landing overrun on July 30. The FAA review, prompted by numerous service difficulty reports from operators, was scheduled to be completed in 30 days, and its conclusions were presented at a congressional hearing on September 17. The purpose of the hearing was to explore issues with how the Eclipse 500 was certified.
During the one-day hearing, FAA engineers, inspectors and leaders testified about the Eclipse 500 certification process. The hearing focused on the engineers’ and inspectors’ views about FAA managers overriding their concerns about whether the Eclipse 500 was ready for type and production certification. Although FAA managers disagreed with those concerns, at least one result of the hearing is that the FAA is considering new rules for VLJ certification. And Department of Transportation inspector general Calvin Scovel promised to continue investigating in an attempt “to determine if problems identified during the certification and manufacturing process have been corrected.” Scovel also recommended evaluating “the current manufacturing process to determine the effectiveness of the Eclipse quality assurance system, the adequacy of training for production personnel and the competence of the FAA designees.”
Besides receiving such rapid post-certification scrutiny, the Eclipse 500 is unique in another way: When it did receive its FAA type certificate, the airplane was far from finished, lacking GPS capability, known-icing certification, FMS, moving-map, weather radar, autothrottle, electronic checklists, TCAS, TAWS and satellite weather data receiver. The first version of the Eclipse 500 also didn’t meet performance guarantees, and Eclipse engineers had to redesign the jet with larger tip tanks and other modifications that didn’t enter production until after S/N 38.
Problems in implementing many of the pending features resulted in Eclipse
selecting new avionics vendors and dropping supplier Avidyne, thus adding more delays to the program. In addition, the company needed to upgrade the first 38 airplanes built to the final aerodynamic configuration. The result was that Eclipse struggled to fill orders at a time it was trying to finish engineering the airplane.
The burden of upgrading the early serial number Eclipse 500s to the final configuration and installing the new avionics fell to the company’s service centers in Albuquerque, N.M.; Albany, N.Y.; and Gainesville, Fla. But the recent layoffs affected those facilities, too, so the upgrade programs will be further delayed.
The planned certification of dual Garmin 400W navigation systems, which would finally provide full GPS functionality for the Eclipse 500, is still delayed and Eclipse hasn’t said when this will take place, just that it should be “very soon.” In early August, Eclipse announced that it had postponed the installation of the Avio NG avionics systems for up to an additional six months. Only airplanes with the Avio NG system are eligible for the known-icing package modification, and these were expected to be completed by the first quarter of next year. Those without the Avio NG mod will have to wait until that is done before receiving known-icing modifications.
Although Eclipse has repeatedly said that all maintenance and modification work would be done at its own service centers, the company recently began authorizing third-party maintenance companies in an effort aimed at giving customers more options. The first was Harbour Air in Vancouver, Canada, and others were planned in Albuquerque and Chicago. Eclipse also said that in response to customer requests, it is considering allowing owners to pay for the modifications and be reimbursed later by Eclipse.
In an August letter to customers, newly installed CEO Roel Pieper said that the next round of funding was expected to close “in the October-November 2008 time frame.” When that happens, he added, “Eclipse will refund all requested deposits in full within 10 days of closing our financing round.” In the meantime, Eclipse is paying simple interest of 6 percent on those deposits, beginning on the date of the refund request.
Eclipse is offering the same deal to suppliers. In an August 18 letter, Pieper promised to pay 6 percent interest on receivables and said Eclipse will pay money owed to suppliers “current to 60 days within 10 days following the closing of our equity financing round, which is anticipated to be toward the end of October.” Meanwhile, Eclipse has revealed to suppliers the number of Model 500s it will build through December, telling suppliers that it will pay cash for parts needed for those airplanes and to support airplanes in the field “thereby not increasing your receivables exposure to our company.” An Eclipse buyer told AIN that in a customer conference call in early September, Eclipse said that it would build through Serial Number 267 this year.
Pieper, who took over as acting CEO when Raburn was forced to resign, earlier this year became Eclipse’s chairman when his company, European Technology and Investment Research Center (Etirc) Aviation, invested more than $100 million in Eclipse Aviation, becoming its majority shareholder. Pieper, who has held a number of leadership positions at high-technology companies, has a reputation as a turnaround specialist.
Pieper’s goal is to make “Eclipse Version II” operationally excellent, he told suppliers, through “a complete reexamination of our production process and ramp rates, significant reduction in spending and a disciplined approach that will make Eclipse Aviation’s vision a reality. We are slowing down in 2008 [and] fixing the base cost structure of the company to ensure a profitable re-ramp in 2009.”
It is too early to tell how Pieper’s strategy substantially differs from Raburn’s, but there is an interesting parallel in the high-tech world where Raburn got his start as employee number 18 at Microsoft (whose founder Bill Gates is said to have invested in Eclipse). In the software world, it’s common for products to be delivered in an incomplete state, with user feedback helping the software developer improve the product to the point that it is considered reliable and useful. Microsoft itself is known for the third versions of its products finally meeting customers’ original expectations.