With two aviation analysts predicting the end of Eclipse, AAIA may already be there as Russian investors pulled the rug out from under its resurrection plan in the wake of the financial meltdown. The actions come just a few weeks after the highly optimistic rhetoric from the two companies poured out during the National Business Aviation Association convention. Indeed, Forecast International and Teal Group’s Richard Aboulafia are predicting the demise of the Eclipse 500 production line in the first quarter of 2009.

AAIA
Less than a month after AAIA proclaimed the A700 alive and well, the company is again in trouble, eliminating all but 32 of its current 209 jobs at its Colorado facility last Tuesday and suspending all development and flight test activity for the proposed Very Light Jet, the latest victim in the worldwide financial crunch. Related Story  Its web site at www.A700jet.com was immediately taken down.
AAIA executives continued to pulse its Russian investors both at NBAA and then at a meeting in Colorado right after the convention and were continually assured the money was there. Sources indicate that despite continuing reassurance that they had the money to invest, the financial meltdown began rippling across the world became a game changer. One investor reportedly lost 90 percent of his net worth in the meltdown, and, with the Russian stock market in turmoil, Industrial Investors told the company that it didn’t have the money to sustain the burn rate of current operations. Including contractors, the company employed about 250 including contractors, according to the source, 230 of which were immediately laid off.
Although the company said it is considering its options, virtually no money is available for an untested, experimental venture such as this. A source indicated that while executives last spring felt a market would be there for the very light jet, the financial meltdown radically changed the picture bringing into question the vlj market itself. He indicated that the air taxi industry presented an opportunity but even veteran airline experts could not predict whether or not the emerging air taxi industry was viable. He pointed out that SATsair seemed to be doing well with the Cirrus but Cirrus money was behind it at a time when Cirrus was down to three days a week and no overtime.
Remaining on board for now is newly installed President Jack Braly, who heads up a team of engineers, manufacturing and certification personnel safeguarding the intellectual property and ensuring the program can once again move forward should it be resurrected. In his announcement Tuesday, Braly called the move a “strategic realignment” of goals and objectives in the face of the worldwide economic turmoil. Also heading up that team is Vice President Flight Testing and Program Management Steve Patrick.
No new schedule has been announced as the company’s investors and board evaluate both economic and market conditions. Braly and AAI’s Russian investors briefed reporters at NBAA, crowing about the deal they got in acquiring Adam Aircraft’s assets and the fact that certification was now set for 2010 since half of the certification testing had been done prior to Adam’s Chapter 7 filing and was grandfathered in by the Federal Aviation Administration. The A700 program was rescued by Russian investment from Industrial Investors that currently owns an air taxi service out of Moscow. The company anticipated a need for an additional $200 million to complete certification which, said Braly at the time, was being metered out as needed.
Neither Chet Schickling, who recently joined the company as senior vice president, sales, marketing and customer support nor Jan D’Angelo, vice president sales and marketing survived the latest onslaught.

Eclipse
Saying Eclipse lived up to its goal of being a revolutionary program, Teal Group’s Richard Aboulafia put yet another nail in the company’s coffin when he called it “the single worst aviation program Teal Group has ever covered.”
At the same time, Forecast International joined Aboulafia in forecasting the end of the Eclipse 500 production line next year. Forecast International believes that the aircraft’s manufacturer, Eclipse Aviation, will not attract new investment necessary to allow it to continue making the aircraft beyond the first quarter of 2009.
During NBAA, Eclipse CEO Roel Pieper remained optimistic about the manufacturer which, he said, has stepped back to take stock, putting the Eclipse 400, for which it has 100 orders at $1.35 million each, on hold in favor of converting the company into a production company. Indeed, he chalked up Eclipse’s and other industry problems as typical of an emerging market struggling to change from research and development to production. Related Story
"Eclipse continues to produce aircraft at a low rate as it seeks to preserve cash," said Forecast International Aircraft Analyst Douglas Royce. "We have forecast production of 162 Eclipse 500s during 2008. We believe that the company will be able to push production out into early 2009 but will be forced to cease production within the first quarter of 2009. Forecast International predicts only about 12 Eclipse 500s will be produced in early 2009, and even this forecast may prove too optimistic.”
According to Forecast International, Eclipse Aviation’s business plan depended on delivering a twin-jet aircraft at an extremely low price relative to its competition. This low price was dependent on use of a high-volume production strategy made possible by importing methods of production from the technology and automotive industries. However, it said it has yet to achieve economies of scale it needs to meet its price target because it has not realized the production ramp up.
Aboulafia critiqued the Eclipse business plan in frank terms. “It isn’t the aircraft itself,” he said. “Rather, it was a business plan that makes no sense, except to attract investors who don’t know much about the aviation business. The plan called for 1,000 deliveries per year. As a reference point, in 2007 the world’s manufacturers delivered a total of about 4,000 turbine-powered aircraft of all types and models. This one company, an unknown start-up, proposed to grow that global figure by 25 percent, admitting that it couldn’t survive if it merely built 450 planes per year (100 aircraft more than any other turbine-powered aircraft model). The formula was remarkably simple. A completely unrealistic production rate was predicated on an unrealistically low price (less than $800,000, at first). That impossibly low price was predicated on the unrealistically high production numbers. This formula (promoted as a revolutionary paradigm) worked, as long as people gave Eclipse money. As soon as they stopped (which has been happening for the past 12months), reality caught up to Eclipse, and it began hemorrhaging cash.”
He further damned Eclipse Founder Vern Raburn by saying, “Eclipse won a Collier Trophy, a highly suspect award decision that managed to demean all the other worthy recipients and the Collier itself.”
Until May of 2008, the list price of the Eclipse 500 was $1.52 million, noted Forecast International. Thereafter, the aircraft’s price increased to $2.15 million, but Eclipse Aviation is required to deliver aircraft at the earlier, lower price to customers who executed an Aircraft Purchase Agreement and paid the required 60 percent total deposit, thereby requiring the company to deliver each of these aircraft at a loss. At the moment, the company does not have the financial resources to absorb these losses and survive, it said.
To restructure its operations and reach profitability, Eclipse Aviation said publicly that it needs $200-$300 million in new equity investment, said FI, adding Eclipse Aviation is seeking funding at a time when bankers and investors are reluctant to pour hundreds of millions of dollars into a company facing an uncertain future.
Aboulafia agreed. “Selling 100-200 jets per year would be quite reasonable,” he said. “But the price needed to achieve profitability— probably about $2.5 million— would make the EA500 much less competitive against Cessna’s,” he said. “For another $300,000-400,000 buyers would get a more capable and robust aircraft with a much stronger guarantee of product support.”
Aboulafia discussed the possibility of the company being acquired by a more experienced manufacturer, especially since the aircraft itself is good. “It should be noted that there might be a good aircraft hiding under Eclipse’s deceptive business plan,” he wrote recently. “Despite some serious and expensive teething problems with many of the EA500s built so far, some pilots are quite enthusiastic about its flying characteristics and economical operating costs (although many other pilots consider it a dysfunctional mass of parts flying in loose formation). Unlike most of the other failed VLJ wannabes, the EA500 is actually an innovative small jet. When fully matured, it might be regarded as an impressive engineering achievement.”
As for clutching Eclipse from the jaws of death, Aboulafia predicts it will take a declaration of bankruptcy. “Without changing all of the price and sales assumptions and without that kind of deus ex machina, we doubt that Eclipse can survive as an ongoing business,” he said. “There is a chance that additional cash injections would keep it alive for another year or two. But for now, our forecast calls for production to end in 2009. And of course everything about the end of this program will be messy.”
Eclipse, said FI, is facing of host of new competitors in Very Light Jet (VLJ) market. “Florida-based DayJet, an air taxi service, accounted for about half of the initial Eclipse backlog when it folded in Sept. 2008,” it said. “Raising prices any further to cover costs will also cause the company’s backlog to contract. The business jet market overall is also entering a period in which demand is expected to contract sharply in the near term, cutting sales for every participant in the VLJ market.”
Aboulafia laid out the air taxi scene in no uncertain terms. “Jet air taxis and VLJs together constitute the worst mis-investment in recent aviation history,” he said. “Combine the business costs of pursuing the jet air taxi myth with government spending on air taxi infrastructure (and subsidies to make it happen), add the cost of the Eclipse fiasco, and you get many billions of dollars in destroyed value.”