|DayJet Folds and Eclipse Aviation Struggles to Survive ||Oct '08|
|By Karen Di Piazza|
Without notice, on Sept. 19, Boca Raton, Fla.-based DayJet Services LLC closed its doors. DayJet, with a fleet of 28 three-passenger Eclipse 500 very light jets, was forced to discontinue service after being unable to raise funding. Although the per-seat, on-demand air taxi operator listed 28 VLJs, it wasn't fully utilizing more than seven to 10 aircraft on a regular basis.
|DayJet ceased operations on Sept. 19. An observer photographed the operator’s fleet of Eclipse VLJs parked at Eclipse Aviation Corp.’s Gainesville, Fla. maintenance facility on Sept. 24.|
Currently, DayJet's abandoned aircraft fleet is parked outside at Eclipse Aviation Corp.'s Gainesville, Fla. maintenance facility. The lien holder on the planes is United Technologies Finance, subsidiary of United Technologies Corp., which also owns Pratt & Whitney Canada, the engine manufacturer for Albuquerque, N.M.-based Eclipse.
Although Ed Iacobucci, DayJet's cofounder and CEO, attributed the company's fall to the current financial crisis, he laid some of the blame at Eclipse's doorstep.
"It failed to install missing equipment or functionality or to repair agreed technical discrepancies in accordance with the terms of DayJet's aircraft purchase contract," he said. "It's unfortunate that these developments have come at the same time our nation has fallen into the most serious capital crisis of our lifetime. Regrettably, without access to growth capital, we have no choice but to discontinue operations."
Unable to honor refunds for customers who paid in advance for trips, DayJet said for those who used credit cards, they should contact their credit card companies.
Many in the aviation industry have questioned why Iacobucci didn't pull the plug on DayJet five months ago, after its unsuccessful campaign to raise $40 million led to laying off 100 of the company's 260 employees. Cash-strapped, yet bullish on his company's ability to overcome a serious financial blow, he said DayJet was "far from dead." He indicated that he'd keep about 12 aircraft and would sell the rest off. He also hinted that DayJet's airline-like reservation software system could be licensed or sold.
Despite DayJet becoming the first per-seat charter operator, promoting its online booking system to member companies, under the radar it was selling traditional on-demand charter trips, hopeful to increase revenues. Whole plane charter efforts were in effect for a good six months before the company's financial crisis hit rock bottom. Even though the company didn't make it, Iacobucci said it demonstrated that customers will sign up, purchase and become frequent users of this new service.
"The DayJet per-seat, on-demand model works," he said.
Since service launch, DayJet said it had built a membership base of more than 2,400 regional travelers, flying more than 9,000 segments totaling more than one million miles, and that it had a 95 percent on-time performance record.
DayJet planned a mammoth operation
On May 2, 2007, for the first time, Traver-Gruen-Kennedy, vice president of strategic operations at DayJet, confirmed to this journalist that in 2002, under the name of Jetson Systems, not DayJet, 1,400 EA-500 orders were placed. During that time, Gruen-Kennedy said that although the colossal order was placed, the company would first operate 300 VLJs within a two-year period. But because the 1,400 orders existed, at least on paper, they were used during a 2005 New Mexico State Investment Council meeting, which prompted the state's private equity program to purchase more than $3 million of Eclipse Series F preferred stock. Since that funding, the state invested much more into Eclipse.
For years, aviation analysts have said they doubted there was any substance behind the 1,400 orders. To this day, Eclipse has refused to make its order book available, for verification of orders and cancellations. With the Eclipse 500's price now reaching $2.5 million, and with the 1,400 orders gone, aerospace analysts are skeptical about the company's likelihood of survival. Eclipse's marketing plan was based on mass production with a VLJ in the $1 million range.
A buyer in the wings for DayJet aircraft
Scottsdale, Ariz.-based JetsAmerica Inc., a new air charter company that also does aircraft sales, management and acquisitions for positions on VLJs, has offered to purchase 15 of DayJet's aircraft for $500,000 per plane. On Oct. 2, Brandon Carlson, president and CEO of JetsAmerica, told this journalist he'd talked with UTF on Sept. 29 about his offer.
"This is a cash offer," Carlson said. "These aircraft aren't worth more than $500,000, because they need a lot of work. Most need basic Avio NG avionics, flight into known icing (FIKI) upgrades and other modifications."
Without basic Avio NG software installed on the aircraft, FIKI can't be installed.
"My investors are aware that purchasing these VLJs is a risk; in today's market, it takes a 'special buyer.' When you have investors with cash, the deal is hot then," Carlson said. "UTF said it's the ultimate decision maker on price and purchase contracts; however, Eclipse has involvement."
He said Eclipse is helping UTF access the value of these aircraft.
When asked if the plan was to purchase all 28 VLJs, Carlson said that was the goal. With all of the maintenance issues involved with these planes and because so many retrofits and upgrades need to be installed, Carlson said, aside from the purchase price being offered for each plane, a significant amount of money would be spent on getting these aircraft up to snuff. He added that he was confident the offer would also satisfy UTF's investment in the aircraft.
"DayJet paid about $850,000 for each aircraft; we hope our offer will be accepted," he said. "Right now, we manage three Eclipse 500 jets, and if our offer is accepted, we'd like to have JetsAmerica perform the aircraft modifications."
Eclipse: financial woes, customer complaints and future
During the same afternoon that DayJet announced it was ceasing operations, Eclipse was holding a conference call with its customers, claiming it hadn't heard about the closure of its largest customer. However, as the call went on, Eclipse admitted to a customer, DayJet "isn't in our current financing plan."
Roel Pieper, Eclipse CEO, told callers that the company still anticipated obtaining millions of dollars in funding, so it could continue operations. He said that initial financing attempts were made with institutions from around the world, but now, they're down to a small group for further analysis.
"The small group consists of the top players in the financial world," Pieper said. He added that these people aren't affected by the worst financial times we've seen, and that they have "committed funds and committed budgets."
"Each of the players we're talking to do financing deals on their own; that's actually what we like," he told anxious customers on the other end of the phone.
Pieper said that Eclipse was committed to closing a new round of funding in October.
"We continue to talk to our suppliers and to work with them, to ensure we understand their concerns, and so they know where we are. We plan to talk to them when new financing closes. We'll publish a new schedule as soon as we can—when we'll be back up," he said. Pieper added that it was his belief that the company was on track and would be able to ramp up production of aircraft next year.
Peg Billson, Eclipse's newly appointed president overseeing the production division, brought up the Sept. 17 House Transportation and Infrastructure Committee's aviation panel hearing. The hearing focused on the Federal Aviation Administration's rush of its issuance of a provisional type certificate, followed by a full TC and production TC on the EA-500. Billson told callers that the Department of Transportation's inspector general had said the "aircraft was safe." Calvin L. Scovel III, the IG, specifically stated that his office's investigation "did not focus" on if the VLJ was safe or not.
The IG said that initial investigation results showed a combination of FAA "actions and inactions," indicating that the agency expedited the certification processes for the VLJ to meet a September 2006 deadline. Scovel said that the FAA chose to certify the EA-500 and other VLJs using certification requirements for general aviation aircraft, rather than the more stringent certification requirements for larger transport aircraft.
"However, in a post-design certification 'lessons-learned' internal review of the Eclipse project in August, FAA managers acknowledged that the general aviation certification requirements were 'inadequate to address the advanced concepts introduced on this aircraft,'" Scovel said. FAA management testified that the Eclipse VLJ was certified meeting compliance.
FAA inspectors that worked on the VLJ project testified against their senior management, claiming they were pressured to OK the aircraft, though they expressed that numerous safety issues existed. Ignoring this, the FAA issued its full TC for the EA-500 on Sept. 30, 2006, a Saturday, which isn't common. The production TC was issued on April 26, 2007.
Testimony uncovered that Eclipse set the certification date and that the FAA treated the plane maker, rather than the flying public, as its customer. Testimony also revealed that Vern Raburn, founder and former CEO of Eclipse, was personally involved with demanding a certification date and met with Marion Blakey, former FAA administrator, regarding requests.
According to testimony, when Raburn realized the plane wouldn't receive full certification in his time frame, tied to financial funding, it was agreed a provisional TC would be granted. FAA inspectors objected but were overruled by Washington. Blakey personally presented Raburn with the provisional TC on July 27, 2006, during EAA AirVenture. Based on testimony, Eclipse's funding was tied to achieving certification within 30 days from the time Pratt & Whitney obtained certification on the engine used in Eclipse's VLJs. FAA field inspectors testified that management told them, "We're here to save a company."
When the EA-500 received its TC, the FAA granted the TC allowing EAC IOUs, including software design functionality. Testimony disclosed that many IOUs weren't remedied quickly enough. Today, several IOUs are outstanding. FAA inspectors in the field believed that the aircraft should've never received a provisional TC.
The IG testified that the European Aviation Safety Agency "declined" certification on the EA-500.
"That's not true," Billson told callers. "We're closing on EASA certification right now; EASA pilots will be at Eclipse in mid-October to fly the final configuration of the airplane. We expect EASA certification within a couple of days after that."
EASA certification, she said, will satisfy commercial use of the VLJ in Europe, which she forecast would follow within two months after basic certification.
Billson said Eclipse is working on its final Avio NG 1.5 software certification, which includes Garmin 400 avionics; the company needs to present an aircraft equipped with upgraded avionics to the EASA. She said that although Avio NG 1.5 is late (a third certification attempt), the company "identified the root cause" of the "transponder switching and frequency switching issue," and that the redesigned software "has been certified" and is currently being tested.
The company also addressed pilot complaints about aircraft tires blowing out. Eclipse said it expected certification on improved tires in November, after EASA/Avio NG 1.5 certification. However, Eclipse said after it obtains certification on a new tire, modifications would have to take a backseat due to the company's financial shortcomings; all resources are going towards an EASA compliant aircraft.
Additionally, Billson said that sometime during the week of Sept. 22, Eclipse was scheduled to undergo an audit of its production certificate. She said the audit was a normal, regulatory 18- to 24-month event, which should last about nine days.
Mike McConnell, newly appointed president and general manger overseeing the customer division, gave Eclipse's customers updates on production and delivery of aircraft.
"We've slowed our production for the next several months to stabilize our current financial situation," he said.
Then McConnell dropped the bomb on the direness of the company's production schedule.
"The last aircraft slated for delivery in 2008 is serial number 267," he said.
He said that the company planned to produce two planes a day in 2009. McConnell said that if Eclipse can meet the new milestone production, it would only face a delay of up to nine months. He acknowledged that some owners have paid their 60 percent deposit but still don't have a plane; without cash infusion into the company, position holders aren't likely to get their VLJs.
Although some customers want their deposit money back, they were informed refunds aren't being distributed yet.
Eclipse also shared with customers that in addition to its Canada-based third-party service center that will install Avio NG 1.5/ Garmin with GPS and FIKI, it recently signed contracts with two other companies in the United States. Although modifications will be paid for by Eclipse, it said customers who've had aircraft for the last year would come first.
Responding to a caller's question regarding if the company had qualified technicians to install upgraded avionics, etc., the manufacturer said it would attempt to hire former or new employees. Eclipse recently reduced its workforce down to about 1,000 employees.
Another caller, who has a position on serial no. 264, said he was due to take delivery of his VLJ on Sept. 15, and expressed frustration. He also said he's been under contract for about five years.
"I can't get anything out of your customer service department," he said. He said that since no. 267 would be the last aircraft produced in 2008, he wanted to know when his plane would be delivered, and would it be equipped with Avio NG 1.5 and FIKI. Eclipse responded that no. 264 would be scheduled for assembly by the end of the year, "providing it could complete no. 267 by 2008."
The caller became furious with Eclipse after being informed that his aircraft wouldn't have Avio NG 1.5 and would only have FIKI. Eclipse told the caller that Avio NG 1.5 aircraft stopped at no. 266.
For whatever reason, Eclipse has either manufactured aircraft or has installed various components into some aircraft out of sequence. Serial no. 266, which had been equipped with the upgraded avionics, was on static display during EAA AirVenture.
Trying to verify current serial numbers in production or aircraft that had been delivered, to get an idea of when he'd get his VLJ, the caller demanded to know if no. 253 had been delivered. Eclipse claimed it had and that no. 254 was scheduled for delivery during the week of Sept. 22.
The caller also wanted to know how many aircraft the company was delivering, as he believed "deliveries amounted to two or three a month." The company responded that although it didn't shut down deliveries, it was "trickling" along with production. The customer asked why his plane couldn't remain at Eclipse after assembly and have Garmin avionics installed. Eclipse officials responded, "We won't have parts."
On Sept. 29, Eclipse emailed its customers a 12-page brochure outlining a few issues of concern. One of the reasons the company said it lacked spare parts for service was because "suppliers cut back due to perceived uncertainties regarding Eclipse's future."
Another caller, laying claim to serial no. 356, was told his aircraft wouldn't likely be on the assembly line for up to nine months—hinging on the company's ability to secure new financing.
A position holder who has requested a refund remarked that he was concerned about the "lack of financing information" coming from Eclipse. Pieper responded that the company was trying to act in a responsible way, yet didn't answer the caller's question with any specifics. Unsatisfied with Pieper's response, the caller asked how refunds would be handled, in light of Eclipse's reluctance to communicate. Pieper reiterated that future financing was the key to being able to pay refunds.
In response to another caller's question regarding if the Eclipse 400 project was a go or not, Eclipse said it hasn't begun the certification process. The company also said it hasn't spent any of the deposit money for the four-place, single-engine VLJ.
When a caller expressed concern regarding several lawsuits launched against the company over refunds, Eclipse downplayed the significance and didn't provide details.
The conference call only allowed about 20 minutes for Q & A.
Eclipse's September e-broadcast also mentioned that "engine surge events" have occurred on five aircraft. The company additionally said that "recent anomalies" have occurred on Avio NG aircraft, but didn't say how many aircraft were involved.
On Oct. 1, Eclipse emailed customers advising them that the next conference call would be held on Oct. 10.
The Russian factor
On Sept. 23, Eclipse released a press release stating that it had gained approval and financing for its Russian production facility for $205 million. The financing, led by Vladimir Putin, prime minister of Russia and recent former two-term president, will oversee the financing, which is owned by the country.
Eclipse said that production of its 500 model would take place at the Russian facility in 2010, with a projected 800 jets a year. It claims that production of the VLJ in New Mexico will continue in full, prior to and following Russian operations.
There's been no final word about funding of Eclipse's U.S.-based manufacturing plant.
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