Eclipse Files for Chapter 11

With between $100 million and $500 million in assets and more than a $1 billion in debt, Eclipse Aviation filed for Chapter 11 bankruptcy November 25 in U.S. Bankruptcy Court in Delaware.
Simultaneous with its Chapter 11 filing, it announced the sale of its assets the assets of the long-troubled company to ETIRC, whose chair Roel Pieper, is developing a Russian assembly line, which has been called into doubt by existing U.S. technology transfer rules.
Luxembourg-based ETIRC Aviation S.a.r.l., is acquiring the company for a combination of cash, equity and debt. ETIRC Aviation, a principal driver of the VLJ industry in Europe, is currently Eclipse's largest shareholder. ETIRC Aviation's Chair Roel Pieper has been the acting CEO of Eclipse since July 2008 and has served as Eclipse's Chair since January 2008. The proposed sale is subject to competitive bidding through a public auction, which is expected to be completed and a sale finalized in January 2009. ETIRC took on the role of “stalking horse,” testing the climate for other bidders, according to court documents.
The company also said that a group of existing Eclipse shareholders and note holders will provide Eclipse with post-petition, debtor-in-possession (DIP) financing. The post-petition DIP financing includes $20 million to be used for liquidity and to working fund capital but is prohibited from being used to satisfy pre-petition debt.
Court documents indicated that the existing share and note holders are limited to ETIRC and Board of Directors Member Al Mann who each provided $4 million to Eclipse on the day of the filing. Four additional loans of $2 million each from ETIRC and Mann are scheduled for December 9 and 23 and January 6 and 13, totaling $12 million. All of these loans would be superior to all other debt.
The largest creditor, listed at $92.3 million, is New York City-based Kings Road Investments Ltd, according to court documents, while the total amount owed to bond holders (including Kings Road) is listed at $494.9 million. The total amount owed to larger trade creditors is listed at $164.8 million and the amount owed to customers is listed at $29.7 million. The company owes $706.1 million to bond holders, trade creditors and customers including $6.2 million to DayJet which filed for Chapter 7 bankruptcy just before the holiday, and UT Finance for $13.5 million, which is also linked to DayJet. Pratt & Whitney is owed $30.1 million.
This financing will provide Eclipse with sufficient resources to continue normal business operations through the closing of the sale. Eclipse has filed a motion with the court to approve the financing with a request for an expedited hearing to avoid business interruption. Once approved, this financing along with other relief requested from the court, will position Eclipse to pay wages and salaries, honor employee benefits, service customer aircraft and continue manufacturing operations throughout the sale period. The filing comes less than a week after employees walked out when the company could not meet payroll. Related Story
The company is seeking court approval for restructuring under 363 Sale Procedures of the U.S. Bankruptcy Code and Debtor in Possession (DIP) financing. The proposed sale of the 10-year-old company which, it said, is generally believed to have created the Very Light Jet market, according to court documents, will enable the business to continue with lower costs and reduced debt liabilities.
"In the face of unprecedented economic challenges, it is clear that the sale of the Eclipse business through the Chapter 11 process is the right course of action to maximize the value of the business, secure its future and protect the best interests of Eclipse's stakeholders, including customers, suppliers, employees and creditors," said Pieper. "The successful sale will position the business for aggressive global expansion, allowing the company to fulfill its promise and solidify its position as the world's leading manufacturer of VLJs."
The company issued a statement that president and general manager of the company’s manufacturing division, Peg Billson, voluntarily left her position to pursue other career opportunities. She will be replaced by an interim manufacturing oversight provided by Eclipse's senior supply chain, engineering, production and flight operations leaders.

Russian Production in Doubt
ETIRC has the right to receive kitted components for assembly in its market region – Europe and CIS – and is now working on building a Russian assembly plant. However, the ability to do that depends on the legality of the technology transfer. The issue centers on the fact that the technology used to develop the Eclipse aircraft resulted from the NASA-sponsored Advanced General Aviation Transport Experiments (AGATE). The provisions of the AGATE agreement require any business taking advantage of the new technologies developed under AGATE be majority owned by U.S. citizens or, by non-U.S. citizens that can demonstrate that a substantial portion of its research and development and manufacturing activities are in the United States. It also requires that any products developed are manufactured in the U.S. Finally, it prohibits disclosure of AGATE technology outputs or other intellectual property to a foreign parent organization or to other non-U.S.-owned business entities.”
“The issue of is how many avionics and propulsion-related technologies derive themselves from the 15-year-old innovation pipeline initiated by the US Federal Government,” said Paul Masson, managing director of StarNet, LLC, which advises investors on technology development. “Two commercial technology development programs conceived in the 80's and implemented in the 90's generated a set of patents, copyrights and data-rights that provide the foundation for technologies in the VLJ industry. These programs and their legal foundation were new in the 90's and represent an unknown area of national policy and law. At the core is the issue of where the jobs related to these technologies will find a home. But, the AGATE agreement, which still rules on the suppliers that support Eclipse, precludes Eclipse from transferring technology outside the US for the purposes of off-shoring production.”
Masson was the AGATE Alliance manager and facilitator for NASA's AGATE Program, responsible for translating the business and intellectual property agreements into operation in the six technology teams. A total of 22 draft AC's were generated, and some 14 were made it into full Federal Aviation Regulations, according to Masson. Essentially, he assisted NASA in organizing and negotiating the legal agreements that provided the funding to develop the general aviation technologies that have been absorbed by some of the supply chain that evolved to support the VLJ industry.