Friday, November 14, 2008
Eclipse can't pay employees for past 2 weeks' work
By Richard Metcalf
Journal Staff Writer
A once-promising economic engine for Albuquerque stalled Thursday.
Eclipse Aviation told its 1,100 workers that the company had run out of money and that they would not receive their paychecks for the previous two weeks' work. During a series of meetings, the company also told them that their future pay would depend on a big injection of investment money.
The company didn't issue a statement or respond to Journal requests for information. But employees said they were told that interim "bridge" financing was in the works to keep the company going, which was confirmed by the Federal Aviation Administration.
"They have indicated to us they have a short-term solution to the problem," said FAA spokesman Roland Herwig, who referred questions about the solution to Eclipse.
In the meantime, he said, "We increase our oversight of any certificated company that declares financial problems."
Eclipse faces at least four lawsuits from buyers seeking deposit refunds because they have not received planes.
Failure to make payroll and refund deposits points to "a company having a difficult time," said Lee Reynis, director of the Bureau of Business and Economic Research at the University of New Mexico.
"These folks have overcome some major hurdles that have been quite an accomplishment," she said. "Then, you hit an economy like this one. Even the mighty can fall."
The mood was largely somber as employees filed out of one of Thursday's meetings at the jetmaker's facility at the Albuquerque International Sunport, although groups here and there laughed together in apparent displays of gallows humor. They had just learned that they would get no paychecks and possibly have no job future.
"They knew that they were in this financial bind," Ray Eveland, a quality assurance inspector at the final-assembly plant for the twin-engine Eclipse 500 light jet, told The Associated Press.
"I just cannot believe they just found out the day before. If that's the case, no one should be doing business with them," he said.
Most other employees declined to comment outside the Eclipse buildings. A handful was seen carrying boxes to their vehicles. Others were soldiering on.
"Some people will need to leave for financial reasons," said one employee. "One guy on my team went back to his desk after the meeting and continued working. I'll keep working till they change the locks."
The most frustrating aspect of the company's financial meltdown was that certification of the Eclipse 500 very light jet by the European Aviation and Safety Agency was just a week away, he said. "We're down to our last few documents to open Europe up," he said.
"It was two weeks of indentured servitude," said Richard Aboulafia, an aviation analyst with Fairfax, Va.-based Teal Group Corp., about Eclipse letting its employees work without having money to pay them.
"I would think most of the workers have a backup plan, but these are tough times," he said. "Even with a backup plan, their future could be tough."
The Teal Group and New Canaan, Conn.-based Forecast International, both aerospace research firms and consultants, predicted last month in separate reports that Eclipse would go out of business in 2009.
Aboulafia, in particular, has been a harsh critic of Eclipse's business plan of attracting investors based on what he considers an unrealistic promise of high-volume production of an inexpensive jet. The Eclipse 500 jet is priced at $2.15 million, about $1.5 million cheaper than its lowest cost competitor.
When it first started in 1998, Eclipse had planned to sell the jets for under $1 million.
Murky job status
As of Thursday, it was unclear whether Eclipse employees were eligible for unemployment benefits, said state Department of Workforce Solutions spokeswoman Carrie Moritomo. "I don't know what their employment status is," she said. "We have not been in contact with Eclipse."
The employees haven't been clearly laid off, as was the case in August when close to 800 Eclipse workers lost their jobs in Albuquerque. But since applications for unemployment benefits are considered on a case-by-case basis, Moritomo said Eclipse employees could apply and see what happens.
As for not getting paid, employees can file a claim for back wages due but not received, she said. Employees interested in doing so can call the department's Wage and Hour Bureau at 841-4400.
Since its launch, Eclipse has gone through more than $1 billion in investor money to develop its twin-engined, six-seat jet, obtain certification by the FAA, and manufacture more than 260 jets over the last two years. It had planned to produce up to 1,000 a year, saying it would change the aviation industry.
State is monitoring
One of Eclipse's investors is the State Investment Council, which manages New Mexico's permanent funds. The council has a $19 million stake in the jet manufacturer, just under its $20 million cap on investments in individual companies.
"We're actively watching and participating as much as we can in helping the company explore its options," investment council spokesman Charles Wollmann told the Journal on Thursday. "There are no easy solutions."
In January of this year, Netherlands-based European Technology and Investment Research Center announced a more than $100 million investment in Eclipse. When ETIRC CEO Roel Pieper took over as Eclipse CEO in July, replacing company founder Vern Raburn, the company announced that it had received an undisclosed amount of additional investment funding.
Since then, the global financial crisis has hampered the latest fundraising effort, Pieper acknowledged in a September interview with the Journal.
The company is seeking from $200 million to $300 million in additional investment to continue operations. When asked if New Mexico might be able to provide some form of financial assistance to Eclipse in its time of need, Wollmann said, "The size of the (investment) rounds they've talked about are beyond the scope of our program."
Eclipse is also two months behind on rent payments to the city's aviation department for its use of four buildings totaling 175,000 square feet at the Sunport, said department planning manager Jim Hinde.
However, the company is current on its payments for its $45 million in industrial revenue bonds issued through the city, said Deirdre Firth, a manager in the city's economic development department.
IRBs cannot be used to meet payroll, she said. Money from IRBs can only be used for equipment and facilities. Firth also said, "We want to assure the people of Albuquerque that there are no city tax dollars at risk in this project."