Wednesday, October 29, 2008

Report: Eclipse Aviation Will Cease Production

The NM Business Weekly is reporting Forecast International Inc. will release a new report in December that predicts Eclipse Aviation will cease production of its very light jets in 2009.

Albuquerque-based Eclipse will not attract the new investment it needs to continue making the Eclipse 500 jet beyond the first quarter of 2009, said Douglas Royce, an aircraft analyst with Forecast, a Connecticut-based market research firm.

“Eclipse continues to produce aircraft at a low rate as it seeks to preserve cash,” Royce said. “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.”

Alana McCarraher, Eclipse spokeswoman, said the company has no comment on the Forecast report.

Forecast pointed to Eclipse’s inability to ramp up assembly in the last two years as the biggest factor now dragging down company finances.

From the start, Eclipse’s business plan depended on a high-volume production strategy. By modeling its assembly line on the automotive industry and relying on economies of scale, Eclipse expected to maintain a low-priced jet that could undercut competition in the emerging very-light-jet (VLJ) industry.

But the needed production ramp up never occurred and the Eclipse 500 price tag has climbed from $1.52 million in May 2008 to $2.15 million now.

Complicating the company’s finances, Eclipse must still deliver aircraft at the earlier, lower price to customers who executed an aircraft purchase agreement with a 60 percent deposit. That means each aircraft delivered under the old price is delivered at a loss, and the company does not have the financial resources to absorb those losses and survive, Royce said.

Eclipse lost its largest customer in September when Florida-based DayJet Corp. — an air taxi service that based its business on low-priced Eclipse jets — shut its doors. That cut Eclipse’s order backlog substantially.

With more VLJ companies now entering the market, Eclipse would lose more of its order backlog if it raises prices any higher, Royce said.

Eclipse is currently seeking another $300 million equity investment to restructure operations and reach profitability, but the company will be hard pressed to find that funding given the current global financial crisis.

“Under the circumstances, Forecast International believes that securing new funding, while still possible, is unlikely,” Royce said. “Forecast International has cut its forecast for the Eclipse 500 accordingly.”

Based in Newton, Conn., Forecast International specializes in long-range industry forecasts and market analysis for aerospace, defense, power systems and military electronics.

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