Sometime around 1996, the aviation industry flipped a group-think switch and decided what the world really needed was some very light jets. A whole lot of very light jets. Fast forward and the story leads right through the development last week that the assets of one those companies—Eclipse Aerospace—may sell for the paltry sum of $5.25 million.
When bankruptcy assets are sold, the term “pennies on the dollar” is often used to describe the erosion in value of the original investment or the market value of what’s left. Bankruptcies are often the forerunner to another bankruptcy or, in the case of Mooney, serial fold-ups. But Eclipse took things to a whole ‘nuther level and to put that in perspective, consider this: If you wanted to pick up a new Audi Q5 discounted at the equivalent of the Eclipse fire sale, it would cost you $250—a half cent on the dollar.
We don’t know the details of the sale described in this news story, but presumably, the buyer will get a complete light jet factory or some semblance of the basic capacity to build airplanes. But in aviation, it’s never that simple and resurrections from receivership always require additional capital to prime the pump. And then what’s next? Is there a conceivable sustainable market for the Eclipse version of a little jet? You can always sell some of anything, but the critical mass of profitable volume is quite likely to be larger than the market can absorb.
Just let’s review why Eclipse tanked in the first place. The volume it imagined was an illusion. You may have forgotten that in the frenzy leading up the company opening manufacturing in Albuquerque, New Mexico, buyers were lined up the night before like fanboys hot for the new iPhone. Deposits were coming in via FedEx. A lively secondary market emerged in selling positions for airplanes that didn’t exist and wouldn’t for several years. Eclipse claimed to have as many as 2500 orders and planned to produce 1000 airplanes a year, some 1400 ordered by DayJet, a budding on-demand air taxi idea that also went belly-up for lack of capital and probably a flawed concept.
Eclipse’s bankruptcy and subsequent restart efforts represent the largest business failure in general aviation history. The airplane cost too much to develop, lacked capabilities of near competitors, production was slow and inefficient and the market was just never there to the extent Eclipse thought it was. A billion dollars went down the tubes to produce 260 airplanes, plus another 33 of the follow-on model built by the company that emerged from the original bankruptcy.
In case you don’t recall the folly, as the new century approached, general aviation went a little, well, bat guano crazy about jets. It wasn’t just Eclipse. Everybody had to have a jet. Let’s see, there was the Adam A700, the Comp Air Jet, the ProJet, the Century Jet—an Aerostar with Williams FJ33s—the Vantage Jet and the Safire, to name some that never came to pass. There were also two dodged bullets on the list: Piper and Diamond both suspended their jet projects after realizing how close they ventured to the edge of the abyss.
To be fair, there were successes. Cessna sold almost 500 Mustangs before ending the line. The Phenom 100 is right behind that model and still selling with 369 in the field. After one of the longest gestation periods in modern GA history, Honda’s HA-420 survives as a sexy car company vanity project, but likely not a profitable aviation venture. And don’t forget the Cirrus SF50 Vision, which the company calls a personal jet.
One thing that drove Eclipse’s fantasy business plan was the belief that the airplane could be built cheaply using friction stir welding for the fuselage and that the developing revolution in inexpensive CNC machinery would radically reduce production costs. The original target price for the airplane was $837,000 at a time when every other jet was north of $2 million. The Eclipse 550 follow-on sold for $3 million. In a 2001 interview, then-Eclipse CEO Vern Raburn told me this: “What we’re trying to do is build an airplane that brings the same attributes that people are used to today when they go over to the airline side of the airport and they get on a 737. It’s a jet with high altitude, high speed and the only compromise is the size of the cabin.”
Low purchase price was desirable, he said, but low operating cost was more important. The underlying economic assumptions were so distorted and the production economics so flawed that the concept, if it was valid at all, never got a fair test. Now, the Uber-scenti plan to test it again with fleets of autonomous drones.
There’s a parallel here with Mooney. It’s in a league of its own for bankruptcies, management changes and new owners. If you don’t know anyone who hasn’t run Mooney, you haven’t been around GA much. I asked longtime Mooney dealer Don Maxwell if there’s a business in just supporting Mooneys without building airplanes. He said no. Same answer from Jonny Pollack, who just took over to reorganize the company yet again, with a plan to produce airplanes. But building airplanes is a hellishly good way to lose money. Great steaming stacks of it.
Eclipse has only a fraction of the installed base of 7000 Mooneys, albeit with much higher airframe values. If service-and-support only wouldn’t work for Mooney, why would it work for Eclipse? So the follow-up question is has time and the market just passed by Eclipse? It’s a lovely little jet to fly, but finding enough people to buy new ones—if there can even be new ones—may be a reach.
The Eclipse and the A380 – the biggest and smallest jet projects and I followed them both with great interest in the 00s. Both impressive to this day but also caught up in problems unrelated to their basic merits. The Eclipse team had a start-up excitement but too much of that Amazon-like decade-long money-sopping ramp up that never translated into the original promise. If they’d got the thing flying in numbers first, with money coming in, they could have added in friction stir welding and automatic everything progressively. Cessna started late and made the Mustang a viable thing well before Eclipse finally gave up.
And the Airbus was conceived and designed before engines proved suitable for unlimited ETOPS and the thermodynamic advantages of massive engines proved out. For a change, bigger-is-better applied more to the engines than the overall vehicle.
A professor explained years ago that airlines and resorts are two of the most attractive, exciting investments for people who’ve made their first fortune. Yet they’re also a couple of the best ways to lose a lot of that fortune. Maybe he should have added aircraft types to that list.
Hype!
My comments are not only about the Eclipse, they are a mix of the decline of the aviation industry and the GA corporate mindset. Is seems to me that it is fallacious industry trend not been recognizing that the market depends on users. No users, no market. I’ve seen exaggerated claims by some manufacturers where price is not a factor, so called revolutionary designs, and so called high efficiency concepts – mostly fizzling out. Why? Ill tell you why! Because the mass user is left on the tarmac. The leaders of the aviation industry should build for the future with the beginning pilot, or ab initio flight training in mind. Low cost, and practical. Emphasis on new-starts in aviation, then the higher end product follows. The more pilots, the more air frames, engines, propellers, avionics, and services. “ The volume it imagined was an illusion.” You statement is correct Paul. Mine is, supporting untimely wild ass concepts is BS. Hype!
Capitalism at work. At least it was mostly investers, almost all high net worth, who lost their shirt, not tax payers. The story of British aircraft manufacturer Beagle Aircraft is the alternative model and not IMO one anybody wants
Capitalism will ensure Mooney owners can get parts. There is a demand that somebody will figure out how to fill, it just won’t be the traditional full boat manufacturer model we are used to seeing.
My little Grumman AA1B hasn’t been made in 40 years, yet I have never had a problem getting parts.
If I may be permitted a bit of thread drift, personally I think the real support problem is Cessna and Piper. A lot of people own the common models and the manufacturer has a pretty tight lock on parts. The problem is aviation people like Pelton are not running the company anymore, it’s bean counter MBA’s who are looking at juicing the short term profits by charging usurious prices for common parts. By the time they have killed GA, the C Suite warriors will have already moved on to another industry to kill.
Current management of the GA companies have little effect on pricing in comparison to the legal industry, who destroyed GA in the 1980s. What you see now is a gasping Phoenix which arose from the ashes of litigation by necessity. https://scholar.smu.edu/cgi/viewcontent.cgi?article=1371&context=jalc. Love to see the tort boys take their game to China. HNW individuals actually pay the vast majority of taxes in the US, and thus are also taxpayers. There are many extremely successful companies that generate little free cash but create great products. Aviation as an industry seems to frequently fall into this category.
1. If you can’t make money selling parts to an installed base of 7,000+ Mooney owners, then you should invest your required considerable fortune in Dunkin’ Donuts franchises.
2. Unless you can sell new Ovations for north of $3 million each, you’ll never make a dime trying. Maybe McDonald’s franchises are right for you.
3. 75% cubed is 42%. Not much room for your typical somewhat… portly… American. The Cirrus Vision has it right, in that regard.
Cirrus has delivered 200 VisonJets according to various internet sources. With an average price of $2.75 million each, to make up the $150 million claimed development costs ( which seems quite low), they would have to be making $750,000 of profit on each airplane to break even on the 200th airplane after the 200th airplane was delivered. Sounds like Cirrus is losing money on each one still today. But how will we really know? The Chinese owns Cirrus.
Cessna would still be building the Mustang if they made money on it. Phenom 100 is still selling with Honda using the airplane as a “halo” vehicle for the parent company. But their combined sales barely breaks 500 total airframes. Total all of the Cirrus VisionJets, Eclipse of all models, Mustang, Phenom 100 and anybody else I left out, after a quarter of a century, maybe just north of 1,000 airplanes…and its questionable if anyone really made any money. So, just how big is the market for a 4 passenger jet airplane that has to cost at least $2.5-3 mil to purchase? To me, it looks quite meager.
Cirrus is playing the long game. Nice, if you can do it.
300 kts, 1,200 mile range, small-airport access; the Vision is a logical – and attainable – step-up from an SR-x piston. Its key attributes are comfort (pressurization and a spacious interior) and safety (auto-land and a whole-airframe parachute).
They have an installed base of more than 7,000 SRs – larger than Mooney. My guess is that about 2,000 of those SR drivers are legitimate candidates to acquire a Vision Jet.
Time will tell.
The author implies that there’s no money in a company that doesn’t manufacture, but only supports a fleet of aircraft. There are numerous companies to challenge that belief. Twin Commander LLC is one of them. Sure you won’t get rich in the business, but you also don’t stand to lose millions.
Thanks for the article Paul. Lots of pieces to look at with this. Airframe production is only a part of the story. Then comes engines and avionics. With regulation and insurance almost out of control, its difficult at best to produce a profit on small jets. Another issue is turboprop aircraft now being produced that nearly match the performance of some small jets. Case in point is the TBM 900 series.
If there’s one thing that we should’ve learned over the past 100 years, don’t ask a salesman to design the perfect airplane. Ask the person/organization that has the money what they need. The Dehavilland DHC-2 Beaver came out of demand and even now over 70 years later it is still holding it’s own. The Cessna 172/Piper Cherokee and the other 180hp four-seaters, came from the average guy wanting a $100 hamburger and to embrace the joy of flying. The overwhelming demand for the STOL two-seater comes from the love of flying combined with off-field operations.
The aircraft with the greatest demand today are homebuilts. Vans Aircraft and Cub Crafters have figured out what the consumer needs. The ‘price per mile’ includes the overall price of acquiring the aircraft. Salesmen ask buyers what they WANT and we tell them. We want a super cheap, super fast and sexy looking six place aircraft that operates on magic fuel. And, want to park it in my garage.
Most parts support is more related to installed components rather than parts manufactured by the OEM. How many wing skins, spars, ribs, formers, etc are you going to buy from Mooney for your Ovation in the normal course of ownership?
Unless the airplanes suffers some sort of airframe damage, the largest portion of parts needed are related to the engine, accessories, like vacuum pumps, fuel pumps, etc…avionics, lighting which are manufactured and supplied by the component manufacturer or a PMA alternative. Provided there is a steady need of airframe parts, engine mounts, due to crashes, or an AD comes out for repetitive airframe part replacement, it would be pretty much unpredictable on what part to manufacture, when, and how many. In the case of Mooney, there are PMA and alternative methods of ways to repair the fuel tank leakage issues for example from several sources who specialize in this repair rather than going to Mooney. So, I can see where Mooney would have a difficult time making money on only parts and service unless they downsize for that specific goal.
As shared, Twin Commander LLC has been in business successfully supporting the Aero Commander twins. Likewise with organizations like Fletch Air for the Grumman line.
The new Eclipse ownership might have a shot at making some money as the airplane is not supported well outside of the various itineration’s of Eclipse as it went from one owner to another. Its new enough and expensive enough, with enough airplanes in the fleet to provide much needed service even though most of that service is going to relate to installed systems rather than Eclipse built airframe components. Eclipse does not really have an existing service network easily accessible and available for the present Eclipse ownership that I am aware of.
Owners of Mooney, Grumman, Cessna, Beech, Twin Commander, Ercoupe, Luscombe, Aerostar, etc have cottage industries largely promulgated by type clubs that have developed a cottage industry supporting these airplanes. I am sure the Eclipse owners do not have that kind of support at the present time. Therefore, the new Eclipse owner might have a shot of being profitable in parts and service support.
Except for selling a few parts at overly inflated prices, OEMs orphaned many aircraft as they discontinued production or worse yet came out with new but inferior albeit more expensive models. Clubs had no choice but to develop cottage industries.
I accidentally backed into my wife’s Honda Accord in our driveway. $900 to bang out the dent. How much do you think it would cost to do that on a plane parked in my driveway?
Aircraft live in a very protected environment (even those that can handle grass or dirt runways), but cars don’t. Repairs will be breathtakingly expensive.
Lenders require insurance.
Imagine what the annual premiums would be, on a half-million-dollar “car.”