Orlando, Fla. – While most of his time must have been spent explaining the events surrounding Eclipse over the past year, 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.
“November a year ago, Eclipse showed that it was possible to produce an aircraft per day,” he said. “However, it was not able to show that it had the systems, controls, and supply chains to build an aircraft and be profitable. It had the right safety and quality but it was not able to get their hands around the process management. If anything went wrong it was in not understanding the business and financial management. In addition, too much money was spent up front. It is wiser really to learn how to walk before you run.”
His explanation not only applied to Eclipse, he said, but to its biggest customer, DayJet. “DayJet had enormous up front investments in IT systems,” he said. “It had a lot of intellectual property which was of value but perhaps it needed more balance in proving the business. However, hindsight is always 20/20. There are some parallels between both DayJet and Eclipse. You really have to prove which models work and the type of customers you have and then move up to the next plateau. If I look at good investments, I think we need more Linear Airs and not more like DayJet. We need people who show they can do the basics and that they are working and not those who are on the front page of the newspaper all the time.
“It is a balancing act, of course, especially if you want to be innovative,” he continued. “Yes you want to make an investment but you have to question whether you need to make all the investment up front before you demonstrate the business.”
Pieper, however, said that investors should have given DayJet a fairer chance although he understood the constraints of the financial markets. “So, I’m not sure that DayJet’s model is proven one way or the other,” he continued. “Both models – per-seat based and leg-based could work but I think you’d want to start with the leg-based model first and then have the growth opportunity in the per-seat based model.”
He recounted what he termed hiccups with some suppliers. “When you start a new product you have to have a network of suppliers,” he said. “You can’t have one or two providers who come in late or can produce only in low volume. This is typical of a research-and-development company and does not translate well into an operations company. The management of the company couldn’t find their way to progress from a research-and-development company to an operating company and that was the root of their on-going development problems.” The company delivered 251 EA 500s through September 12.
Pieper’s message during the convention was simple. “The aircraft is finished, there is a clear understanding of suppliers and materials and we are going through all the work necessary to make a manufacturing company out of Eclipse,” he said. “It was not about the money but about the culture and the type of leadership. We’ve reorganized and we have business people in charge.”
Pieper indicated that production was started too early with many issues unresolved not only with the aircraft but on the production line. He would not quantify the amount lost to confusion but said “it was not just a few million,” he said. “The most important lesson of the past 12 months is that it is unwise to start production when the product is not ready. It is wiser to wait six months and come out with a more stable, finished model.” The company is still looking for more capital, perhaps as much as $200 million.
It was last December that Pieper, who heads ETIRC, the Eclipse distributor in Europe, Eastern Europe, CIS, Russia and Turkey which has 180 Eclipse 500s on order, decided to play a larger role from an ownership perspective. Three investments have been made so far in Eclipse to the tune of more than $150 million. “Our goal since December because of my position and our responsibility to other share holders, was to move to an operations mentality,” he said. “That required that some executives be removed and others to change their responsibilities.”
Eclipse, he said, took the 1,000+ DayJet orders off the order book six months ago. At one time it boasted 2500+ orders, including DayJet, which only took 28 before failing. Pieper now says the order book is less than 1,000. Still, Pieper pointed to the fact the orders do not include those in Europe which are on hold pending EASA certification which is expected in the next month. “The order book will substantially increase as soon as that happens,” he said, adding that he expects to demonstrate by the end of 2009 that Eclipse can produce two aircraft per day as an optimal target. “Right now we are at one aircraft per day but we will slowly increase that. Instead of going beyond that, we will deploy a second factory in Russia and that factory will duplicate what we have in Albuquerque. However, we will apply all the lessons we learned in Albuquerque to create a new facility under the same FAA production certificate.” The Russian factory, set to open in 2010, will ultimately be able to produce 800 aircraft per year.
As for the future, Pieper is just as clear. “I see two types of development vectors,” he said. “One is the growth opportunities around the Eclipse 500 and the other is adding the Eclipse 400. However, the 400 is on hold awaiting the final design decisions and production plans. We want to leverage what we know about the 500 to set a whole new standard in terms of production processes.” Entry into service for the EA 400 had been 2011.