Tuesday, November 27, 2007
Where did it all go wrong?
This is the question I ponder as I sit in 22D, .76M at FL270 on an east bound AA flight this morning, returning to my current client’s company after a great Thanksgiving holiday with family. I hope all my fellow bloggers, regardless of which side of this discussion they come down on, had an equally fantastic holiday, and had the opportunity to give thanks for the blessing we each certainly enjoy.
Thinking back, Eclipse truly had it all, an A-List executive team, a great and talented design team, a clever little jet design, a truly innovative engine and avionics concept. All the benefit that experience, gathered from the best aviation companies around the world, could offer. An opportunity to build a true, best-of-breed, not only the design, but the processes, the procedures, the methods, the tools, the culture, in short, not just an opportunity to build a great plane but to build a great company.
And yet here we are, nearly ten years and well over a billion dollars later, no best of breed, just a small plane, half finished – a company that boasts ‘me too’ like the youngest child in a family of achievers around the Thanksgiving Day table – embarrassed and even angry about the successes of its siblings, muttering under its’ breath about ‘coulda’, ‘woulda’ and ‘shoulda’ – ‘if only’, and the ever present lament of the self-afflicted, ‘why me’.
Now, vendors languish, paid weeks later than agreed to, occasionally having to resort to withholding product or threatening mediation or litigation to get what they are owed.
Employees leave, having given up on the promise of stock-option riches, a dot-com era fairy tale, spun one too many times, diluted to the point of valuelessness by three, soon to be four unplanned additional rounds of financing.
Investors have nowhere to go, they did their part when they signed the paperwork – their promised ROI more diluted than the mixed drinks at a New Mexico casino.
But the bitterest pill to swallow comes for the customers – employees look around now to a revitalized and energetic industry with more work than bodies – investors will simply move on – even the State of New Mexico and its’ taxpayers.
No, the loyal customers are the ones who will ultimately feel the most pain. Originally promising near 700 deliveries in 2007, Eclipse will probably eek out around 80 or 90 this year, and not one will be the airplane promised. Not one will be fully functional. Not one will be fully usable, especially as we are now fully into icing season for much of the nation.
300 of these loyal customers were told, more than a year ago now, that they would have their jets in a matter of months, that their 60% progress payments were due, their jets imminent. Exactly how many paid about a half million dollars each is unknown as the Faithful will no doubt point out, but the issue is more the demand than the exact number effected. Only a month or two after demanding contractual progress payments for aircraft ‘soon to be delivered’, Eclipse announced that not only had they decided to end the relationship with Avio prime partner Avidyne (2nd prime partner, having already parted ways with ACS maker BAe Systems), that the decision had been made MONTHS prior, prior to the announcement, prior to the demand for progress payments. Eclipse reported it had in fact been quietly working on an Avio replacement for several months.
Grandiose promises about improved functionality were made, blame was assigned, and as with Williams and BAe Systems before it, once ‘world-class’ partner Avidyne was tossed under the bus by a guy who previously sat on its’ BoD. A pattern was emerging, each time the wunderjet approached the only significant milestone in any program – certification and delivery, Eclipse pulled the rug out from under itself, and blamed the rug.
Come now the present, and a major structural supplier has had to sue Eclipse for missing payments, this after renegotiating the previous volume pricing and working to freeze the design and make improvements for manufacturability. Dunn and Bradstreet shows Eclipse to be over 3 weeks late, on average, for vendors that report to D&B. Current and former vendors tell tales of engineering that has no tolerance for assembly resulting in massive scrap rates. Current and former employees tell tales of poor morale, poor to nonexistent leadership, and a singular lack of appreciation for the task of designing, certifying and delivering aircraft.
Preston Tucker boasted that his car company had the largest manufacturing facility on planet Earth, and it was true – Tucker had negotiated with the US government to give him a former war material plant, the single largest building on the planet at that time. Tucker used this massive building, flashy advertising, and his own ebullient character to raise a significant sum of money at that time, over $15M – to build the car of the future.
Tucker would later stand trial for fraud, having built only 50 cars after several years and many millions of dollars. Eventually acquitted, the similarities to Eclipse and Raburn are astonishing. Another comparison made more than once here is to that of Jim Bede and his diminutive BD5, the elusive ‘everyman’ plane. Here too we have an interesting idea, a very interesting character, thousands sold, hundreds delivered, and one of the greatest black eyes in aviation history – all for the want of an engine.
The difference for Eclipse lies only in the ability to continue to raise capital, and in the number of people around the world who will be adversely affected when this house of cards crumbles.
So where did it all go wrong? Did it start out as a scheme – I think not. I have made no secret about my early exposure to Eclipse, and that I have friends and acquaintances both within and without Eclipse. I heard the early stories, predictions of 1500 planes per year rolling out of Albuquerque, a sub-million dollar selling price – the predicted death of half-million dollar prop planes such as the Bonanza, the Cirrus, the Columbia, the Malibu and the Mooney. I heard tales of wonderment about a level of systems integration unseen on planes smaller than the 777.
It did not start out as a scheme I am sure, but each time the reality of the situation might have set in, Eclipse leadership chose to applaud the Emperor’s new clothes rather than point out he was, in fact, naked. The result is vendor after vendor failing for Eclipse where they each had track records of success for other larger and more successful customers dating back years, even decades. Of special importance here is the failure of key vendors, the chief enablers of the wunderjet if you believe the marketing hype, that is Williams International, manufacturer of the EJ-22 engine, and BAe Systems, architect of the computer system enabling Avio.
The real issue at the end of the day is that much like the dot com bubble from which Eclipse leadership hails, there is a sense that the rules don’t apply, that Eclipse is a special case, the ‘new economy’ version of aircraft. The new economy however was a bust, rules after all are rules. There is a reason that planes are designed and built they way they are and it has nothing to do with screwing the customer, creating artificially high pricing to dissuade customers from actually buying them, or just being monolithic dinosaurs mired by the inertia of their great size. No, when hundreds of millions or even billions of dollars, and hundreds if not thousands of jobs are on the line, a company owes its’ employees, its’ shareholders and its’ customers a certain amount of respect and the decisions must be taken seriously with an eye towards safety, reliability, and eventually ROI.
There was no new economy, only people who believed the rules did not apply to them – and for a while they were able to find enough unsophisticated marks who believed what they said – irrational exuberance ruled the market. A similar effort is just now completing in the real estate market – as some places see soft landings (a fitting euphemism for our discussion today), other have seen the bubble burst, and crashed and burned.
So we are left with one pivotal question – is Eclipse right and the rest of the world just doesn’t get it? This is surely the position of the Faithful. They suggest that Eclipse changes the rules, creates a whole new value-proposition.
Or is Eclipse and the business model that it and its’ major customer represent stillborn – e.g., are they dead and just don’t know it yet? This is the position of the critic, with some even allowing for a chance of success given a wholesale reorganization of the BoD, the executive team, another $300M and 18 months.
Occam’s razor suggests we get the best result when we use the least number of assumptions, and it is here that I believe Eclipse simply fails the smell test.
In order to accept the Eclipse explanation as to why five or six dozen partially completed planes are all they have to show after almost ten years, well over one billion dollars, and all the other pro’s I mentioned above, you have to believe the following:
A leading world-class avionics and vendor (BAe Systems) did not know what it was doing and is a failure
Another leading avionics vendor (Avidyne) did not know what it was doing and is a failure
A leading business jet engine maker (Williams International) did not know what it was doing and is a failure
A leading systems and lighting vendor (deVore) did not know what it was doing and is a failure
Boeing does not know what it is doing
Cessna does not know what it is doing
Hawker-Beechcraft does not know what it is doing
Traditional methods of setting price are wrongTraditional margins for aircraft OEM’s are low by a factor of 3 or 4
Or you can observe that it is in fact Eclipse that did not know what it was doing, evidenced not by crazy conspiracy theories (like OEM’s consciously NOT meeting demand to keep prices ‘artificially high’), but by facts such as:
Eclipse needing to select a new engine
Eclipse needing to redesign the avionics suite, twice
Eclipse failing to hit a single schedule
Eclipse missing the mark on MTOW by 28%
Eclipse missing the mark on needed fuel by 26%
Eclipse missing the mark on development costs by a factor of 4
Eclipse missing the time to develop by a factor of 2.
So I ask each of you, critic and Faithful alike to consider this – is Eclipse right and the rest of the world wrong, or is there a reason that planes are designed and built the way that they are designed and built?
Is there a reason why we see evolution more than revolution in aerospace?
Is there a reason that Raburn has failed, like Bede, and Moller and Tucker before him?
In a well managed program, risk is supposed to go down as time goes on – the further along you get the safer you are supposed to be – as you, supposedly, check off item after item on a well-planned effort – making progress towards the ultimate goal.
This should not result in being almost bankrupt when a finance round takes a few days or weeks longer than anticipated. This should not result in establishing a new low-water benchmark of delivering partially completed aircraft with significant but commonly expected functionality delivered in the form of an I.O.U. Incremental development and delivery might work for operating systems, it is nothing short of criminal to do it with a million dollar aircraft.
There are no free rides, there is no such thing as a free lunch, and if it sounds too good to be true, it probably is. These clichés ring truer today than ever.
Contributed by ColdWetMackarelofReality.