Sunday, September 03, 2006

"visions of sugar plums dance in their heads"

A significant number of Vern's 2,400+ orders are "spec" orders. Like scalpers at a football game, speculators buy in at the beginning of a program hoping to cash in big, offering early delivery positions at prices lower than what end-of-the-line deliveries might represent.

Offers on the web are popping up like dandelions in my neighbors yard. Here is how a typical offer reads:

A New Mexico speculator has put down $155,000 on Serial Number 003. He is willing to sell the position for $655,000 which puts a half-million premium in his pocket. This payment is due on certification. The buyer pays Eclipse $840,000 on delivery (was scheduled for August 2006).

This same speculator makes the same offer for S/N 015, 072 and 143.

You can find actual offers on the following sites:

http://www.controller.com

http://www.aso.com

Speculators have "visions of sugar plums dancing in their heads." They are betting they can re-sell the positions at a premium. Their bet is on an airplane they believed would fly 375 kts at 41,000 ft and have 1,280 nm range. As the previous post suggests, the airplane Vern will deliver may only fly 330 kts at 30,000 ft. A lower cruise altitude means higher fuel flows: range may be reduced to under 900 nm.

With reduced performance, the premium value and the odds of selling the aircraft change dramatically. Even legitimate buyers who intend to utilize the airplane for their own purposes may have second thoughts. This could result in a flood of cancellations.

It might be like a "run on the bank" in the 1920's before the FDIC. Depositors would get nervous about a bank's liquidity and start withdrawing funds. The word would get around and pretty soon all of the customers would run to the bank demanding immediate withdrawals. The banks would have to lock their doors, often permanently.

A 2006 "run on a shaky airplane company" might get interesting. It's a dilemma for the speculators, hold on and hope for the premium risking that if the company goes "tits up," they lose their ante. Unfortunately for them, the Federal Deposit Insurance Corporation does not cover deposits for over-hyped airplanes.

If Eclipse has more performance then what they are showing, take a "legitimate aviation writer" for a ride. Load the airplane with full fuel plus three adults and demonstrate your ability to climb to 41,000 ft and fly to a destination 1,000 nm distant.

That is exactly what we did on May 23, 1975 when people questioned Lear's claim for range on the new Model 36. With five on board, we flew from Toronto to Vancouver against the wind, shot a missed approach (or low-and-over as the Canadian controller advised), then returned to Calgary for landing. The leg west was 1,807 nm, then 370 nm to Calgary. I was over 6 hours in the co-pilot seat, never unbuckled my seat belt.

A legitimate writer would be somebody like Mac McClellan from Flying Magazine. The buffoon from aero-news.net who has been Vern's lap-dog media outlet would not qualify. Others have posted pages of material on the checkered past of James "Captain Zoom" Campbell. While Campbell claims it is all lies, you will have to find this material on your own just as I had to by googling - james captain zoom campbell.

And yes Campbell and I have clashed over Eclipse issues. We had a two hour running gun battle via e-mails on the morning of July 4, 2006. He accused me of stalking and harassment. Threatened to call the police, he was in Florida, I am in Wichita. I threatened to put copies of his e-mail up on a blog, he threatened to sue for copyright violations. The fireworks started early that day!

25 comments:

Griper said...

I've been hearing a lot of people say that ann is just Vern's lapdog. He spends a lot of money advertising with them so they really pump up his product and company. It seems like most of the industry periodicals usually work very hard to find nice things to say about any product that they evaluate for a product review. But ANN seems to take it over the top. Most of their GA stories seem to be centered on Cirrus and Eclipse....both of which spend a lot of advertising dollars on the site. I still follow ANN; just take it with a grain of salt. Except when the Sun'n'Fun thing is going on. Might as well do almost anything else while mr. Zoom is on his week long rant.
Have a good week Stan.

hrr said...

Stan,

The article I mentioned yesterday is from February, 2001 in AOPA Pilot. "An Inside Look at Eclipse"

I've always enjoyed ANN's April Fool's Day coverage.

Stan Blankenship said...

griper,

Capt Zoom is also a designated pilot for the Rocket Racing League.

www.rocketracingleague.com

His bio says he is a graduate of the National Test Pilot School. They offer classes from two week introductory sessions to a full year live-in fly all the airplanes course.

Which end of the spectrum do you think he attended?

My guess is he does not know the difference between a fuselage and a phugoid.

hrr,

There have been a lot of bumps in the road since the 2001 AOPA article.

It did mention they filed the application for certification. The rules say you have 5 years from the date of application to get your airplane certified. They are well past the 60 month window.

Beech has the same problem with the Horizon and the FAA is making them go back and pick up all amendments issued prior to 60 months ago which is now August 2001 and counting. Provisional Certification did not stop the count.

Griper said...

the latest word on ann is that Eclipse is just about done and will have their cert in a few days. any thoughts on the validity of that news article? Has there been anything in print about their F&R? Cessna reportedly got theirs done but we still haven't seen anything about the mustang cert. Isn't the f&r the usually the last thing just before type certification?

g00fball said...

Stan:
I have a huge doubt as to Eclipse' view of air-taxis for everyone. However, I am very perplexed by you and your clique's oft-childish, bitter critique of Eclipse. Is aviation such a disappointingly insular industry, that react unreasonably hostile to fresh ideas and methods? What...did you lose a contract with them or something? Are you jealous at what you may think of as the relative ease of these new breeds in raising money and push forward their ideas? Not to defend him (since I don't know him from Adam...no pun intended), but Vern could have just NOT do anything after his Microsoft stint, or he could have easily picked another challenge in the industry he is comfortable with (computer for example, with much fatter margin). But, generally, you gotta admire a guy that takes a difficult challenge, just because it's a difficult challenge.
I highly doubt that Eclipse is started because the basic motivation is money (or money money money money money monneeeee as you put it)
I respect your accomplishments as an AE, but, all this blog and the 787 blog do is impressed on the neutral readers of your fear that some "outsider", some risk-takers, will actually succeed in doing something innovative, something you never thought of before. God forbid that somebody else will do what you never thought possible?

Even if Eclipse were to collapse tomorrow, just for their existence and their championing VLJs, they have created a VLJ momentum that is ongoing right now with Mustang, Adam, etc. I say good for the industry, good for Eclipse, good for Boeing (w/ the 787). Even if each one of the companies collapse because of "collosal" error in judgment, I'd still say good! In the name of progress.

flight guy said...

Great descenting opinion. However, no one is doubting Vern's entrepeneurial spirit. We are talking the viability of the Eclipse 500 and the value prospect it brings to the consumer.

You are correct, the soap box presentations given by Eclipse have paid tremendous dividends for the industry. That is why Eclipse won the Collier Trophy. The trophy was not for the Eclipse 500. Read the write up carefully. For the publicity he should be congratulated, for where the Eclipse shall fail many shall succeed.

twinpilot said...

Hi goofball. I think Vern is an excellent money raiser.
My only complaint with Vern is that he was possibly deceitfull in quoting a price of 837K for a new twin fan jet airplane or he was just really that stupid. I don't think it was the latter.
I don't understand why "everyone" wants to give him a pass for his behavior. (OK publications looking for advertising dollars excluded)
What he has really done is contribute to the decline in turboprop and piston twin sales and values nationwide. Why would anyone buy a turboprop when they could have a brand new jet with the latest avionics and performance that he advertised for less than $850,000?
Even at one million dollars it would be a bargain, and so everyone has taken a "wait and see" attitude based on a collosal lie. The friction stir welding was always a hoax. He has seen the bill of materials for building the airplane, and I have not, but I can tell you he knows full well that most of the cost of an airplane is in the purchased component parts such as:
engines, fuel system components, avionics, windshields, seats, landing gear, brakes, hydraulic system components, electric actuators, prerssurization system components, deicing components, hoses, lines fittings etc. etc.
I would have a lot more respect for that orginazition if their leader followed this simple motto:
Charles Davis: "To ride, shoot straight, and speak the truth. This was the ancient law of youth. Old times are past, old days are done; but the Law runs true, O Little son!"

Observer said...
This comment has been removed by a blog administrator.
Observer said...

Stan, thanks for your two posts.

I'm glad to see Jim Campbell being exposed.

I had been to flightaware, but did not know you could opt out of the system. Thanks for that info.

I wouldn't be too surprised to see "something" certified in the next couple of months. The word is that Eclipse will try and deliver approx. 100-200 planes with the agreement that the buyers can trade up to a plane (when available?) which resolves the existing problems. The first 100 or so deliveries will certainly underperform in most all aspects. As you've already described.

This strategy gives Eclipse huge PR value: certification and delivery of planes. It also gives them quite a bit of time to resolve outstanding issues. The public probably won't know how deficient the plane is or how long it will take to bring the plane up to Eclipse's own published performance standards. With an endless PR budget and the likes of ANN you can fool most of the people for a long time.

It will be interesting to see if Vern bails shortly after certification. I doubt if he will want to stick around for any redesign issues.

I think Eclipse is in a better position now (poised to certify/deliver) than they will be after deliveries. Even though stakeholders: investors, buyers, employees, politicians, media, have a vested interested in keeping the con going some will begin to crack after deliveries are made.

FYI, I'm not an engineer, so am not aviation technical. My background is software. I, however, have several associates who are intimate with the VLJ arena. I wish I could substantiate more via external sources. What the Eclipse PR machine spits out and what is really occurring are quite different. So much for the touted "transparency" Eclipse hyped a year or two ago.

Hope you stick around for a while Stan.

engineguy said...

In response to twinpilot who made the statement that a large portion of the cost of an airplane is in the purchased components, I'll say that I have to agree. What you failed to take into account is the cost difference between items to support 1000 planes a year and that to support 100 to 200 a year. If the vendors all quoted based on 1000 and suddenly find themselves being asked to deliver for 100, the component prices will rise. Some vendors may opt out of follow-on contracts and the much-hyped supply-chain improvements will go away.

engineguy said...

In response to the comment by twinpilot, it is true that much of the cost of an aircraft is in the purchased components. It is also true that component purchase prices increase as purchased quantities decrease. If the vendors signed on to a purchase price based on 1000 units annually, then find themselves getting orders for 100 units annually, those prices will rise. I doubt that many, if any, vendors were so foolish as to offer fixed cost deals to a new and untried manufacturer. Many may even have negotiated minimum quantities for orders. If this is the case, Eclipse may well find themselves maintaining a large inventory of very expensive parts. Other vendors, when faced with cost pressure and reduced orders, may opt to not renew contracts after delivering the quantities for which they have previously contracted.

In any event, greatly reduced production rates will likely be disastrous for Eclipse.

twinpilot said...

I think a lot of the vendors "drank the koolAid" just like the buyers did. They bought it hook line and sinker.
I wouldn't be suprised if they did some "risk sharing" (they covered the cost of tooling) and guaranteed a fixed price to get that big 2000 unit per year parts order. If so they have already lost that money and now with the 100 unit per year order coming they may not have the option to raise prices, and they may well just opt out. I think the Eclipse term for those vendors is "non performing." Hopefully for them, they can raise prices to at least recover their investment.

Stan Blankenship said...

All,

Forgive me, I caved in to pressure from Jim Campbell.

He called my office and we had a very civil and interesting talk for about 40 minutes on a wide range of aviation topics.

He said he was scheduled to come to Wichita to fly the Mustang, I invited him to dinner. Said Vern also wanted him to do a complete flight evaluation as soon as the Eclipse is fully certified. Surprise, surprise!

But his claim was that if I continued to leave the link to his nemesis, then I was equally responsible for the content and he would sue me and own my companies because this guy has been associated with threats to kill Jim, harm his family and staff.

Then upon arriving home there is an e-mail from Captain Zoom, Subject: Civil and Criminal Complaints Being Pursued.

Would put up his e-mail but it is copyrighted. He claims I have stepped across the line and I have a prior history of harassing and my e-mails have threatened him as well and he is ready to pursue this to the limit of the law.

This blog is not about Captain Zoom so the link was easy to remove. And I should have known better, Jim Croce warned us 20 or 30 years ago, now sing along:

"You don't tug on Superman's cape
You don't spit into the wind
You don't pull the mask off the old Lone Ranger
And you don't mess around with Jim."
(Ba-doo-da-doo-doo-doo-doo-doo-doo-doot)

Stan Blankenship said...

All,

Careful with your comments on Jim Campbell. Since they are on my blog, he holds me responsible and is itching to file a $75 law suit.

Stan Blankenship said...

g00fball,

For the record, the owner of Wichita's Cox Machine, was in my shop last summer (2005). I no-bid over a half-million in Eclipse tooling because I considered the program to be too risky. Cox is a major Eclipse Supplier.

Keep in mind this is a blog and when you typed in the web address the word "critic" was front and center.

If you want feel good news, read the press releases from Eclipse or Boeing or the White House.

The problem is not what Raburn is doing, it is the arrogance with which he is doing it.

As far as the 787, the blog points out some of the risk Boeing is assuming with composites and for such little gain. And yes, I have a vested interest here. I make tooling for sheet metal airplanes and forming presses for sheet metal parts.

Stan Blankenship said...

observer,

On the flightaware site, click on the Q & A section and go to the privacy area to learn how to block.

Your other comments leave me shaking my head in wonder - could this possibly be true? Vern could win an award for developing the most convoluted aircraft program in the history of aviation.

Stan Blankenship said...

engine guy,

It would be interesting to know if the Eclipse purchasing department placed orders with the vendors based on dates and rates published by the P.R. Department. If so, there is a lot of inventory sitting around gathering dust, either on the vendors nickel or Eclipse.

A rate of 1,000 units per year must have sounded like a gift from God for companies used to rates of 200 per year or less.

Stan Blankenship said...

twinpilot,

I believe at least some of the vendors and probably most are amortising the tooling in the parts.

reverseengineered said...

Gents-
I have some very interesting insights into the program - cannot say much, but i do know that one of the major OEMs in this space did reverse

g00fball said...

Stan:
no problem with the critics. As a matter of fact, that's how I found out about this website. I am a total INDUSTRY outsider, but consider myself a pretty intense aviation enthusiast and consumer. I wanted to find out an informative, critical view of the VLJ market,and Eclipse as its main cheerleader since I have a huge doubt about the whole air-taxi-for-the-masses concept championed by Eclipse.

Some of your entries were informative, and then there were those that were just downright too personal, or filled with simple mockery and pure emotion; these entries clouded the other "better" entries that I, as a neutral reader, was left wondering of what the real objectives are.

I learned a lot from the other commenters as well, such as twinpilot's complaint that the "rah-rah" talks from Vern and the VLJ crowds immediately depress the value of turboprops and pistons. While this maybe obvious to those in the industry, it's kind of a revelation for me personally, therefore, I have now, another view that increased my understanding about the whole discussion. rah-rah talks are not only acceptable, but expected in the computing/software industry (thus the term vaporware, right?).

As a matter of fact, in my simple mind, I am now thinking that the devalued turboprops and used jets prices may arrive at a point where they in fact become serious competitors to Eclipse (i.e. if one can get a more spacious, lav-equipped, proven airframe, albeit used, why take the risk with Eclipse?), thus carving the "air taxi" market away from Eclipse. So...you can argue that the rah-rah talk is hurting themselves.

As far as his raising money, well...he raised private equity and convertibles from pretty wealthy, supposedly smart individuals, represented by armies of lawyers and bankers who are paid more than adequately to do the due diligence for their clients. Money flowing into a certain segment usually, not always, usually, is a good indicator of general discontent with the status quo.

Which leads me, if you'd allow me still, to wonder why the widely, and often used arguments based on "we did it this way and it was swell so why change it", or one like "we tried that and no point for others to try to improve on it".

None of these, let me repeat, take away my respect of your and the numerous contributors' past achievements in this brutal industry. I want to hear more, but please give us informative, objective view points rather than personal attacks, innuendos, and mockery.

Lastly, on my soapbox, I wish I can say the same thing to politicians as well. I hope one day, a politician or two, will step up during the course of their campaigns, and say something along this line: "My opponent is definitely a great, patriotic American and I respect his accomplishments. However, let me illustrate to you why my plan is better", rather than started with "He is a BS artist and a cokehead"....

Stan Blankenship said...

g00fball,

In writing this blog, my intent was to be informative, provocative and entertaining. I am surprised that somebody with the moniker g00fball would find some of my writing over the top.

Your comments on the industry obviously represents some deep thought which is appreciated by me others as well. It does not hurt to stop and re-think our mission.

SRMach5 said...

Stan:

I find this message board very insightful regarding the progress of the Eclipse. I would like to shed a different light on this discussion which many seem to miss as so much debate has focused on the aircraft and not the business plan.

As a point of perspective, I am intimate with several emerging VLJ's. Following the development on both the OEM and Sales/Service side, I personally believe Eclipse's logic is flawed in several important areas (not necessarily in order of importance):

1) - Insurance. I don't care what kind of training program anyone puts together, I just don't see underwriters getting comfortable taking low time Cirrus pilots and strapping them into an Eclipse without a babysitter in the right seat. Speed is speed is speed. No matter how far off the aircraft might be from it's original performance projections. Bottom line is I would expect a minimum of 1,000 hours, 500 of which is multi engine, 700 complex / hp, and at least 250 turbine before a reasonable underwriter would take the risk with a liability limit acceptable to the pilot and his/her corporation. Also, has anyone else heard that United is no longer allowed to do third-party training? If this is true, how will this effect the Eclipse training program?

2) Business Model - No matter which side of the argument you take, it is hard to justify the aircraft at the production volumes outlined. Realistically, I could see Eclipse manufacturing the aircraft for close to $1.8M at 200 - 250 units per year and make a business case for it. But at the MUCH higher (and unsustainable) volumes and lower prices....it just does not work. Don't get me wrong, I think it is great Vern took the risk that he has, I question the management decisions and advice he has received related to what he and his shareholders can realistically expect for a true business investment.

3) The marketplace - I have a problem with some of the forecasts by P&W as well as some other reputiated VLJ experts (not to mention the FAA) who forsee deliveries in the thousands. I am in agreement with Mac McClellan's opinion on the subject matter and he appears to be one of the few voices of reason regarding a historical perspective.

4) Competition - Let's face it, Cessna (Mustang), Embraer (Phenom 100), & Honda (HondaJet) are all going to get there. They have the horsepower to do what they say they are going to do, when they say they are going to do it.

Ultimately, companies like Dayjet and the like are going to realize a tactical error in their business plan. The Eclipse 500 is too small for a true air taxi service. If you have ever climbed into the aircraft you know exactly what I am talking about. I would like to emphasize the word 'tactical' because I do believe there is merit to the Dayjet model. My only contention is ultimate success will occur with an airframe other than the Eclipse 500.

Looking forward to the next post and comments.

Stan Blankenship said...

srmach5,

Wow, good stuff!

Would not try to detract from your points by adding more.

Stan Blankenship said...

srmach5,

I take back what I said, and will respond.

The projections forecast by Pratt and the FAA reflected Raburn's pie-in-the-sky numbers. Lower numbers would have cast doubt on his claim of 2,400+ orders and 1,000 units per year production rate.

The situation is not unlike your comments on insuring low time pilots. Based on your knowledge and experience, you believe it to be a significant problem.

If you go back to the February 2001 AOPA article that hrr pointed out, Don Taylor and Jack Harrington were dealing with that issue 5 years ago and both are still with the company today.

The Eclipse web site names a company and states qualifications required for insurance:

http://www.eclipseaviation.com/customer_care/insurance/

Who is more believable, Eclipse or srmach5 making a second level post to a bitter and vindictive blog?

In the public's eyes, Raburn's projections will be considered right until events prove him wrong.

SRMach5 said...

Stan:

Thanks for the comments. I would like to point out some of what I believe to be flawed data on the Eclipse website, specifically your insurance link.

First of all, did anyone notice the limits of liability at $1M, $5M and $10M respectively? A very important question is whether or not this is a 'smooth' limit or a per seat limit.

Secondly, their resource is a broker. I would like to preface my comment to follow by stating how important brokers are and the value they bring to many aviation businesses. In the case of policies however; they (as everyone else) are at the mercy of the underwriters. If anyone is even remotely familiar with aviation insurance coverage they will quickly understand who finite the market is with the availability of desirable underwriters. I would love to know which underwriter is willing to take the risk on a pilot (ASMEL) with only 500 hours of total time and limited instrument and multi-engine ratings.

Third, note how only a $1M policy is available for a pilot with the minimum qualifications. I anticipate many of the individuals purchasing this caliber of aircraft will have insurance policies in place at their place of business requiring far more than a $1M limit.

Fourth, as a point of comparison on the premiums, I find it intriguing how high some of the rates are, even for the experienced level pilots. I have personally seen premiums for single engine turbine aircraft which have a higher hull value and $5M smooth liability limits for what Eclipse considers to be an experienced pilot somewhere in the $18K - $20K range...not ~ $30K as indicated on the Eclipse web site.

Mark my words....insurance will be a well underestimated thorn in the side of Eclipse in the not too distant future.

I wonder as a point of interest how Vern has has product liability spread amongst the underwriters. God forbid, when the first Eclipse 500 becomes a smoking hole in the ground (hopefully it never will, but for the time being let's just pretend it might happen), the underwriting community will not be very kind to Eclipse and it's owners.

I don't know about anyone else but I have never heard of an insurance underwriter being forgiving or loyal to an OEM when it comes to policy renewal time.