Monday, May 29, 2006

Eclipse - Customer Deposits

There is no industry standard for customer deposits on new airplanes under development.

To establish credibility in the marketplace, start-up companies typically will be quite emphatic, CUSTOMER DEPOSITS WILL GO INTO ESCROW ACCOUNTS. This sends the signal, we are a well financed, legitimate company and don't need customer deposits to fund the program. Further, if we don't do what we say, you will not be taking a risk, you will get your money back.

In the late 70's, Canadair bought the design rights to Bill Lear's LearJet 600 which would later be renamed the Challenger. Business jets represented a new market where Canadair had no credibility. They elected to put the $100,000 customer deposits into interest bearing escrow accounts that paid 10% per annum to the customer. The deposits also guaranteed the price of the airplane to be under $4 million.

(First Challenger deliveries did not begin until the early 80's. By then, the airplane had grown in size and price, somewhere around $8 million. There were speculators who took advantage of the "no lose" deposit program and purchased early delivery positions. Later they sold their positions, making millions on each $100k investment. Not an urban legend, I personally know two of them.)

Contrast the Canadair policy with Eclipse. An Eclipse News Release dated June 2002, stated that new deposits no longer had to go into an escrowed account. This would allow Vern to use the deposits for development and puts the prospects at risk of losing their deposit if the program goes belly-up.

Or (hypothetically), if a significant portion of the 2,400+ customers decide to cancel their orders and demand return of their deposits when they learn the aircraft falls short of the performance guarantees, the cash flow manager at Eclipse will be scrambling and the phone will be ringing in Bill Gates office -- send money!

Vern has been very vocal about many aspects of his program. He has yet to say "the airplane is meeting and exceding our performance goals."

They have nearly 2,000 hours on five prototypes, certification is scheduled just after the next full moon.

They know what the performance will be...should have a pretty good idea on empty weights...the NAA will not take back the Collier trophy. Vern, it is time to show your cards!

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