Eclipse Aviation acknowledged Tuesday that production delays mean it needs a new round of investment and hopes discounted price offers in return for hefty deposits will help raise capital and tide the company over.
In a letter to customers, founder and CEO Vern Raburn said that as part of a new investment round, Eclipse is seeking $30 million from customers in the form of $625,000 deposits.
In return, customers who sign up for the voluntary program will get their jets at a locked-in price of $1.25 million, regardless of future price increases imposed by the company or caused by inflation.
Raburn wouldn't say how much the company hopes to raise in the new investment round, but said it hopes to complete it within 120 days.
In an interview with the Journal, Raburn acknowledged the deposit offer would likely fuel Internet rumors that Eclipse is in financial trouble.
"This is not an act of desperation," he said. "We don't have an investor that says, 'You need to get this $30 million or we won't invest.' ''
Instead, he said, the $30 million in deposits will enhance the company's fundraising abilities.
"If we have $30 million in this deal, potential investors will say, 'These are dedicated customers. We like that,' '' he said.
The offer could save customers more than $500,000 on the cost of their Eclipse 500 jets, while helping the company "meet our need for shortterm funds," Raburn wrote.
A couple of industry analysts recently predicted Eclipse would need more money as internal processes, last-minute tweaks to systems and supplier delays have kept the company from meeting its planned production rate of one jet per day.
"Our business model is based on high-rate production, and when we fall behind, there are more consequences than simply a delay," Raburn wrote in a letter to customers. "One consequence is that our need for capital has increased.
"We have been successful in the past in our ability to raise capital and believe we will be able to close this financing in 120 days. In the meantime, we are looking to raise funds now so that we can complete our financing in an orderly fashion."
Eclipse has raised an estimated $1 billion, including about $19 million in investments made with New Mexico state permanent funds.
Raburn said the new deposits will go into an escrow account, and if the expected $30 million isn't raised, "we probably will refund the money."
Raburn said the new offer is in line with others made when the company "didn't perform as planned."
Eclipse has previously offered discounts to some customers whose planes were delivered later than expected and given discounts of up to $30,000 to customers who released deposits from escrow to fund operations.
"We have historically, every time we've slipped, tried to give our customers a chance to participate or improve their position," he said.
Already Tuesday, some customers had expressed interest, Raburn said.
"We're flabbergasted by the response," he said.
When it was originally unveiled, the Eclipse 500 was priced below $1 million, but the price has climbed as Eclipse made adjustments for new engines and other changes. Today, the price stands at $1.59 million.
As is standard in the industry, Eclipse prices have always been subject to inflation. So an airplane priced at about $1 million in 2000 would have a final cost roughly $1.3 million if delivered next year given current rates of inflation.
Eclipse says it has orders for 2,700 planes, most held with a 10 percent deposit. When the aircraft is six months from production, customers are required to sign a final agreement and bring their total deposit to about half the plane's value.
The discount offer announced Tuesday applies to any customer who has paid the 10 percent deposit, but hasn't reached the six-month deposit and purchase agreement point.
Eclipse also is extending an offer to new customers - a $1.4 million set price, not subject to any increases, with an immediate $840,000 deposit.
The offer will last until Dec. 14, though Eclipse reserves the right to end it at any time.
Raburn also on Tuesday acknowledged the company hasn't been able to meet demand for pilot training, and that it is making "significant" investments in new training equipment such as flight simulators and personnel.
The company expects to deliver up to 100 planes by the end of the year.
