Eclipse Aviation Customer/Investor Update 11-27-06

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Dear [customer],

For the past several weeks, many of you have been waiting for the news that Eclipse Aviation has delivered the first production aircraft (AC1) after being awarded a Certificate of Airworthiness (C of A). That important milestone event has not yet taken place and in turn, this may be impacting your confidence that Eclipse can perform, and more importantly meet the schedules we have projected for delivering your aircraft. Some of you have specifically asked whether it will still be appropriate for us to invoice for the upcoming 60% progress payment due for aircraft scheduled to be delivered through June 30, 2007. The following letter addresses this question and other issues surrounding our transformation from a development company to a production company.

AC1 Delivery Delays

The following are the facts and circumstances which have caused the delay in the C of A for AC1 and subsequent customer delivery.

Prior to entering the process for conformity to the FAA Type Design, AC1 was flown by Flight Operations, checked by Flight Test, and was submitted for the inspection process discrepancy free. Additionally Flight Test, Production and Quality Assurance found AC1 to be safe, met all of our quality standards, and ensured that the aircraft was ready to submit to the FAA. There is no issue with the airplane. However, through the process of working with the FAA, we did find that there is an issue with our internal conformity process.

The process required for awarding of a C of A and eventually our Production Certificate (PC) is both an inspection and testing process. Most importantly, it is an administrative review by the FAA of Eclipse's compliance to our processes and procedures used to build and test the aircraft. This process and review is designed to show that the accuracy and repeatability of the production process demonstrates that the type design that the FAA certified is indeed the airplane that is being built. This administrative review process is very well defined, detailed and unforgiving. It is what will give the FAA and every customer confidence that all Eclipse 500s are safe and meet the same TC conformity as any aircraft on the line.

In high-tech product development and aircraft manufacturing, the Quality organization is the guardian and the mentor for excellence in manufacturing. The reason that the delivery of AC1 is late is due to the fact that the Quality process designed for achieving aircraft C of A was not sufficiently designed and tested resulting in administrative quality escapes. The quality escapes we have experienced are characterized in two content areas including conformity to the aircraft build instructions and the clarity of the functional test procedures. With the problems identified, we elected to completely stop the process, evaluate the circumstances, develop a corrective action plan, and only then, restart the FAA inspection. We did not want to restart the process with the FAA until we were confident that the result will be an awarding of C of A for AC1. After meeting with the FAA in Fort Worth last week, the action plan has been written and coordinated with them. The Eclipse internal resources are in place and we are focused on completing the conformity process. We will work our way through this issue.

This learning experience has given us the following immediate actions to refocus and strengthen the quality oversight and process routine.

  • Manufacturing will re-conduct the conformity checks on AC1 before we invite the FAA back. All activity the week of November 27th will be focused on process correction and preparation to restart the C of A process. This correction process is being conducted in cooperation with the FAA. The FAA team will return to Eclipse during the week of December 4th to begin the formal certification process.
  • Conforming audits and inspections will be increased on the production line prior to starting the formal C of A inspections. Please note that none of these internal delays are related to the recent communication of wing attach issues on the test fleet or window issues we disclosed to you.

Aircraft Delivery Schedule

Eclipse fully intends to meet its obligation for the delivery schedule. We are positioned with an achievable plan to deliver approximately 10 aircraft in 2006 and 515 aircraft in 2007. It is important to note that the delay caused by AC1 is not a day for day delay. We have parts and components coming in from suppliers and are hiring manufacturing personnel consistent with this production and delivery schedule. We have over 30 aircraft in various stages of assembly (pictures below) per our schedule and are actually ahead of schedule in primary assembly. Aircraft 3 and 4 have been through their engine runs and are scheduled to fly in the coming week. Additionally, there have been positive results in production rate attainment and significant reductions in instances of non-conformance throughout the production line.

Sunport 11 Initial Assembly

 

Sunport 2 Final Assembly - all of these aircraft will be delivered this year!

The receipt of the six month progress payments is connected to the continued flow of parts to build your aircraft. This payment schedule is tied directly to the production schedule, and is an integral part of the acquisition process for your Eclipse 500. Our Customer Care organization is the primary point of contact to help you complete any optional equipment selections, the aircraft purchase agreement, and submit the required progress payment. If you have questions or issues regarding this process, please let us know how we can to make the experience and our delivery processes as thorough and efficient as possible.

We are asking that all of our customers work with us and support us during this transition from a development company to a production company. Now is the time for shared communication and mutual support. We will continue to give you the information you need to prepare for your Eclipse 500 delivery. As our production process moves up the learning curve, we will project more specific aircraft delivery dates. Eclipse is focused and committed to complete this production certification process and deliver your aircraft.

Thank you for your continued support.

Best regards,

Vern Raburn
CEO and President
Eclipse Aviation