Please Confirm that Rev. Jim (Bede) Ain't at Eclipse

[Ed Guthrie]

Way back when, back when Eclipse was promising a $900k VLJ, I looked at their non-refundable deposit contract. IIRC, the promised $900k purchase price was to be locked in 2000 $$, to be indexed via the CPI to future date $$$.

For those that don't keep track of such things, the compounded CPI is projected up ~<20% 2000-2006. Eclipse just announced that those folks with a firm order backed by such a non-refundable deposit can expect to pay $1.43 million in today's $$ (not 2006), still to be indexed to whenever. I wasn't a math major, but that doesn't look like a ~<20% increase to me. No, that looks like a ~50% increase to me. Eclipse's CEO claims that without the latest (this isn't the first) price increase the company simply can't financially fly.

When I read the contract, IIRC, one item that struck me as very ridiculous was that the purchase was to be payable in large part (full?) when the aircraft received FAA type certification. Please note, I did not write "production certification", I wrote "type certification"--two different birds, often greatly separated in time, and all too frequently the production certificate never happens as previous start-up aircraft companies have been known to run out of funds well before that point. Often after taking numerous deposits, only to declare bankruptcy and leave those deposit owners holding an empty bag.

Oh, what a shock this is. What's the Cessna Mustang projected base price? Anyone care to speculate if Eclipse will come in with an actual price above or below that mark? For that matter, anyone care to bet that Eclipse will deliver to the full deposit holders' list?

Yo, Rev. Jim (Bede), are you by any chance hiding in the Eclipse tent?

 

[Brian Austin]

According to Sport Aviation, didn't they just take 239 orders from DayJet? With an option for 70 more?

Personally, I'd be waiting for some active, flying production models before jumping into a new aircraft company. Still, someone has to be the first, I guess.

And IIRC, this was supposed to be a sub $1M plane, wasn't it?

 

[Ken Ibold]

And IIRC, this was supposed to be a sub $1M plane, wasn't it?

Yes, but Eclipse wouldn't be the first company to offer below-market prices to launch customers. Home builders, retail stores, etc routinely use "grand-opening specials" to attract interest. It's just that the time line is extended in aviation -- especially given the unexpected engine change that should have been expected.

 

[Ed Guthrie]

Yes, but Eclipse wouldn't be the first company to offer below-market prices to launch customers. Home builders, retail stores, etc routinely use "grand-opening specials" to attract interest. It's just that the time line is extended in aviation -- especially given the unexpected engine change that should have been expected.

The examples you name differ from Eclipse in one critical respect--they deliver the product at the advertised price.

 

[AdamZ]

That's disappointing to hear. I wonder if it is endemic to the industry or is it just Eclipse? Did Cirrus experience such a situation. If its just Eclipse I'll bet someone over at Adam Aircraft is smiling.

 

[Dave Siciliano]

Ed:

Dr. Bruce had a contract to purchase an Eclipse IIRC. Maybe he'll point out the facts. I reveiwed it and wasn't interested in throwing the dice with my deposit amount. The Doc sold his right for some $$.
Many of these contracts are just too one sided for me. I take too much risk in my business to earn the money to give it to someone else taking a lot of risk to provide a non-necesity. Great observations. Wonder how many depositors understood that when they plunked their money down.

Dave
Baron N322KS

 

[Dave Krall CFII]

Could anything be a safer investment than aviation R&D ?

Ed:

Dr. Bruce had a contract to purchase an Eclipse IIRC. Maybe he'll point out the facts. I reveiwed it and wasn't interested in throwing the dice with my deposit amount. The Doc sold his right for some $$.
Many of these contracts are just too one sided for me. I take too much risk in my business to earn the money to give it to someone else taking a lot of risk to provide a non-necesity. Great observations. Wonder how many depositors understood that when they plunked their money down.

Dave
Baron N322KS

 

[bbchien]

I understand that they let everone out of the contracts after the new round of financing because of the substantial redesign with the Pratt engines. This was afte I ended sold out. How could they not? The new evolving product would not meet the original specs, so they could not meet their end of the bargain....

 

[Ed Guthrie]

Ed:

Dr. Bruce had a contract to purchase an Eclipse IIRC. Maybe he'll point out the facts. I reveiwed it and wasn't interested in throwing the dice with my deposit amount. The Doc sold his right for some $$.

There were a sequential series of two (maybe more) contracts. The first version was fairly purchaser friendly in that it was transferable, (might even have been refundable at buyer option but I don't think so), ~$900k purchase price, actual delivery price indexed to CPI or some other inflation measure index, and, IIRC, the money held in escrow until aircraft delivery. Dr. C. held one of those contracts. The second version was much less purchaser friendly. Most significant changes were that the price jumped significantly relative to the intervening period's inflation, the contracts were no longer transferable nor refundable, and, most onerous to me, the deposit money (IIRC, $150k) became the property of Eclipse the day Eclipse received type certification. Furthermore, the second round contracts required the buyer to pay up the entire purchase price or some very large percentage of it, too, when Eclipse received type certification (the hinge point for this payment due in full might have been production certification--foggy memory). IOW, Eclipse's production certification and production costs would be paid in full or part by the contracted purchasers before production began or was even FAA approved.

All in all, this latest news and contract change is just Eclipse pulling what appears to me to be a bait & switch on their two (?) groups of pre-purchase contract customers. Eclipse appears to me to have unilaterally canceled all contracts and offered the previous buyers the right to "re-up" at a much inflated price, with the apparent justification being that Eclipse would loose money on the deal. OTOH, if some market force had driven the market value of an Eclipse jet to, oh, say, 1/2 of the promised selling price (IOW, if the buyer would find him/herself in a position of taking delivery on a new jet worth 1/2 the selling price) Eclipse would have in no way, shape, or form, under any conditions, allowed the buyer to say, "Nope, if I follow through at this price I'm going to loose money on this deal---please refund my $150k deposit."

Barnum (or was it Bailey) was right on the money ("A sucker is born every minute.")

 

[Dave Siciliano]

Right on Ed. It was the second version of the contract that I reviewed. It was give them the money, cross your fingers and if they passed the flight test, pony up more and wait for them to get to production of your plane. Can't sell or trade the right--better not get incapacitated or, worse yet, die. Avionics--don't worry. Upgrades--trust us.

Couldn't believe how many folks sent them money. Have to believe the larger purchasers had more negotiating power.

BTW, your comparison to construction of a new home and delivery for a fixed price wouldn't quite be correct here. There are many outs: the consumer can walk pretty easiliy--plead they couldn't get financing or a couple other things. I've seen builders release them when the form boards were poured and the buyer didn't like the way it looked on the lot. The builder usually has conditions like delays out of their control, etc. If either really wants out, it's usually possible until pretty late in the construction process. Lots of upgrades can be added along the way but must be agreed to. These deals usually work because both parties benefit from the bargin.

Dave

 

[Ed Guthrie]

The builder usually has conditions like delays out of their control, etc.

I agree that my statement ignored a bit of the gray zone. However, in Eclipse's case I don't think, "Hey, what can I say, we are incompetent, plus we were probably smoking some really good reefer at the time.", in any way compares to the valid and well thought out business factors you sited in a home builder/buyer situation.

My point being that the loss leader advertisers Ken mentioned fully intend to fulfill the promise of delivering a product at a loss. Eclipse had no intention of delivering at the offer price if that price resulted in a loss to Eclipse. Given that this is readily apparent based on Eclipse's subsequent actions, the contract should have clearly stated that the price would be adjusted to whatever price Eclipse felt would deliver Eclipse their preferred profit margin.