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Eclipse Chief Betting New Equity Infusion Will Carry Company to Profitability

Eclipse Chief Betting New Equity Infusion Will Carry Company to Profitability

Eclipse Aviation CEO Vern Raburn believes an equity infusion "substantially in excess of $ 100 million" from the startup Very Light Jet manufacturer´s principal European distributor will carry Eclipse to profitable operations by late this year or early in 2009. The equity infusion is coming from European Technology and Investment Research Center (ETIRC) Aviation, which signed on in mid-2006 to distribute the Eclipse 500 VLJ in the Russian Federation, the Commonwealth of Independent States (CIS), Ukraine and Turkey.

In return for its substantial investment in Eclipse - which will make ETIRC "the single largest shareholder" of the Albuquerque, N.M. manufacturer - ETIRC´s Eclipse distribution territory will be expanded to include Western Europe and the United Kingdom, covering more than 60 countries from the Atlantic Coast through much of northern Asia. In addition, Roel Pieper, ETIRC´s founder, was just elected non-executive chairman of Eclipse Aviation and ETIRC will build a new factory in Russia to assemble the Eclipse 500 for delivery to customers in its intercontinental distribution area. See related article on Page 27.

ETIRC´s equity infusion will provide "all the financing we need to achieve profitability," Raburn said in a telephone interview with BA and Aviation Week & Space Technology magazine. Eclipse operations will become profitable when the company is producing 625 to 650 VLJs per year, Raburn said, a rate he expects the company to reach by the late third quarter this year, early fourth quarter or early in 2009. Achieving such production rates has been the goal since Eclipse was founded nearly a decade ago, but getting there has been a struggle. The company finally won type certification for the twin turbofan aircraft in the fall of 2006 (BA, Oct. 9, 2006/160), and got its FAA Production Certificate seven months later (BA, May 7/210).

Vendor Delays Still Slowing Production

But after reaching those milestones, company efforts to ramp up production have fallen far short of the company´s goals. Through the end of 2007, Eclipse had delivered just 100 aircraft since production began. Raburn said last week that the Albuquerque factory will turn out 20-plus aircraft in January, saying output remains constrained by vendor supply problems. The "vast majority of our vendors are doing a great job," Raburn said. But a few have not been able to deliver components on schedule, dragging down production rates and forcing Eclipse to seek multi-source suppliers for some components, he said, which runs counter to a long-term goal of reducing the number of suppliers (currently 93) to about 80 eventually. Dealing with the continuing supplier issues is "profoundly frustrating," Raburn said. "It´s a sonofabitch."

Asked if any of the supplier difficulties are related to cash flow problems at Eclipse or if any vendors have required Eclipse to pay for parts upon delivery, Raburn responded that his company is "completely current" with its vendors "or we´ve negotiated with them to not be current."

Tooling Improved

When a reporter observed that it seemed like a big jump to move from 20-plus aircraft a month to 650 a year, Raburn´s resilient optimism resurfaced. With sufficient inventory in place, Eclipse has already demonstrated a "surge" production capacity of 1.4 aircraft per day, he said. To reach desired annual production levels Eclipse simply has to go from averaging one aircraft per day to two a day on a 30-days-per-month basis, a level he maintained is eminently possible. The manufacturer has spent much of the past year refining production processes and work flow in Albuquerque after bringing in experts in high-rate production from the automotive industry. Eclipse also has spent money to enhance tooling, Raburn said, making it more rigid and stiffer so skin panels and other components are cut and machined more precisely to reduce variability, improve the fit and make final assembly easier and faster. "We´ve solved that problem," Raburn said.

The company also is boosting its work force to support higher aircraft production rates. There were some layoffs late last year, but those workers have been called back, boosting company employment to 1,650. Raburn expects to hire another 700 workers this year. The $ 100 million-plus ETIRC is providing will be used for general operating funds at Eclipse. "Every dollar is going to operate the company," Raburn said, as Eclipse tries to achieve the high-rate production that is a keystone of the company´s business plan.

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