Long time reader, first time poster. Here goes:
Credentials seem to be important on this blog. Here are mine: I own a business; I’m an instrument rated private pilot and I own a Cessna T206, which I regularly fly to the flight levels with large loads and suck too much oxygen as a result. This works really well when eastbound and really poorly when going west.
As for my relationship with Eclipse, I have none other than being a prospective customer. I called the Eclipse factory early this year and inquired about a purchase. Shortly thereafter I discovered this blog. Whoever noted that potential Eclipse purchasers were likely to wander across this blog in their due diligence of Eclipse (both the plane and the company) was correct. Most everyone with internet savvy and some sense of fact checking will end up here sooner or later.
Here’s another credential: I used to be the CEO of a business that went through Ch 11. It was a long time ago... It was an emotionally bruising experience. I got to see most sides of the business bankruptcy issues in that process. For instance – how does a company get to Ch.11 (what mistakes were made?); what could have been done differently; could it have been predicted?; who (which personnel?) contributed to the process in both negative and positive ways. What had I done that allowed the bad business conditions to develop? It was a depressing experience myself and for many of my company’s employees, customers, vendors, investors and bank. It’s certainly not fun – never want to go there again – and I run my current business accordingly. As a result, I do understand many of the issues which financially contribute to the demise of a business.
I will not use monikers which mock the point of view of the ‘other side’, whatever that is. An example is EA499.5. Not going to go there.
Now, I just wanted to make a few comments:
1) What about the jet in question? The complete Eclipse EA500 would be a wonderful piece of transportation. No matter what, at the end of the day, if everything’s delivered, working, certified, supported, there’s a bunch of folks who would like that plane and find it ideal for their personal transportation requirements. It’s back to being a disruptive buy at $1.25mil.
2) How could *I* afford to buy one? I don’t have large sums of money socked away; I would be a cash flow purchaser, and full disclosure: I can’t afford it. I was surprised by the factory’s indication that I would have to give a deposit in order to get in line to buy their product, and that I would have to wait until 2009 for delivery. They offered some bank financing choices, but it immediately became clear that none of the banks would act remotely like Cessna Finance. (CFC has been a great business partner for me in the purchase of my T206. Basically, if you live and breathe, have adequate cash flow and credit history, and can put 10% down, you can get a Cessna. Cirrus seems to work the same way, and I’ll bet the rest of the GA world does as well.) If Eclipse didn’t have a factory finance option, then their ability to sell airplanes would (and is) greatly diminished. The alternative, from a business standpoint, is for their management to under price the product relative to its true market value, and allow the potential equity in that statement to draw cash from speculators and the customer base who are cash buyers. This seems to have been a conscious business strategy on their part. There are numerous ways for this strategy to backfire. One of them is the FUD (Fear Uncertainty Doubt) it puts into the existing customers who’ve already ‘deposited up’ and the other is the FUD it puts into future prospects like me and many others who wouldn’t touch it until the smoke clears, if it clears. And then there’s the FUD with the vendors – it’s got to be considerable for the smaller guys with unsecured moneys owed from Eclipse. I’ve read the comments on D&B. My old company’s D&B rating certainly never said we were going bankrupt – but we did. Such is the reality of business. It’s like the fog of war – you simply don’t know the real situation.
3) How could Eclipse afford to finance the continued development and production of their product? Eclipse clearly has a program in place, where the customer provides financing to the factory by providing cash many months prior to delivery. This makes customers, in the event of a BK, unsecured creditors to the company. The recent deposit request/bump highlights how much they are reliant on customer deposits to make it through.
4) Life has taught me to be prudent in financial situations. It is a rare situation indeed where something that looks like a dead fish, smells like a dead fish, isn’t a … dead fish. There are so many aspects of the Eclipse business model which create this air of business danger!
5) However, there are exceptions to the dead fish rule.
6) In business, cash is king. Those who have it live to fight another day, and those who don’t, … don’t. It would be unreasonable to assume that Vern Raburn hasn’t been working overtime for the last two months, trying to raise another round of money. He may have been offered money already; although it may appear to him to be a personal ‘Hobson’s Choice’, because I suspect the money he’s being offered is tied to significant dilution and/or loss of control of his enterprise and/or ‘cramdown’ and/or forced BK. Alternatively, he may be working on a rational round of financing, where he’s been given some stipulations which must be met prior to close. These stipulations require meeting some milestone (EG, increased production rates; increased customer financing; you name it…) prior to close of the round. My best guess is that he’s looking at a cramdown of some sort. The early equity investors probably are facing substantial dilution. That’s how new investors make their money: essentially, older and early investors are written off. Most of the benefits of future profits flow to the last round of investors.
7) It is also clear that all of the information required to make intelligent business decisions on behalf of Eclipse are only fully known to Eclipse management. In other words, if they pull it off, they pull it off!, and we don’t know why, and life is glorious for them. This is the corollary to point #5.
8) There is life on the other side of Bankruptcy. There's also life on this side of Bankruptcy, if aggressive moves are made in time. If I was ‘King For A Day’ at Eclipse, I’d make the following moves:
8.a Take the website down. Replace it with a retooled mission statement for a couple of weeks, then bring up a new website. The mission statement would be something like this:“Our mission to produce the finest, most economical to operate 5 place twin engine business and personal jet in the market.”Below that it would read:“We’d like to talk to you about our jet. We like it a lot; we think you will too. We’ve priced it fairly and we want to help you buy it. Give us a call.”
8.b Reject all customer purchase contracts which are not profitable. Who knows, this might be every last one of them. Obviously give reorganization preference to customers who’ve already placed the deposits. For goodness sake, raise the price of the product!! If any product truly has a 3 year lead time, then management made a huge blunder in under pricing the product to market demand. Management gave equity to the customer base, and that’s just stupid. I guess I’m trying to say that there’s no such thing as a free lunch, especially in GA.
8.c Dump AVIOng in favor of generic Garmin. Heck, just drop a couple of 430s or 530s or whatever in and get the planes rolling out the door, so they can fly IFR/GPS.
8.d Pray like crazy that FIKI gets wrapped up, and that the public announcements to date on FIKI are the truth.8.e Same for EASA stuff.
8.f Same for anything else that’s been rashly promised and not yet delivered.
8.g Reset quoted production levels and delivery times to rational levels which have already been demonstrated. Reprice the product so that operations are profitable at that level.
8.h Obtain bank DIP financing that would also provide a rational tie in to post-delivery customer financing. Create a customer delivery sales program that would work like this: 10% down at order; another 10% at delivery; balance of 80% on financing. That would stir sales at rational (EG profitable) price levels.
8.i Complete the equity financing round. As a lead investor, post BK, life might get a lot easier to raise money.
8.j Find a bigger partner who wants the product and the TC, and is willing to pay real value for it. Don’t have a realistic clue who that is… can’t imagine it would be Cessna.
That’s it for real comments.