Saturday, April 14, 2007

The IPO

After the Provisional TC last summer, Eclipse reported:

"The company is poised to move from aircraft development to production with $225 million in pre-IPO convertible debt funding arranged through UBS Investment Bank."

Nine months later, this company can hardly be considered to be in a production mode. Rather than financing production, UBS's $225m is more likely funding airplane re-engineering, airplane re-certification, and internal system re-organization so that the company can obtain their Production Certificate.

Last July, the company was forecasting the delivery of 50 units by the end of the year, 500 in 2007. If cash flow projections were based on these numbers, imagine the red ink that must be flowing down in Albuquerque. IMHO, Vern will need to go to the well for more funding to support the production build up.

Can he find another $225m in pre-IPO convertible debt or will he opt for the IPO?

Let's look at some related facts:

- A few weeks ago when Eclipse was recruiting in Wichita, their newspaper ad stated the company was offering employee stock options.

- April 10, in a comment against a previous post, an ex-employee stated, "When I first started at Eclipse I was told my 300 or so shares would be worth 150K to 350K at IPO depending on whose who believed, when I left I believed it would be worth around negative $8,000, the amount I would have spent to purchase my shares, so the answer to the question is I bought zero shares. "

- In spite of one missed goal after another the Eclipse BOD has remained publicly unconcerned with the stumbles the company has incurred.

- The Eclipse BOD has remained publicly quiet when the company called for the 60% progress payment on far more delivery positions than what can reasonably be expected to deliver. This could conceivably leave the board exposed to future litigation should deliveries fail to materialize and the hapless position holders lose their deposits.


Somebody has something up their sleeve to keep this company afloat. I would bet they are going to roll the dice on an IPO and my guess is it will come sooner rather than later.

Some readers will argue an IPO is not viable. The financials will not hold up and the institutional investors will shy away from this one. Others argue, the company will not get through the due diligence phase.

If the company is cutting back on color copies and asking employees to curtail their consumption of soda, funds must be getting a little tight. Something will have to happen fairly soon. Perhaps they will look to the penny stock market where due diligence falls on the shoulders of the individual investors.

41 comments:

Black Tulip said...

May I lead the IPO discussion with a question. A successful Initial Public Offering requires that the company have the following individuals in place:

CEO

COO

CFO

UFO

SOB

Does Eclipse have the required talent?

Black Tulip

sparky said...

Monring stan, Tulip,

I know this is off-topic, but didn't get a chance to post this yeterday. I think it warrants looking at.

The most recent CTC described the failure of the pitot/static system due to icing. Vern included in the CTC the system schematic for the complete system.

It's interesting that what's missing is the most important information, namely the wiring schematic for the heaters.

Several posters suggestd "turning up the juice". This may not be possible with the existing wire harness assembly. To increase the current to the heaters, you would have to replace the circuit breaker with one that has a higher amperage rating. Depending on the wire guage already in place, it may not support the increased amperage and also have to be replaced. This would mean not only re-working what you already have in stock, but tearing into the completed and partialy completed aircraft. There would also have to be another load analysis on the system.

What bothers me most here is the fact that it has reported to have happened on three seperate occasions. I would like to know how these were handled.

Fist occurance....flight anomoly. Second orccurance...coincidence. Third occurance...oh s*#t, another delay.

The "Damn the torpedoes and full speed ahaid" mentality out of ABQ is frightening. I've worked on certs before, when you find a problem like this, standard procedure would be to do everything possible to isolate and identify the cause and fix the issue before going forward. I can't imagine delivering an aircraft in the current state of the -500.

What we're seeing here is the need to deliver at all costs.

Ken, it's not that we hate the jet. It's a chunk of stir fried metal, wires and fuel, just like every other aircraft out there. Vern, on the other hand is an egomaniacal fool for walking in, slapping the intire industry on the back of the head and effectively stating "look, idiots, this is how you build aircraft"

I keep hearing terms like "revolutionary" and "diruptive technology" ok, i admit that this was a revolutionalry way of disposing of close to a BILLION dallars with quetionable results, but at what point do you REALLY look at whats going on in ABQ an start to question just what it is you bought.

Gunner said...
This comment has been removed by the author.
Gunner said...

Great info, sparky, thanks. It was me who suggested "turning up the juice". I recognized at that time it's not as simple as dialing out a rheostat. But let's face it- every single one of the "delivered" aircraft is gonna be essentially torn down for avionics, and probably battery retrofits anyway. Surely the pitot wiring would not present a big issue in that context.

Still, it's interesting that we have a fully TSO'd pitot-AOA tube that went uniformly(?) Tango Uniform on its first fleet install and no simple fix was available. This begs the question: Was the actual design flawed, or did the problem occur because of the manner it was designed into the aircraft.

My hunch is the latter. Freezing levels are not rocket science and I'd have to believe the TSO process put this design thru its paces. Like Williams and Avio LastGen, I doubt we'll ever get the real answers.
Gunner

Black Tulip said...

Sparky,

I used to fly an aircraft that had this problem. It turned out to be a simple fix and a service bulletin called for new pitot tube assemblies with increased wattage, left and right. No wiring change was required.

The integral angle-of-attack sensor in the Eclipse model could complicate matters. Also it could just be a little stretch of tubing that's too close to the skin and cold enough to trap out some ice at altitude.

Black Tulip

sparky said...

Gunner,

That's why I'd like to see the electrical schematic. it would go a long way towards shedding some much needed light. that's probably why it's been ommited.

The manufacturer obviously has specs for the system, i'd like to know if they were followed.

FlightCenter said...

Let's leave Eclipse aside for a moment. Anyone who is investing in any company in this market needs to make an assessment of the market size for VLJ aircraft.

Here are some numbers from GAMA to start that discussion.

Current GA Market Size

Market, Size, Aircraft ASP, Total Revenue
Piston, 2,465 Aircraft, $325K, $805M
Turboprop, 365 Aircraft, $3,216K, $1,174M
Biz Jet, 750 Aircraft, $17,548K, $13,161M

Here are some estimates from industry sources for the number of VLJs that the market can support.

Industry Forecast 10 Year VLJ Market
Teal Group 2,310 Aircraft
FAA 4,500 Aircraft
Honeywell 5,000 Aircraft
Rolls Royce 3,750 Aircraft

Based on these forecasts the VLJ market can support somewhere between 230 and 500 aircraft per year. If you make the assumption that 10% of the piston buyers will step up to VLJs and that 50% of the turboprop market will buy VLJs then you end up with a market of approximately 400 aircraft per year, approximately in line with the industry forecasts.

If you want to be more optimistic, you can assume that a significant portion of the used market will become buyers of new VLJs. There are approximately 2,400 used aircraft transactions per year in the $500K - $4M price range. If the VLJ market captured 20% of those transactions, then the overall sustainable market size would be approximately 750 – 1,000 aircraft per year.

Let’s look at the viable competitors in this market

Single Engine Personal Jet
Cirrus, Piper, Diamond
Twin Engine Personal Jet
Eclipse
Very Light Jet
Cessna Mustang & CJ1+, Adam, Embraer Phenom 100, Honda

Both the CirrusJet and DiamondJet are priced significantly below the Eclipse, so it is reasonable to assume that between the two they will capture about 50% of the market.

That leaves 50% of the market to split between Eclipse, Cessna, Embraer, Honda and Adam.

Is that a large enough market to sustain all 5 of those competitors?

Gunner said...

FC-
That's the kind of analysis that makes this Blog the resource that it is. Thanks for posting that.

There's only one area where I'll disagree. The D-Jet, at $1.4 mill, is right on the heels of the Eclipse price. Cirrus claims it'll be at $1mm, but doesn't everyone?

If Eclipse can maintain a $1.6mm price and produce in the air what it claims on paper, it's gonna have a very strong advantage over its single engine competition. Personally, I think the $1.6mm price is pure fantasy; to a lesser extent, so is the Cirrus $1mm promise. D-Jet? If they need to raise their price any higher, I think they're gonna have a real hard time selling it.

A lot is also gonna turn on the actual buyers that step forward. Guys like Ken and myself? We're not carrying a family or an executive committee around. Assuming the smaller entries (like Eclipse and Diamond) make it to market with a reliable aircraft, the Mustang is probably more aircraft than we need. Small corps and rich guys with families to haul: the Mustang is probably as small as they can go in comfort.

As to Embraer and Hondajet, I personally think they're gonna pull a whole lot of new ownership entries into the market from Corporate America. They have an enormous market niche that's got the money to spend.

It seems to me that, absent a suddenly merging Air Taxi market that actually believes the Little Jet is viable for their uses, Eclipse may well have targeted the toughest market segment. They'll end up being the most expensive option for the owner-pilot and wife types and too small for everyone else.
Gunner

Ken Meyer said...

gunner wrote,
"FC-
That's the kind of analysis that makes this Blog the resource that it is."


Indeed it is. We agree!

But perhaps for different reasons. I read his post and said to myself, "Awful lot of unknowables he assuming there; his bottom line conclusion will be fantasy because he's assumed too many things he didn't know."

You looked at and said, "great work; I love it!"

I guess that's one difference between us, Rich. I like fact-based conclusions. But much of what is written on this blog falls into the category of guesses or emotional outpourings.

Now there's nothing wrong with posting guesses, and I hope FC won't take this as a criticism. He's done a nice job summarizing what is known about the future VLJ market. The trouble is he missed the real conclusion: nobody knows the future market for VLJs. It is, at present, an unknowable unknown :)

Ken

Gunner said...

Ken said:
"I like fact-based conclusions."

Ken-
I don't know whether to laugh or cry. Honestly.

You take FC to task for using MULTIPLE sources for predicting the future. Yet you yourself, rely on ONLY ONE and continue to present that future as the present.

""Many people would rather die than think; in fact, most do."

Bertrand Russell


;-)
Gunner

Ken Meyer said...

gunner wrote,
"You take FC to task for using MULTIPLE sources for predicting the future. Yet you yourself, rely on ONLY ONE and continue to present that future as the present."

Ignorance magnified is still ignorance, Rich. It doesn't matter if he uses a thousand guys with crystal balls, they still cannot see what is a hazy future.

I think you're complaining because I think the Eclipse will meet the specs the company is guaranteeing for it. The product they have today is 90% or more of what they're contracting to deliver, so it is not at all unreasonable to believe they will ultimately deliver exactly what they say. One good source is worth a thousand crystal balls.

And if somehow Eclipse doesn't deliver what they have guaranteed to deliver, I won't buy it. That's easy enough.

There's no crystal ball involved in that like there is in predicting how many VLJs will be needed in 10 years. That depends substantially on whether or not the air taxi industry develops, and nobody knows whether it will. Therefore all those estimates are purely guesses.

Ken

Gunner said...

Ken-
What you have just said makes enormous sense, in part. It really does.

But the FACTS are that it is you you claims Vern Raburn a better "source" than the FAA, Teal Group and Rolls Royce (you just did it). It is you who defends this Little Jet based on the bright Air Taxi Future Guesses on which its very existence depends.

Let it go. I love you for you, Ken. You ARE reliably loyal. That's something.
Gunner

airtaximan said...

Ken,

dig up the NSAA market for VLJs and you'll have a fact based prediction!

You are right, no one knows how many VLJs will be sold...but there are indicators, and the cited OEM market analysis is a trusted and credible source. NASA...well, you can decide for yourself.

BTW, NASA sized the e-clips aircraft by pouring money into a 700lb thrust turbofan...but that's another story.

Back to the market analysis - even Vern would agree that the owner flown market is very small. All you need to do is look at owners of aircraft which are tradeup candidates. This is easy. No matter how much you wish to streach this number, it ends up with the ballpark numbers cited by the OEMs.

Then there's air taxi. No one knows the size of this market, because air transport between smaller communities does not exist yet..right? Ahh wait a minute...there's an awful lot of planes in charter, today, like 10,000 or more in the US alone. BUT they are way more expensive...Umm...no actually they are less expensive, but not jets...barons, etc.. So there is a market, today for this, despite what Ed and Vern keep spewing.

So...then, they are looking at car trips...this is where you need to look at the NASA numbers. You need to convince yourself that someone will get out of their car and pay a lot more for the convenience of:

- needing to rent at the destination
- flying in a tiny plane
- paying $3.00 a mile or change your schedule by around 1/2 day
etc...

Idunno...do you think NASA is right?

gadfly said...

To add to the mix, here is a complete quote:

“Albuquerque Journal”
Business C5, Saturday, April 14, 2007

“City Extends IRB 2 Years for Eclipse”

Albuquerque Mayor Martin Chavez signed Friday a two-year extension for Eclipse Aviation’s $45 million industrial revenue bond package.

The company plans to use some of the tax abating bonds to complete a training center at Double Eagle II Airport on Albuquerque’s West Side and outfit it with full-motion simulators for pilot training.

“The support we’ve gotten from the city and mayor makes us know our choice to be in Albuquerque was the right choice,” Eclipse CEO Vern Raburn said during a news conference at the mayor’s office.

End of quote.

airtaximan said...

ken

that's NASA

k?

Niner Zulu said...

Ken,

You said "And if somehow Eclipse doesn't deliver what they have guaranteed to deliver, I won't buy it. That's easy enough.".

I think that you are in agreement with more of us than you realize.

In my case, I decided against purchasing a resale Eclipse position because by doing so I would be relinquishing control of my money to someone else. And for what? My aircraft, had I continued in the deal, was supposed to be delivered right about now. I would have been in to it about $800,000, no jet, and the dream just as far away as it was last October when I almost fell for the hype.

To me, handing money over to Eclipse is tantamount to gambling at the Casino de Vern. And for what? Where is the big payoff? If Eclipse does deliver, as promised, don't you think they will be happy to take our money? Cash is king. When the time comes, I may be a buyer. I just don't see any reason to ante up now.

I can envision several scenarios that might not work out so rosy - i.e. Eclipse does deliver your jet, but not on your schedule. Maybe a year late. Maybe you lose your medical, maybe the market for your existing aircraft tanks and you're stuck with two aircraft. Maybe Eclipse goes BK the day after you take delivery and the bottom falls out of the Eclipse resale market. The point is - you have lost control of the purchase and I don't understand why anyone would want to do that.

Anyway, my two cents worth.

airtaximan said...

“The support we’ve gotten from the city and mayor makes us know our choice to be in Albuquerque was the right choice,”

nice to know $45 million of tax payer money still buys this kind of repsect and appreciation!

I'm glad Vern knows he made the right decision!

gadfly said...

‘Just for the record, every man, woman, and child in Albuquerque gambled $10, each, on the Eclipse Industrial Revenue Bond . . . and probably not one person in a hundred has the slightest idea who or what is Eclipse . . . it’s “carte blanche” time . . . the “Duke City”* has never been that generous with businesses that were born here, but for strangers we give away the store . . . (just in case any of you have some big ideas that require an easy mark).

New Mexico has the distinction of getting back $2 for every $1 paid in Federal Taxes . . . but somehow the benefit doesn’t translate down to the average citizen, and seldom to businesses . . . after the “honeymoon”. (Don’t tell Vern just yet . . . he’ll learn soon enough . . . he’s still the “new bride” and enjoying the attention . . . shhhh, it’s our little secret!)

* “Duke City” comes from the fact that Albuquerque is named in honor of the “Duke of Alburquerque” of “Alburquerque, Spain” . . . the first “r” was dropped, to make it easier to spell . . . got that?

Black Tulip said...
This comment has been removed by the author.
gadfly said...

For your Saturday evening dining pleasure, a little entertainment and education:

Recently, the farm team of the “Los Angeles Dodgers”, called the “Dukes” was gone . . . and a new Minor League team for the Florida Marlins came on the scene. There was a contest for a fitting name.

Because New Mexico is the home of the Atomic Age . . . you know, Los Alamos, Sandia National Labs, White Sands . . . Trinity Site, and all that sort of thing, the name that won was the “Albuquerque Isotopes”.

It’s a fitting name, especially for anyone who takes Albuquerque seriously as a place to begin a new business. In fact, to anyone who wishes to start a business here, I can honestly make the following suggestion: “Come on, get a half-life!”

gadfly

Black Tulip said...

Gadfly,

Sixty-two years ago the Jornada del Muerto, south of you, was chosen for the world's first nuclear explosion. Could Albuquerque be the site of another 'critical mass' event when the the Eclipse depositors and shareholders meet?

Black Tulip

gadfly said...

Black Tulip

Our paths crossed.

On a side note, I did some research on the place where my parents had lived not long after they were married . . . and where my dad, briefly, ran a small Shell gas station. If you draw a triangle from Blythe to Needles to “San Berdu” (San Bernardino), and put a “dot” in the middle of that triangle, you will locate what was once “Rice, California” . . . as far away from everything as is possible. My dad and mother would get their groceries in “San Berdu”, and return in the middle of the night at 90mph in the “Duesenberg”. The year was 1937.

In 1945, it was one of three places that was considered as the place to detonate the first nuclear fission experiment . . . “Journey of the Deadman” (Jornada del Muerto) was selected instead . . . a most fitting location.

For whatever it’s worth, although I was born in Santa Ana, California, I was probably “conceived” at the point that was intended to be the start of the nuclear age. What to make of all that I have no idea. “Rice, Cafifornia” no longer exists, except as a few memories, and some debris blowing across the desert.

gadfly

gadfly said...

Black Tulip

Our paths crossed.

On a side note, I did some research on the place where my parents had lived not long after they were married . . . and where my dad, briefly, ran a small Shell gas station. If you draw a triangle from Blythe to Needles to “San Berdu” (San Bernardino), and put a “dot” in the middle of that triangle, you will locate what was once “Rice, California” . . . as far away from everything as is possible. My dad and mother would get their groceries in “San Berdu”, and return in the middle of the night at 90mph in the “Duesenberg”. The year was 1937.

In 1945, it was one of three places that was considered as the place to detonate the first nuclear fission experiment . . . “Journey of the Deadman” (Jornada del Muerto) was selected instead . . . a most fitting location.

For whatever it’s worth, although I was born in Santa Ana, California, I was probably “conceived” at the point that was intended to be the start of the nuclear age. What to make of all that I have no idea. “Rice, California” no longer exists, except as a few memories, and some debris blowing across the desert.

gadfly

airtaximan said...

9er ZULU:

You are so right. Here's the rub...

Vern claims to be able to produce 1,000 planes per year. His whole business plan is BASED on 750, right now.

Even at 750, if you belive his BS orderbook, that 3 years of production. Flooding the market with e-clips planes at the rate of 1,000 planes a year results in:

Unbeliveable depreciation, and no residual value. You can buy new at the low factory price all day long.

So, the secondary market will be very cheap.

Why place a deposit?

If he's successful, you'll get a plane in a year or so, no problem. Either used, or most likely new.

Unless you really belive he does not need orders and has 2500 "orders".

Why advertise?
Why go on a Euro-tour?
..while cutting back on coke and color copies?

If they succeed - the markets flooded and the use market is incredibly depressed...

If they fai - you just lost your deposit.

NO BRAINER - wait and see.

airtaximan said...

Ken,

that's fail

OK now?

Ken Meyer said...

AT wrote,
"Ken,

that's fail

OK now?"


Sure. But I think some of your premises are wrong. If the premises are wrong, of course the conclusions are wrong. But I don't fault you for your opinion--I just think it's wrong :)

The fact is nobody will know what is going to happen to Eclipse and its investors and customers for a while. You think they're all screwed. I think you're wrong. I'm not alone; there are 2500 solid orders and at least 800 of them are from guys like me with a wallet to back our opinions, not just a big mouth.

Ken

airtaximan said...

Ken:

there are 2500 solid orders and at least 800 of them are from guys like me with a wallet to back our opinions, not just a big mouth.

Are you counting on those 2500 orders?

Do you think I do not have the money to place an order for this plane if I wanted one?

Do you think because you placed an order for this plane, you are entitled to Your big mouth?

Do you think your opinion is more valid than mine, just because you bit and I didn't?

Every naysayer, skeptic or doubter - take note - your opinion is invlaid unless you actually go against your better judgement, and purchase or invest in something you do not believe - Ken's rules of life.

Shut up, unless you have placed a deposit in E-clips, ESPECIALLY if you do not belive.

Did someone from E-clips tell you that in order to have an opinion, you had to write them 2 checks...10% then 60%?

I think I understand now.

Now this is pretty funny.

airtaximan said...

Ken:

skill testing questions:

1- how many owners of high performance single and twin engine airplanes are there in the world?

2- what would the value of these planes need to be in order to conservatively include them in a market analysis where they would be candidates to trade up to the e-500 at $1.5 million?

3- how many of those planes/owners are there?

4- how many WILL switch (guess is OK, you do not know, I know) 25%, 50%? Pick a nice number you would bet on...OK, I mean a reasonable person would think is a conversion rate to the E-500?

CLUE: If there are 800 of you who have placed deposits...you may already have your answer...or a large part of it. Anyhow...

I'll tell you what to do with these numbers, once you come up with them. this may help you rationalize your purchase, and understand the market for the e-plane.

airtaximan said...

Kenny:

One last thing...
You say:

"The fact is nobody will know what is going to happen to Eclipse and its investors and customers for a while. You think they're all screwed. I think you're wrong."

I am one of the only folks here who have openly said: "I do not think E-clips will go TU anytime soon"

I belive Vern can and will pour more money into this program - I really do. I think the old investors are non-initiated in aerospace, and I think the new money is the same. DB probably just did someone a favor - -its pre-IPO debt and convertible... no big deal, they probably have your airplane liened, along with the rest of E-clips stuff as security for their LOAN. If Vern runs out of cashe, a lot of folks will seek protection, especially Al Mann - so don't lose sleep just yet - he'll have your plane as collateral, too. But he will let you "live another day".

The capital markets are strange...there are all kinds of reasons to invest in E-clips, none of which have to do with the plane, the business or how the company is doing - so don't worry, just yet.

I belive we are $300,000,000 -$600,000,000 away from TU. MAybe another year, and alot can happen between now and then. So I do not actually belive TU is inevitable.

Most folks here do.

I have two issues with e-clips:
1- total lack of integrity lead me to think the planes are actually unsafe - 8 year track record of unabashed BS and failure
2- the reliance on high volume required by Dayjet/air taxi is BS. No volume, no low price. No low price, no market.

But, I do not think they will fail anytime soon. This hangover will take a long, long, long time to set in beofre anyone reached for the asperins.

PS. I'd love to know if you pass the psych-test required to buy the plane. You and your 800 buddies are probably a "special breed", and I'd like to know more about what makes you tick, how Vern appealed to you as a group...after all, you are an elite group of 800 (probably more like 650, but whose counting) who bit, out of millions who have been exposed to E-BS for 8 years.

How many legit operators of charter jets have bought e-jets? Why?

Nice little e-vanity club y'all have going there...I think I understand the mentor requirement now...

airtaximan said...

"The current Eclipse certification is good only for press release and deposit collection at this point"

Gunner,

This is THE quote of the blog.
This sums up the whole sad story, in one sentence.

I've been trying to express one thing, which is the unmittigated focus on the deposits. The unabashed "snappy answers". "cover ups" and "hucksterism" to just get the money from the depositors.

You did this in one sentence. THANKS.

Normally, all of these just discovered cracks, avionics integration issues, icing, etc...WAY TOO MANY ISSUES TO cite again and again... would be part of the development and testing program.

No safety oriented, quality oriented, long term aviation company would ever put a half baked POS plane with all these know issues into the market. If anyone thinks most if not all (and there ARE more, I assure you) of these issues, flaws, quality problems, certification snags and defects are just being discovered now - you are on crack.

First flight was a stunt - and they knew it - they flew the E-j22 engines for a little while, white nuckled - and the drank champagne and asked for the non-refundable deposits - a few weeks later, williams was gone. BUT, they sangged your money, FIRST.

Look at the pitot problem - its been a know issue for a long time - never admitted, never dealt with, until now. Same for Avidyne getting scrapped...a known problem for "years". etc...etc...etc..performance shortfalls, known for years!

So Gunner, congrats. You summed it up in one sentence.

E-clips is selling a "bill of goods" and 800 of Ken's closest friends bought it. There's no way to get the money back...so

better defend the dream...afterall, no one like to lose their money.

Ken Meyer said...

AT wrote,
"I'd love to know if you pass the psych-test required to buy the plane."

See, airtaxiboy, that's the kind of BS that tells everybody you don't know what you're talking about. I've told you; many others have, too. The Myers-Briggs Assessment is not pass-fail. For you to now claim it is means you're either incapable of comprehending the truth or purposely ignoring it. Which is it?

It doesn't really matter. Either way you're thoughts are irrelevant.

Ken

Niner Zulu said...

Airtaximan, you nailed it. If Eclipse sells as many jets as they hope to, the resale market is toast, and they end up being their own worst enemy because they have to compete with the resales of their own product. And if Eclipse doesn't meet their production numbers, then Eclipse is toast because that is the ONLY way they can be profitable. They could try to raise their price, but then they are competing with the Mustang or the Phenom, which are arguably a far superior product.

I think Cirrus, Diamond or Piper have a much better chance to produce a successful light jet - they don't have all of their eggs in one basket like Eclipse and are not trying to reinvent the wheel. Hopefully, one of them will come out with a twin-engine jet as well.

Metal Guy said...

Maybe they should make it pass / fail after all.

gadfly said...

Gentlemen

Congratulations on passing “Eclipse 101". A “make-up” test will be given for the others following Oshkosh. (And it will be an “open book” exam.)

flyger said...

sparky wrote:

Fist occurance....flight anomoly. Second orccurance... coincidence. Third occurance... oh s*#t, another delay.

They have had 3 occurences where both pitot tubes froze. How many times did only one freeze? We don't know, it could be many, many more.

It amuses me that there isn't much outcry that the Eclipse is VMC limited. I guess we have become so numb to such news that it isn't a surprise anymore.

FlightCenter said...

gunner,

thank you for your comments. I agree that there are significantly different markets for single engine turbofan aircraft and twin engine turbofan aircraft.

ken,

Let's look at the facts we do know.

1) Honeywell has an excellent track record for predicting the size of new aircraft markets. They have very sophisticated models and access to lots of "insider" information, but most importantly, they have been consistently right in their predictions time and again, year after year. Ask around the industry if you want to validate this fact.

2) Both Cirrus and Diamond have proven their ability to manufacture large numbers of inexpensive aircraft at a profit. Look at the GAMA numbers. They will be able to take advantage of their high capacity production infrastructure to amortize some of their jet production costs. Their track record provides confidence that they are likely to meet their price targets.

3) Both Cirrus and Diamond have proven their ability to certify innovative aircraft and stay close to their schedules while doing it.

4) Both Cirrus and Diamond are building substantially simpler and easier to produce aircraft (and hence less costly aircraft) than Eclipse is building.

Just a couple examples, they don't need to worry about pressurizing the airplane to 41,000 feet. They don't need to certify to RVSM standards. They don't need quick donning oxygen masks... The list goes on and on...


5) Both Cirrus and Diamond have built an extremely large and loyal customer base that is ready to step up and will tend to stick Cirrus and Diamond aircraft if given the choice. (By the way, so has Cessna).

6) Cirrus and Diamond customers are predominantly single engine piston customers and a single engine jet will be an easier transition for their customers hoping to step up.

There are significant barriers to entry for customers wanting to step up from single engine piston aircraft. Getting and paying for insurance is going to be a major problem for the folks stepping up from smaller, lower performance aircraft. This will not be as big a problem for piston pilots stepping up to a lower performance, single engine personal jet.

7) We do know that Eclipse has been selling the E500 since May of 2000 when they started taking Platinum, Gold and Silver deposits. If we are to believe Ken, then they have taken deposits for 800 aircraft to individual owners. That is 7 years to secure 800 orders. Do the math and extrapolate how many individual orders you would expect once the aircraft is being delivered. If initial customer feedback was incredibly positive, you might expect the order rate to double once the airplane has been shipping for a while and leadtimes are reasonable...


8) We do know that the vast majority of Eclipse's orders come from the air taxi market. 2 years ago, Vern told me that his estimate of the percent of orders that were coming from the air taxi market was about 80%. At the time, there were about 500 orders from individuals. So that meant that about 2,000 of his orders were attributed to the air taxi market.

10) We do know that the air taxi market will only succeed if someone is willing to finance all those planes. The facts are that it has been extremely difficult for DayJet, Pogo and other air taxi companies to secure the financing for the aircraft they need.

We do know that DayJet has recently secured financing on the order of $50M. Clearly not enough to buy thousands of airplanes.

11) We do know that the air taxi market will succeed only if customers love the service. Customers are not going to love a service where DayJet lands to pick up another customer while I’m on the plane waiting to get to my destination. I wouldn’t share a cab on the way home from the airport if the service was free. Why do you think no one car pools to work? You want to leave when you want to leave. The whole DayJet model of not committing to the customer when he’s going to be flying until the last possible moment, in order to aggregate other customers on to that flight, is not going to be a winner. Trust me.

12) We do know that the whole air taxi market concept was based on Vern’s promise of a direct operating cost of $0.52 per mile. (not $0.52 per passenger mile, but $0.52 per aircraft mile). The idea was, if air taxi companies could make 50% gross margin, and charge $1 per mile, there would be unlimited demand for air taxi service and huge profits. And you know what? They would have been right!

However, those projected costs are history. It is looking a lot more likely that air taxi services are going to need to charge closer to $6 per aircraft mile to make the profit needed for a sustainable business. This translates to much lower demand.

13) We do know that the Eclipse air taxi order book does not include a firm commitment to buy more than a few hundreds of aircraft. The rest are options, with very little deposit money backing them. The fact is, if the customers aren’t delighted, and the financiers aren’t willing to put up $4B (2,000 orders times $2M per airplane) to finance the air taxi companies, those options are going to be worthless paper to Eclipse.

So what does that mean?

Anyone who is building a business plan that requires the establishment of a large, high growth air taxi market for success, is building a house of cards.

Individual owners of piston class aircraft are going to flock to the Cirrus and Diamond personal jet products.

Many individual owners of turboprop and high performance twins will be natural Eclipse customers. They will have the experience and financial capability to move to an Eclipse. That gets back to the 365 new turboprop sales per year and the 2,400 used aircraft transactions per year that occur per year in the $500K to $4M price range. It is hard to imagine that more than 20 – 25% of those used aircraft transactions will be converted into new VLJ sales.

Bottom line, there is going to be a market for about 500 twin engine VLJs per year. The competitors in this market segment are: Adam, Cessna, Eclipse, Embraer, and Honda.

So what are the facts?

We know that Cessna, Embraer are building their business plans based on assumptions that will allow them to be successful producing 100 – 150 aircraft per year. We know that Adam and Honda believe that they can have a profitable business with around 50 or 60 aircraft per year. We know that the Eclipse breakeven point is about 750 aircraft per year.

Ok, so back to Stan’s original question - Who is ready to invest a few million in Eclipse?

Buckerfan said...

Lets get back to the topic of Stan's post: Can Eclipse pull off an ipo? I live in Europe but spent many years on Wall Street and am currently a director of several European and US technology businesses. I try to keep close to conditions is the ipo market. Late last fall one of my company's, involved in RFID (no, not Alien), took a very hard look at this. What did the street tell us:
1) need substantial revenue base (in typical "hi-tech" that might be annual revenues of $30 to 50 million, indicates the product has true customer traction)
2) need demonstrated real revenue growth over several years,
3) need decent and sustainable gross margins (indicates you have your manufacturing under control and that your product is not a low margin commodity, in hi tech that means minimum of 40 to 50%, I have no idea what that should look like for aero manuf)
4) need to have crossed the profitability line, ie have a quarter or two of true bottom line profit, or in an extreme case have a positive Ebitda,and
5) the revenue growth and cost control indicates that the level of profitability/ebitda is going to continue accelerating
6) need to have invested the time and money to be Sarbanes Oxley compliant, whch means the CEO, CFO and directors have absolute faith in the financial systems and are willing to sign off on the financial statements.
Eclipse looks to be very far away from almost any of these metrics. Remember deposits are not revenuesthey are deferred expenses.
Stan raises an interesting point in suggesting the pink sheet market, but I imagine that the directors of this company would have their sights much higher than that.
Anyway, for what its worth those are my insights, would love to hear from those of your who are closer to the aero industry than hi tech.

Old Troll said...

I have a simple question for the Eclipse Defenders™.

It is a plain fact that Eclipse has an abysmal record of predicting future progress. You only need to go back a couple months to find numerous examples:

-50 deliveries in 2006
-40 deliveries in 2006
-10 deliveries in 2006
-PC in January
-PC in a couple weeks
-2 or 3 deliveries this week (from Feb GAMA interview)

What makes the latest promises any different (e.g. AVIO cert this summer)?

Gunner said...

Bucker-
I'd add one more parameter to your market analysis. (Actually, it's just a twist since you clearly allude to it.)

Traditionally there were only two reasons to go Public:
1) You had more opportunities in the market than you could fund internally.
2) You wanted to cash out.

This remains true today. What has changed since 2000, is that the Markets are no longer nearly as willing to allow the cash-out option. They want to trade multiples for real earnings, not promises and hype.

Unless Eclipse can demonstrate that they are about to launch a Space Travel program (which wouldn't surprise me), they are gonna have a real hard time making a case for new opportunities. Sure, they could argue they're going next after the Corporate Jet market, but their track history for meeting budgets, time-lines and returns on investment is positively abysmal.
Gunner

Niner Zulu said...

How about one for EB, Ken and Mirage00?

Can anyone envision a scenario under which Eclipse could succeed as a company AND deliver the aircraft they have promised for so long? What would have to happen for this to occur?

Gunner said...
This comment has been removed by the author.