Dutch entrepreneur Roel Pieper, whose Luxembourg-based private equity firm Etirc (European Technology and Investment Research Centre) Aviation is now the largest stakeholder in Eclipse Aviation, is no stranger to the movers and shakers on the very light jet (VLJ) scene. He and former Microsoft chief Bill Gates, also one of the top investors in Eclipse, went head-to-head when Pieper fronted AT&T's Unix operating system efforts and were later allies when he moved to networking company Ungermann-Bass.
The software industry also brought Pieper into close contact with Eclipse president and chief executive Vern Raburn, the 18th employee on Microsoft's payroll, and with Ed Iacobucci, head of air taxi operator DayJet, Eclipse's largest customer. Iacobucci had been an IBM software developer who later founded Citrix. "What does that tell you?" laughs Pieper of the common theme.
His investment in Eclipse is certainly no laughing matter, however.
Before Etirc, the company had been in dire need of capital, offering buyers in early December a price reduction of about $500,000 in return for a $625,000 non-refundable deposit up front - half the cost of the discounted aircraft. Production rates were hovering at roughly 20 a month, more than a factor of two less than [HALF??] the throughput needed to break even or make a profit. Eclipse was also under pressure from owners to make promised avionics and performance upgrades to nearly 100 aircraft already delivered. Approval to fly into known icing, a must-have for air taxi operations, had still not been completed.
Although the same problems continue to plague Eclipse today, Raburn, as of 14 December 2007, has an equity investment "exceeding well over $100 million" from Etirc Aviation with which to keep the company's 1,600 employees at work. The money will give Raburn some financial breathing space to ramp up production, make modifications to the fleet and hire 700 more employees this year, he says.
In return, Pieper becomes the non-executive chairman of Eclipse, Etirc Aviation gets an expanded presence in Europe and, last but certainly not least, the OK to open its own final assembly plant for the Eclipse 500 at the Aviastar aircraft complex in Ulyanovsk, 900km east of Moscow. Specifics of the arrangement are to be announced in March, says Pieper.
Sources say Eclipse has obtained some of its money already the final amount and timeline for the rest is a closely held secret. "It's a complex deal," says Raburn, adding that if the company can negotiate a series "deliverables" over the next six months, it will receive more than $200 million in spending money from Etirc. "There's not intent to merge the companies," he points out, rather the companies will have "a symbiotic but independent relationship".
Raburn says aircraft components will be kitted in Albuquerque, shipped to the assembly line in Ulyanovsk, assembled under Eclipse's type certificate and sold in Etirc's expanded sales and service territory, which now includes Western Europe and the UK as well as the previously agreed regions such as Russia, Turkey and Eastern Europe. Pieper says he has sold nearly 300 aircraft in seven countries so far.
Ultimately, Raburn says he expects vendors will send components directly to Russia. Either way, he says Albuquerque will benefit from the increased traffic. "Volume is the key to Eclipse's success. This deal drives volume."
Pieper says the two companies "officially" engaged in trying to estimate the demand for the VLJ in Europe, starting in 2004, coming to the conclusion that "there was a need for another production facility". Pieper says Etirc then evaluated 10 locations around Europe beginning in 2005, including Turkey, Russia and the Czech Republic, performing due diligence on which areas would best meet criteria for skilled labour, training, educational facilities and other features. Reports in the Russian media in 2005 stating that Eclipse would be building a plant in Ulyanovsk were premature, he says, the result of local officials trying to increase their chances for winning the work.
Once the assembly line comes on line in late 2009 and the "accumulated volume" increases, Pieper says the companies could begin looking for more second- and third-tier suppliers locally to increase the volume of parts and therefore Eclipse's buying power. He says the initial "low-hanging fruit" is getting a lower price for aluminium.
Pieper says Etirc's cash infusion will ultimately make sense largely because of the high probability that air taxi markets will "explode" in Europe. In fact, Etirc Aviation is buying 120 Eclipse 500s for its own operation, though Pieper says there is no financial link between the two deals.