Should Pieper Retain Eclipse?

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Eclipse Aviation's bankruptcy has been a foregone conclusion for so long that when it actually occurred it was anticlimactic. A few things make it better than average as bankruptcy stories go, and one is current CEO Roel Pieper's apparently clever (we'll see) attempt to secure his own approximately $100 million investment and take over the company.

My understanding of Chapter 11, Title 11 of the U.S. Code is that it gives the existing operators of the company the breathing space they need (under supervision of the court) to restructure the enterprise to make it profitable. But Pieper's plan appears to be to ask the court to end the annoying phone calls and lawsuits so his company in Luxembourg can take over and get on with business.

That sounds suspiciously like a Chapter 7 liquidation, except that in this case the winning bidder is preordained.

In Eclipse's news release, Pieper says this is best for all concerned, but if I was a creditor or investor I think I'd like to hear how Pieper has reached that conclusion. Now, it's true that EASA certification and the long-awaited Avio NG 1.5 certification (both central to the success of the aircraft) happened under his watch, but it's not like they were his ideas.

Really, what has the reclusive and media-shy CEO done to actually turn the company around since taking over from Vern Raburn in July? More importantly, what's he going to do differently when he has the whole ball of wax?

There's value there. The airplane, now that it's finished, is by all accounts pretty good. The technology and infrastructure in Albuquerque are the best other people's money could buy. With competent management and the right attitude, Eclipse could be a positive influence in the aviation industry.

But is Pieper the right man to pull that off?

Maybe the creditors, customers, and, ultimately, the market should decide. Maybe the court should simply order Eclipse's liquidation, and we'll see just how serious Pieper is about saving it.

Comments (10)

It would appear that I am an unsecured creditor having paid a 60% deposit to Eclipse Aviation

Does anybody know what responsibility Roel Pieper has to people who have paid the the 60% deposit?

What options are open to me?

Posted by: patrick heffron | November 26, 2008 7:11 AM    Report this comment

Patrick, Chapter 11 protection, if granted, essentially divides the company into 2 parts: "pre-petition" and "post-petition." The Court, with input from the Creditors' Committee, allows or denies all decisions in the post-petition company as the company develops its reorganization plan, required for emergence from Chapter 11.

As at the time of filing, all debts of the company stop accruing interest. In most cases, the only pre=petition debts to be honored are taxes, court fees (including legal expenses) and payroll, in that order. Again, that is subject to the court.

Everything post-petition must be self-funding and self-sustaining.

That means that virtually everything pre-petition is on the table, and the ultimate disposal of pre-petition debt is entirely up to the bankruptcy judge, who usually follows the creditors' recommendations.

The key to any particular creditor's risk is the influence he can muster on the creditors' committee. Independents and small-potatoes creditors are naturally those who will take the biggest hits.

As a place-holder with a significant deposit, you will be asked to join with other such depositors, and you will have a voice (as a group) on the creditors' committee. Just hope that the company, with your help, can assemble an acceptable reorganization plan. Pundits seem pretty united in the view that delivering $2MM airplanes to $875,000 customers will not be the approved business model, however. That option probably won't be available.

Posted by: Tim Kern | November 26, 2008 8:44 AM    Report this comment

My experience on this subject is that you are pretty well SOL unless the court does not grant their wishes. Get an attorney and other depositors and get on the un-secured creditors committee so your rights are represented.

Posted by: Stuart Baxter | November 26, 2008 8:45 AM    Report this comment

Business follows the Golden Rule. The person with the gold makes the rules. If someone wants to do it differently, they can put up the money.

Posted by: FRANK ROBINSON | November 26, 2008 1:48 PM    Report this comment

I bring some bankruptcy expertise to this discussion, as well as being a 30+ year Cessna dealer, and executive VP of Jet Air, Inc., FBO at GBG, IOW and BRL. My "day job" includes Chapter 11 and I'm one of three downstate Illinois members of the Am. College of Bankruptcy.

A few months ago, the 9th Circuit Bankruptcy Appellate Panel ("BAP") decided the Clear Channel case. The BAP held that Section 363 of the Bankruptcy Code doesn't permit the old equity (ETIRC) to form a new company (let's call it "New Eclipse") to credit-bid at the court auction without settling with the junior lienholders who, until Clear Channel, were believed by most bankruptcy experts to not only be out of the money but out of the game as well. Now, with Clear Channel looming, a quick 363 sale may not be possible. If the 363 route is blocked, an alternative is Chapter 7 liquidation, but the time involved will cause employees and their expertise to dissipate, making a restart problematic.

Conclusion: those in charge of Eclipse's reorganization had best come to terms with the junior lienholders and the other constituents. A quick and easy 363 sale may not work.

Posted by: BARRY M BARASH | November 27, 2008 8:22 AM    Report this comment

After reading this article on Eclipse and as a small business owner, my first thoughts are about the many small business vendors and suppliers who will be severely hurt or even put out of business while everyone else is so concerned about what the next move is of an Owner who bankrupted his company. My experience is that these large companies could care less and the courts provide little if any protection for small business. Even if you were to persue legal action, these big companies have deeper pockets and they know it will cost you more in legal fees than you will ever get back.

If Eclipse is fortunate to continue in operation, I would rather see it be bought by an established aircraft company that can take it to it's next level rather than be shuffled around like a shell game back to the original management team who put investors, depositors, suppliers, and vendors in such an unfortunate position. All the focus is on Eclipse and it's Owner, it seems that when this sort of thing happens the news media never takes the time to write an article on how this effects all the people that supported Eclipse.

Posted by: HENRY GRAEBER | November 27, 2008 8:59 AM    Report this comment

I understand Barry's comments above. Surely since the aviation industry is so small Eclipse will find it hard to gain the confidence of a brand new set of customers if they blatantly dump their current ones. Is there likely to be any value in the customer positions?

I doubt they can tell those who paid deposits just to go away. What message does this send to a new customer about the integrity of the company and the quality of their customer service?

Posted by: Peter Greene | November 27, 2008 10:00 AM    Report this comment

I was at Bend,OR in February as part of Cessna's purchase (in bankruptcy)of Columbia. Employees and customers were very upbeat.

Henry's observation about Eclipse being purchased by an established aircraft company is spot on: however, Eclipse has "issues" which need to be solved before the a/c is ready for prime time: flight into known icing and lack of external baggage doors to name just two.

When I compared the Eclipse to Cessna's Mustang at OSH I didn't see how the Eclipse could compete in commercial service. For instance, on an organ transplant flight (one or two techs; an explant surgeon and lots of equipment including Igloo coolers full of ice) where do you put this stuff;you'll have three pax, two pilots and a mountain of gear? On a ski trip, where do you store your skis? Similar comments can be raised about golf trips, lawyers taking depositions, or just family travel with two kids, the family's luggage and the Labrador Retriever.

I think Eclipse's concept is mis-focused and may be economically impossible to correct. While the Mustang is more expensive, Cessna knew it couldn't cut corners on the amenities owners need.

Although Columbia had something to sell and Cessna wanted (and needed) its product line and expertise, it would be a brave major aircraft manufacturer indeed who would take over Eclipse with its baggage and design faults.

Posted by: BARRY M BARASH | November 27, 2008 10:32 AM    Report this comment

If it sounds to be true it probably is. Stinks for you guys who dumped the value of a small mansion on that little thing.

Posted by: Clint Tolbert | November 27, 2008 2:42 PM    Report this comment

The best run company organizes to assure excellent customer service.
Your question should RP retain Eclipse is of course academic since in business money rules dominate so if the money RP represents dominates, he will be retained to run Eclipse, your word should doesn't apply.

From a customer service point of view the strategies pursued would be different but since the reality is money dominant SO here're the Eclipse strategy views of a European VC who's also a very capable aircraft design specialist and a pilot -

This is really what I have been talking about with you for the last few months. RP's endgame is probably to clean up the company of all existing asset holders and acquire the whole company. This way, ETRIC owns 100% of Eclipse for a mere $100M or so more. It will clean the company of all exisiting debts, the creditors will be washed out and RP walks with the IP and gets the plane in production where-ever-on-earth ETRIC wants it.

This is how the cut-throat VC business world works.

These are his views what do you'll think?

Sharing some conversation with people knowledgeable of the Venture Capital
world. Most probably Eclipse will keep a minimum presence in the US to interface
with the FAA and move to Russia the manufacturing all together. The fact is that
this plan did not happen "unfortunately" but was all "pre-meditated".

Posted by: Unknown | November 28, 2008 7:25 AM    Report this comment

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