Guest Editorial - Financial Survival
Jetfumes offered some comments this morning which happen to parallel a subject I was thinking about for the next post. He makes some good points, some we've heard before, some a re-hash.
After looking at the scorecard, one delivered in 2006, a barren month of January, jetfumes comments are timely:
Let me think out loud about one specific issue: Is Eclipse financially viable?
They have spent three times more than Cessna did on the development of the Mustang - a real shame.
And what is the operating margin at the current selling price?
Why do they keep pretending to deliver 500 A/C this year, while Pratt has no plans to produce anywhere near 1000 610's this year?
The only reason I can see is that suppliers contracts are priced with production volumes. If they say now that they will really deliver 200 A/C in 2007 (which in itself would be an achievement), I'm quite sure they will owe their suppliers a couple hundred thousands more per shipset. In other words, they lose money on each aircraft!
Probably with 500 deliveries/year already. Definitely with 200.
Eventually they will have to come clean financially with their suppliers. Just look at their DOC comparison chart. It's clear that Eclipse has become master at fuzzy accounting.
The only financial way out for Eclipse is a larger 600 (three more feet cabin length, couple more inches wider, with a lavatory!, and bigger wing with more fuel, etc.) all those things adding only $50,000 to $75,000 to the manufacturing cost, retail it at $2.2M, ask all 500 deposit holders to upgrade and refund those who won't.
Since it was incredibly stupid not to do the 600 when they switched from the EJ22 to the PW610, one has to wonder if Eclipse will make the right decisions now, and if it is not too late anyway.
I also cringe whenever I read that Eclipse "invented" the VLJ.
Nothing could be further from the truth.
If it wasn't for Williams, there wouldn't be any VLJ today.
The concept of the 500 was a followup to the V-Jet II, the brainchild of Sam Williams.
The concept of what became the Mustang (which started out as a turboprop project by the way) was nicely laid out by Century Jet. And the Century Jet was a result of the development of the FJ33, the engine that really kick started the VLJ market.
Century Jet wasn't successful because Bill N. was scary when let loose in front of investors, but that's another story.
Anyway, my question is: is Eclipse doing the right thing now?
The 500 is a financial dead end and we don't want an Enron in our industry.