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- Jan 2008 -
Secondary Market Analysis: January 2008 Update
Eclipse has finally made it with a rash of announcements at the end of 2007 and a major announcement on January 14th 2008. When I say “Eclipse has made it”, I mean they are now financially strong enough to get into full rate production and they have resolved most all of their technical issues. In 2007 Eclipse was slow to get into production and resolve their start-up and technical issues. It appears now they are ready to produce between 400 and 500 airplanes in 2008. They also should be able to resolve the last remaining technical issues by mid-year and be well on their way to profitability. Of course there is still a lot of work to be done and European EASA certification will keep them busy for the next six-months. But the news has been extremely positive in the last few weeks and the market has responded. Prices on the secondary market are starting to go up as owners now are willing to wait before selling at rock bottom prices, and demand is also starting to increase. This trend will continue as more and more airplanes are delivered and the last issues get resolved. It will be an exciting year for all those waiting for the Eclipse.
Market Forces
Delivery and Production Issues
At of the end of 2007, Eclipse produced 104 aircraft. The production ramp was behind schedule all year and it appears it will not reach the one-per-day rate until second quarter 2008. There are still issues with the supplier base ramping up to the higher rates. This is typical on a new production line, where there may be one or two key suppliers that just cannot ramp up as fast as everyone else. Eclipse is working with their suppliers and helping those that are having problems. A new production schedule has not been announced and probably won’t be announced publicly. However, it can be estimated, as in the past, based on information gathered by customer inquires and other sources. It appears now that Eclipse will hold the production ramp at the current level (approximately 20 per month) through the first quarter of 2008. They will try to start the one-per-day (30 per month) production schedule in the second quarter. Then in order to reach a production rate of 400-500 for 2008, they will have to ramp up production to 1.5 per day (45 per month) in the third quarter and eventually to 2 per day by year end.
Here is how I see the new production numbers based on best available information (this is NOT Eclipse projections but my own):
The exact production schedule while not published will look something like this:
Eclipse serial numbers; projected delivery by month 2008 (Estimated)
Estimated Schedule
| 2007 | 1-104 Actual |
| 2008 | |
| Jan | 105-125 |
| Feb | 126-146 |
| Mar | 147-167 |
| Apr | 168-198 |
| May | 199-229 |
| Jun | 229-259 |
| Jul | 260-305 |
| Aug | 306-351 |
| Sep | 352-397 |
| Oct | 398-443 |
| Nov | 444-489 |
| Dec | 490-550 |
Eclipse also announced to their first 104 customers they have started the process of upgrading these airplanes to the current production configuration with AvioNG. Aircraft 1-38 will also begin retrofitting the aero modifications at the Gainesville, Florida Eclipse Service Center. The first retrofit kit airplane started the process in December as a validation/verification of the retrofit kit. The retrofit process will take 3-4 weeks per airplane and start in February. Eclipse plans to retrofit between 6-10 airplanes at a time.
The last major technical issue for Eclipse to resolve is Flight Into Known Icing (FIKI). They have completed internal testing and currently are in FAA certification testing. Vern Raburn reported in mid-January that the testing is going well and hopes to complete the certification process “soon”. This probably means by the end of the first quarter 2008.
Training of Eclipse owner/pilots and professional pilots is still behind schedule. However, Eclipse did get their first full-motion Level D simulator FAA certified in mid-January 2008. Other simulators will be certified over the next couple months. They plan to start full simulator training at the end of January. This should greatly expedite the training process instead of the current slow method of training in the airplane. Especially during winter months, training in the airplane adds weeks to the checkout.
CPI
CPI increased at a seasonally adjusted annual rate (SAAR) of 5.6 percent in the fourth quarter of 2007, following increases in the first three quarters at annual rates of 4.7, 5.2 and 1.0 percent, respectively. For the 12 month period ended in December 2007, the CPI-U rose 4.1 percent. The CPI-W annual rate for 2007 was even higher at 4.3 percent. This compares with an increase of 2.5 percent for all of 2006. CPI-W at 4.3 percent for 2007 was the highest annual rate for the past seven years by almost a whole percentage point. Here are the annual averages for the past seven years. Of course all Eclipse pricing (except for the Platinum positions) is based on factory base/list price plus CPI. The latest factory list price is $1,595,000 in June 2006 dollars plus CPI to delivery. If CPI continues to increase at the same rate through June of 2008, then the factory list price would be $1,735,000 in June 2008 dollars. In June 2010 dollars it would be almost $1.900,000. If you add options, an Eclipse in 2010 will cost over $2 million out the factory door. This bodes well for residual value of current airplanes.
| 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 |
| 3.4 | 1.6 | 2.4 | 1.9 | 3.3 | 3.4 | 2.5 | 4.3 |
With this announcement it was also disclosed that European certification authorities were in Albuquerque in mid-January to view the facilities as part of EASA certification. The European market is huge as Roel Pieper said during the press conference. With Russia and all of Europe, the market potential is larger than in North America. Also this market is just now opening up and once the Eclipse gets EASA certification (projected mid-year 2008), then the European buyers will start wanting to take delivery as soon as possible. I anticipate the second half of 2008 to see a large demand in Eclipse 500 from European buyers.
Market Prices
Because of all this good news for the Eclipse, and because of failure or slow-down of other VLJ startups (ATG Javelin and ADAM), the prices for early Eclipse positions are starting rise. Very early delivery AvioNG airplanes being delivered in the first quarter 2008 are selling for a slight premium over factory price. Later 2008 positions are still selling for a discount, but I would suspect as the European market picks up that will change. Eclipse 500 delivered airplanes (pre-AvioNG) are either not selling or selling at discount. This is because AvioNG airplanes are available now or will be shortly. Most of these non-AvioNG owners now realize that they will either have to sell these at discount or wait until Eclipse retrofits them and brings them up to current configuration. Once they do, the value will again go back up to AvioNG priced airplanes. The average sale price for a first or second quarter 2008 AvioNG airplane with options is between $1,750,000 and $1,850,000 depending on the options. As the options get locked by the factory around 4 months before delivery, the options on the aircraft make a lot of difference to most buyers. Prices for aircraft in the second half of 2008 are still selling at below factory, but they are starting to climb and again as soon as the European demand picks up, these position prices will keep climbling. Currently these are selling at list price plus CPI but before options for between $1,500,000 and $1,600,000.
This price comparison between factory price and secondary market price is most confusing. I will try to explain again how it works with the CPI numbers stated early in the report.
| Factory | Price | Secondary Market | Price |
| List: | $1,595,000 (June 2006 dollars) | List: | $1,040,000 June 2000 dollars) |
| CPI: | $140,000 (June 2008 delivery) | CPI: | $245,000 June 2008 delivery) |
| Seller's Equity: | $260,000 | ||
| Total: | $1,735,000 (base price 2008) | Total: | $1,545,000 (base price 2008) |
- Sep/Oct 2007 -
Secondary Market Analysis: September/October Update
During the last two months, there have been a number of venues where Eclipse Aviation has discussed their progress on production and other issues which the market was eager to hear. The National Business Aviation Association convention took place the last week in September and the AOPA Convention happened two weeks later in early October. Eclipse Aviation held their annual investor meeting the middle of October. The news from Eclipse at all these meetings was positive and significant progress continues to be demonstrated. However, Eclipse still struggles to get into full rate production, causing concern that they will need to raise more capital until full rate production and profitability can be reached. The good news and increased publicity has caused more demand and interest in the Eclipse, however, the uncertainty over the production ramp has caused caution in the market. Supply of Eclipse positions and actual delivered aircraft still exceeds demand and it is still a buyers market. This has kept a lid on prices, although the steady demand has kept prices from falling. Demand in Europe with the strong Euro continues to pick up and half the sales are now to European buyers.
Market Forces
Delivery and Production Issues
As of the end of October, delivery of 70 production aircraft will have taken place. The production ramp is behind the schedule announced at Oshkosh. A new production schedule was supposed to be announced following the investors meeting, however it still has not been published. Vern Raburn was quoted recently as saying Eclipse will only deliver about 100-115 aircraft this year. With 70 delivered at the end of October, this means Eclipse will still not be at the 30 per month (1 per day) production rate until at least January 2008. I did tour the production line in mid-October and can report that on the front end of the production line they are approaching one per day rate. However, there are still bottlenecks and delays at certain points on the production line, causing them to miss delivering aircraft at one per day. They are delivering one every other day so the rate is more like 16 per month. This is still quite an accomplishment for the first year of production and approaching a record in aircraft manufacturing for a start-up production line. However, it is not near where they want or need to be to meet the demand and their business model. Here is how I see the new production numbers based on best available information (this is NOT Eclipse projections but my own):
The exact production schedule while not published will look something like this:
Eclipse serial numbers; projected delivery by month 2007 (Estimated)
| Post-Oshkosh Schedule | October 2007 Schedule | |
| Oct | 1-110 | 1-70 |
| Nov | 111-166 | 70-86 |
| Dec | 167-205 | 87-105 |
| Jan | 206-250 | 106-135 |
| Feb | 251-296 | 136-165 |
| Mar | 297-342 | 166-195 |
2nd and 3rd quarter 2008 deliveries at 45 per month and 60 per month from October through December 2008. This would be approximately 550 airplanes delivered in 2008.
As mentioned before, the realism of this delivery ramp-up and production schedule is still suspect and whether Eclipse can meet it now won’t be known until the end of the year. Again, they have missed their production projection of just a couple months ago. Vern Raburn was asked by Flight International about the production ramp: "’It turned out to be really hard,’ says chief executive Vern Raburn, citing vendor and other issues. After redesigning assembly along automotive lines, production of the Eclipse 500 VLJ is approaching one a day - half that originally planned. ‘We're not where we wanted to be, and we're not out of the woods yet, but it's starting to look good,’ he says.” So far they still have not demonstrated that they can get into high-rate production, although all indications are that they should make it by year end.
Technical and Training Issues
The technical issues continue to be resolved. The FAA has removed the AD against the Eclipse 500 which restricted the airplane to VFR. This was as a result of a redesign of the pitot tubes. All airplanes now have the new pitot tubes and fly unrestricted. All aircraft are now being manufactured with the aero modifications and Extended Range Tip Tanks (serial number 39 forward). Aircraft 1-38 will begin retrofitting the aero modifications starting in December at the Gainesville, Florida Eclipse Service Center. The first retrofit kit is being built this month as a validation/verification of the retrofit kit.
AvioNG (Next Generation) has started the certification testing and all hardware is already certified. Production cut-in at serial number 105 has already started down the production line. This airplane as previously stated should be delivered in December or first of January. All airplanes produced before AvioNG production cut-in will be sent back to the Gainesville service center for retrofit also starting in December. The retrofit is a 10 day job. Flight Into Known Icing (FIKI) testing and certification will start in November and hopefully complete by the end of the year or early 2008.
Training of Eclipse owner/pilots and professional pilots is still behind schedule. Eclipse continues to add more instructors and delays in training are becoming shorter. The current delays are caused by a shortage of FAA Flight Examiners to give the final exam. There is now a backlog of pilots waiting for their Type Rating exam. Eclipse has moved their training school to the Double Eagle airport in Albuquerque. The second simulator (full-motion) should be available next month. Use of the simulators and the move to Double Eagle is helping to close the gap in training. There will be a need for more FAA Flight Examiners as the training classes ramp up.
CPI, Financial and Europe
CPI increased at a seasonally adjusted annual rate (SAAR) of 1.0 percent in the third quarter of 2007, following increases in the first and second quarters at annual rates of 4.7 and 5.2 percent, respectively. This brings the year-to-date annual rate to 3.6 percent and compares with an increase of 2.5 percent for all of 2006. While CPI continues to fall in the second half of 2007, it may not get down to the 2.5% average for the past six years. Here are the annual averages for the past six years. Of course all Eclipse pricing (except for the Platinum positions) is based on factory base price plus CPI. The latest factory list price is $1,595,000 in June 2006 dollars plus CPI to delivery.
| 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 |
| 3.4 | 1.6 | 2.4 | 1.9 | 3.3 | 3.4 | 2.5 | 3.6 |
(Before reporting on the financials again, I believe it is my obligation to provide a disclosure statement. Eclipse is a private company that has been raising capital in a number of rounds of investor offerings over the past 10 years. I participated in one of the later rounds. Prior to this report, I was not privy to any financial information regarding the company as I blindly invested in the previous round. However, I did attend this year’s annual investor meeting two weeks ago and was presented full disclosure of Eclipse financial condition. Before being presented the financials, I was required to sign a non-disclosure agreement so I am afraid that now I am bound and cannot report any of the details of their financial health. That being said, I am pleased that my reports of their financial condition in the past ---before I was privy to this information—have been fairly accurate. But any reporting going forward will of course be guarded so that I do not violate the non-disclosure agreement I signed. Also you must understand that I am looking at these financial numbers through rose colored glasses as I want the company to succeed. Others, especially critics of Eclipse who would like to see the company fail for whatever reason, may not be as optimistic as I am.) With that disclosure out the way, in my August report I said “September looks to be the critical month for Eclipse.” This was because they needed to get into rate production (30 per month) to be good on cash flow and would not need to go to the credit markets again. Eclipse did not make it to 30 per month delivery in September. They made it to 30 aircraft “entering production” but they did not “deliver” 30 aircraft. As Vern Raburn stated in his interview with Flight International, they are getting close but there have been delays on the production line caused by a number of issues. Based on his remarks to another news organization that Eclipse will only deliver a little over 100 aircraft this year, it appears that the magical 30 per month delivery rate will not be met until the end of the year. Therefore, it would seem likely (based on my previous assessment) that they will have to raise some more capital until they can reach the 30 per month production state. Of course the closer they get to that state the less negative cash flow and the more cash reserves they can maintain. The production line is smoothing out and starting to run at efficiency. Eclipse laid off about 150 workers in October as they simply over-hired during the summer, thinking they would be at 30 aircraft per month by September. They are trying to “right-size” the work force to match the production ramp up. However, there is still some risk that an unforeseen event will delay the production ramp and/or if additional capital is needed they will have trouble raising it. In the past they have not had difficulty in raising capital, but the credit markets took a significant hit this summer, so it may be more difficult next time. It appears that it will be another two months now before we know for sure that Eclipse can meet production quotas and also meet their financial goals. As Vern Raburn said: “they are not out of the woods yet!”
The European market is getting stronger by the day. The Euro keeps hitting all time highs against the dollar, making the Eclipse even more affordable to the Europeans. Eclipse now projects EASA full certification (JAR 23) in 1st quarter 2008 and commercial certification (JAR-OPS 1) in late 1st quarter 2008. Flight-into-Known Icing is still projected to get certification in 4th quarter of 2007 or early first quarter of 2008. Half the sales of Eclipse on the secondary market are to European customers. The sweet spot for European customers are Eclipse deliveries in the summer of 2008 and these are still selling at below factory prices.
Market Prices
Prices continue to be strong for Eclipse 500 delivered airplanes and near delivered airplanes. However, as we near AvioNG on delivered airplanes, the pre-AvioNG airplanes are starting to lose some of their luster. Still the delivered airplanes, even with the basic Avio system have appeal as many buyers want to finance their airplanes and most if not all financing companies will only finance on a delivered airplane. But as more and more delivered airplanes (used airplanes) hit the market, the prices will come under pressure. Typically, there are between 5 and 10 percent of used aircraft (all makes and models) for sale at any one time. Currently there have been 70 Eclipse delivered and less than 5 percent of those are for sale. The owners are still flying them but still they are for sale. The average sale price for delivered airplanes is between $1,750,000 and $1,850,000. As the AvioNG airplanes start being delivered and hitting the market, these pre-AvioNG airplanes may start loosing their value. They are still selling for a premium to factory price which is above industry standard for a used airplane.
Prices for pre-delivered airplanes and 2008 positions are still going for quite a bit less and selling at discount to factory price. This price comparison between factory price and secondary market price is most confusing. I will try to explain again how it works with the CPI numbers stated early in the report.
| Factory Price | Secondary Market Price | |
| List: | $1,595,000 (June 2006 dollars) | $1,040,000 (June 2000 dollars) |
| CPI: | $ 105,000 (June 2009 delivery) | $ 235,000 (June 2008 delivery |
| Seller’s Equity: | $ 265,000 | |
| Total | $1,700,000 (base price) | $1,540,000 (base price) |
In above example, the buyer purchased the June 2008 Eclipse at a $160,000 discount below factory price and also will receive the aircraft one year earlier than the factory position.)
There is still a two tier pricing structure for Eclipse positions. Buyers are willing to pay factory prices or a premium for real early positions (delivered ASAP). These are selling for between $1.75M and $1.85M with options. The second tier prices are the 2008 positions (serial numbers 200 and up) and they are still selling at a discount of around $1.5M before options. Of course the farther one goes out in time the cheaper the price.
There have been over 70 positions sold on the secondary market this year. The prices have been fairly stable and are reflected in the numbers above. The demand, especially from Europe is picking up, but so is the supply. The uncertainty over the production ramp up and financial situation at Eclipse is holding the sales in check. Buyers are cautious and some are taking a “wait and see” attitude. Others have visited the factory and after seeing the production line for themselves are convinced that Eclipse is here to stay. The pent up demand is definitely out there based on the number of calls of potential buyers. The only thing holding back the market at this point is the uncertainty over the production schedule and the financial success of the company. Once these issues are resolved (hopefully for the good), then the sales will continue and the prices will increase.
Conclusions and Forecast
Eclipse is working through their production ramp up, but at a slower pace than they projected two months ago. They are still not at 30 per month and probably will not reach this rate until the end of the year. As they have not reached this rate, they will probably need to raise some more capital to see them through to profitability. This uncertainty as to their reaching high rate production and profitability has limited the increase of sales on the secondary market. The sales are still at or above the rate of sales over the last six to twelve months, but not nearly as brisk as the inquiries would indicate. Eclipse still has a couple of months of hard work before them (full rate production, AvioNG, FIKI, and EASA certification) before confidence will rebuild on the secondary market. Prices are holding and even increasing as the European market has picked up and the dollar has decreased against the Euro.
The forecast for the secondary market is still bullish. The inquires and demand for early delivered airplanes is still quite high. Sales have increased, but not at the rate that would drive up prices significantly. Once production at rate is sustained for a couple of months and AvioNG gets certification, then sales should increase significant enough to drive up prices. Prices are fairly stable now as they have been for the past few months. The airplane continues to be a joy to fly as I have been flying it around the country. The reliability is fantastic and the support excellent.
Until next month--regards, Mike
Michael Press- Jul/Aug 2007 -
Secondary Market Analysis: July/August Update
Oshkosh, a perennial Airshow where Eclipse Aviation normally updates their progress and makes significant announcements has just completed and Eclipse has not disappointed the faithful. They shocked the marketplace by flying and demonstrating one of the first single-engine VLJ concept jets. While this ECJ (Eclipse Concept Jet) stole the show, there were also many announcements and progress updates on the Eclipse 500. The news from Eclipse was very positive and significant progress has been made on many technical issues. The good news has caused more demand and interest in the Eclipse, here and in Europe. However, the production ramp up is still very slow and training delays in the airplane has caused some owners to lose faith and decide to sell. July witnessed the beginning of the Eclipse used market as about 5 used airplanes (already delivered airplanes) sold to new owners. 2007 delivery positions are still selling at a premium over factory price while 2008 positions are still selling at a discount. Fleet buyers and European buyers continue to add to the demand. However, the slow ramp up in production and the training delays have kept the supply of early positions on the market exceeding the demand.
Market Forces
Delivery and Production Issues
As of this writing (middle of August) delivery of 40 production aircraft will have taken place. The production ramp up is still slow and behind the schedule announced before Oshkosh. However, Eclipse is still projecting to make approximately 200 airplanes in 2007 with a new production schedule that shows 30 per month starting in September and 45 per month starting in November. The new schedule for 2007 is shown below next to the pre-Oshkosh schedule:
The exact production schedule while not published will look something like this:
Eclipse serial numbers; projected delivery by month 2007 (Estimated)
Pre-Oshkosh Schedule Post-Oshkosh Schedule
Jun 1-25 1-25
Jul 26-40 26-37
Aug 40-60 38-49
Sep 60-90 50-80
Oct 90-120 81-110
Nov 120-150 111-166
Dec 150-180 167-205
2008 deliveries at 45 per month through April 2008 and 60 per month through December 2008.
As mentioned before, the realism of this delivery ramp-up and production schedule is still suspect and whether Eclipse can meet it won’t be known until the end of September. So far they have not demonstrated that they can get into high-rate production. September will be the critical month to demonstrate high-rate production.
Technical and Training Issues
The technical issues are being resolved. The most serious issue last month was the pitot tubes issue. The FAA had issued an AD against the Eclipse 500 which restricted the airplane to VFR only until Eclipse could resolve freezing of condensation in the pitot tube plumbing. Eclipse certified a fix at the end of July and began replacing pitot tubes in all delivered aircraft. They should have all airplanes completed by the end of August. I own Eclipse serial number 004 and had the AD removed in early August and have been flying IFR up to FL410 and single-pilot for the past three weeks.
Also announced at Oshkosh, Eclipse received certification of the Aero Modification and Extended Range Tip Tanks. These have been installed on production aircraft beginning with serial number 39. All previous serial number aircraft will get the retrofits starting in September or October. AvioNG (Next Generation) development and testing is still progressing with current projections of production cut-in of serial number 134 in the November time frame. However, Eclipse is offering owners with serial numbers between 105-133 the opportunity to receive AvioNG hardware installation during production and wait for software upgrade when certification takes place in November. If these aircraft are produced prior to AvioNG certification, they will be placed into storage until certification takes place. It is still not known how many of these owners took this offer from Eclipse. All airplanes produced before AvioNG production cut-in will be sent back to the factory or service center for retrofit starting in December. The retrofit is a 10 day job. Flight Into Known Icing (FIKI) testing and certification is still planned for late 2007.
Training of Eclipse owner/pilots and professional pilots is still behind schedule. Eclipse has trained more instructors and delays in training are becoming shorter. However, there is still about a month delay between delivery and training date. Eclipse has stated that they plan to be back on schedule by October. The course is still being given in the owner’s airplane. Starting in September the first class to use the FTD simulator will start at Double Eagle airport in Albuquerque. The second simulator (full-motion) will be available in October. Use of these simulators and the move to Double Eagle should start closing the gap in training. Also, many more mentor pilots are now trained, so some owners are taking delivery and hiring a mentor pilots to provide pre-factory training while they wait for their class date.
Eclipse seems to have dodged a bullet financially when they secured over $200 million in additional equity funding in July. However, this will only last them a couple of months if Eclipse does not get into rate production. Again, September looks to be the critical month for Eclipse. This additional funding will most likely smooth the cash flow issues for a couple of months, but until Eclipse can get into rate production (September) they will not be cash-flow neutral. Once they get into rate production (30 per month), then they likely will be good on cash flow and will not need to go to the credit markets again. With a production rate of 30 per month, revenue will equate to over $50 million per month as Eclipse will be able to collect on delivered aircraft and call for 60% deposits on aircraft to be delivered six-months out (at a rate of 60 per month production rate).
The European market is still quite strong. At Oshkosh, Eclipse projects EASA full certification (JAR 23) in 4th quarter 2007 and commercial certification (JAR-OPS 1) in 1st quarter 2008. Flight-into-Known Icing is still projected to get certification in 4th quarter of 2007.
Market Prices
Prices for Eclipse 500 have rebounded and remain quite strong for delivered airplanes and near delivered airplanes. Last month witnessed the first airplane resold after the owner took delivery. Then about 5 or 6 other delivered airplanes also were resold. The average sale price for these delivered airplanes was between $1,750,000 and $1,850,000. Eclipse also auctioned a delivered airplane (S/N #38) on Ebay which eventually sold for $1,833,000. Eclipse at Oshkosh also announced a $75,000 price increase starting in September. This raises the base of the Eclipse to $1,595,000 in 2006 dollars or about $1,650,000 in today’s dollars.
Prices for pre-delivered airplanes and 2008 positions are going for quite a bit less and selling at discount to factory price.
(Reprint from April Newsletter
Again, as I quote these sale prices, they are the list price (usually in 2000 dollars) plus CPI through projected date of delivery plus the seller’s equity. As this pricing comparison is the most confusing part of the secondary market, I will again try to simplify it with a sample comparison of a recent secondary market sale to a factory sale.
Factory Price Secondary Market Price
List: $1,595,000 (June 2006 dollars) List : $1,040,000 (June 2000 dollars)
CPI: $ 105,000 (Mar 2009 delivery) CPI: $ 220,000 (April 2008 delivery)
Seller's Equity: $ 280,000
______________________________________________________________________
Total $1,700,000 (base price) Total: $1,540,000 (base price)
In above example, the buyer purchased the April 2008 Eclipse at a $160,000 discount below factory price and also will receive the aircraft one year earlier than the factory position.)
There is still a two tier pricing structure for Eclipse positions. Buyers are willing to pay premium prices for real early positions (delivered ASAP). These are selling for between $1.75M and $1.85M with options. The second tier prices are the 2008 positions (serial numbers 200 and up) and they are still selling at a discount of around $1.45M before options. Of course the farther one goes out in time the cheaper the price.
There is still a large supply of positions for sale on the secondary market, which keeps the prices in check, but demand still does seem to be increasing.
Conclusions and Forecast
Eclipse has worked through most of their technical issues and are delivering airplanes at low rate. They are projecting to start high rate production (one-per-day) beginning in September. This will be a critical month for Eclipse as their business model depends on high rate production.
The forecast for the secondary market is still bullish. The prices and demand for early delivered airplanes is quite high and prices are going up as demand increases. The airplane is a joy to fly as I have been flying it around the country. Everywhere I stop, people gather to look and ask questions about its price and economy. Most are pleased with what they see. Demand should increase as this jet gets better known to the public.
Until next month--regards,
Mike
Michael Press
314-277-6890 Cell
636-536-1902
mpress@spjets.com
www.spjets.com
- May/Jun 2007 -
Secondary
Market Analysis: May/June Update
It has been two months since my last market update. This is not because the secondary market was quiet, but because I have been busy taking delivery of the first Eclipse 500 and checking out in the airplane.In the meantime, my associates have been keeping up with the market and it has been quite active. There have been about one or two Eclipse early delivery positions selling each week and more listings keep coming on the market. The news out of Eclipse also continues to come—both good and bad. The
good news has caused more demand and interest in the Eclipse, here and in Europe, but the bad news has caused some current position holders to lose interest in the Eclipse and put their positions up for sale. The market prices bottomed out in March, then rose in April and May and have now stabilized into a two tier pricing structure. 2007 delivery positions are now selling at a premium over factory price while 2008 positions are still selling at a discount. Fleet buyers and European buyers continue to add to the demand. However, the continued slip in production and the technical issues have kept the supply of early positions on the market
exceeding the demand.
Market Forces
Delivery and Production Issues
As of this writing (End of June) delivery of 25 production aircraft will have
taken place. Eclipse received their Production Certification in late
April, but the production ramp up was delayed until Eclipse performed an
internal audit and evaluation of their production line.This internal audit was completed in mid-June
and Eclipse announced a new production schedule based on this audit.The new schedule calls for a slower ramp-up
to one aircraft per day by August 2007 and then two aircraft per day in April
2008.This will garner approximately
175-200 aircraft delivered in 2007 and another 500-700 in 2008.This new delivery schedule has caused a stir
on the secondary market as owners tired of waiting have put their positions up
for sale, and buyers willing to pay increased premiums for early deliveries.It has also caused a two tier pricing
structure to develop for early and later deliveries.
The exact
production schedule while not published will look something like this:
Eclipse
serial numbers; projected delivery by month 2007 (Estimated)
Jun 1-25
Jul 26-40
Aug 40-60
Sep 60-90
Oct 90-120
Nov 120-150
Dec 150-180
2008 deliveries at 30 per month through April 2008 and 50-60 per month through
December 2008.
As mentioned before, the realism of this delivery ramp-up and production
schedule is still suspect and whether Eclipse can meet it won’t be known for
another few months. This schedule is certainly more realistic than the
last few projections by Eclipse, but again if they can meet it and sustain it
for a couple a months will be the proof that it can be met.
Technical and Training Issues
The technical issues continue to plague the early deliveries. The most serious at this writing is the issue
with the pitot tubes. The FAA just
issued an AD against the Eclipse 500 which restricts the airplane to VFR only
until Eclipse can resolve freezing of condensation in the pitot tube
plumbing. Eclipse is reported to have a
fix in place and is waiting for the FAA to certify the fix before retrofitting
the airplanes that have been delivered. This retrofit and production cut-in is projected to happen in late
July. Until it is fixed, all aircraft
delivered have to remain VFR. AvioNG
(Next Generation) development and testing is still progressing with current
projections of production cut-in around serial number 100 in the September time
frame. The aero enhancements have
completed development testing and are currently being tested for certification
by the FAA. Their production cut-in is projected at serial number 39. Airplanes produced before the cut-in date
will have to return to Eclipse factory or service center for retrofit. Flight Into Known Icing (FIKI) testing and
certification is still planned for late 2007.
Training of Eclipse owner/pilots and professional pilots began in May. I was the first owner/pilot to graduate from the Type Rating course the end of May (one reason I did not publish in May). The course is currently being given in the owner’s airplane as the simulators are not available until later this year. This has caused delays in the training program as there are limited resources available to keep up with the training demand. Some owners are being told there may be a one or two month gap in their delivery and their training. This again has caused churn in the secondary market as early position holders have sold their positions due to the technical and training issues.
CPI, Financial and Europe
The CPI news has been somewhat disturbing over the last two months. Inflation has returned with energy prices skyrocketing. This has caused CPI numbers for 2007 to spike. During the first five months of 2007, the CPI rose at a 5.5 percent seasonally adjusted annual rate. This compares with an increase of 2.5 percent for all of 2006. The acceleration thus far this year was due to larger increases in the energy and food components. The index for energy advanced at 36.0 percent in the first five months of 2007 compared with 2.9 percent in 2006. Petroleum-based energy costs increased at a 63.9 percent annual rate and charges for energy services rose at a 6.8 percent annual rate. This CPI increase will impact positions over serial number 300 that have not already locked in their CPI with their 60% production deposit. Eclipse still seems like they are OK financially, however due to the delays in production they have gone out seeking more private equity funding. They probably will not be cash positive until they reach their production goals later this year and therefore need another influx of investment to tide them through the summer.
Market Prices
Prices on the secondary market bottomed out in mid-March and started to rebound in April as Eclipse gained their Production Certification. But then in May, the production slowdown, pitot tube issue and training issues put another dampener on prices. Prices then stabilized at around $1.4M to $1.5M base price range.
(Reprint from April Newsletter)
List: $1,520,000 (June 2006 dollars) List : $1,040,000 (June 2000 dollars)
CPI: $ 84,000 (Nov 2008 delivery) CPI: $ 220,000 (April 2008 delivery)
Seller’s Equity: $ 280,000
______________________________________________________________________
Total $1,604,000 (base price) Total: $1,540,000 (base price)
In above example, the buyer
purchased the April 2008 Eclipse at a $65,000 discount below factory price and
also will receive the aircraft six months earlier than the factory position.)
In late May and June, there appeared
a two tier pricing structure for Eclipse positions. Buyers were willing to pay premium prices for
real early positions (delivered ASAP). Three or four of these sold for between $1.6M and $1.7M base price plus options. These aircraft sold at delivery or slightly
before delivery date. One delivered
aircraft sold for $1.85M with options. Most 2007 delivery position holders are asking $1.6M base price and up.
The second tier prices are the 2008
positions (serial numbers 200 and up) and they are still selling at a discount
of around $1.45M. Of course the farther
one goes out in time the cheaper the price.
There is still a large supply of
positions for sale on the secondary market, which keeps the prices in
check. The demand does seem to be
increasing, and when prospective buyers get a demonstration in the airplane,
they are very impressed with its performance. The sellers of 2007 early
positions are more willing to wait to get their asking price. Sellers of later 2008 positions are more
willing to accept a lower offer.
Conclusions
and Forecast
Eclipse has started delivering airplanes and secured their production
certificate in late April. Slow
production ramp-up and technical issues have kept prices depressed for 2008
deliveries. However, near-term 2007
deliveries are selling at a premium. Supply continues to outweigh demand at his
point.
The forecast for the secondary market is still bullish. I have been flying the Eclipse for the past
two months (serial number #4) and it is a fantastic little jet airplane. It is quiet, smooth, fast and easy to
fly. With more Eclipse deliveries in the
coming months and Eclipse forecasting a smooth production ramp-up, the
secondary Eclipse market should accelerate with prices rising.
Until next month--regards,
Mike
Michael Press
314-277-6890 Cell
636-536-1902
mpress@spjets.com
www.spjets.com
- Apr 2007 -
Secondary Market Analysis: April
Update
The Eclipse secondary market is picking up momentum
and prices have started back up. The
market prices bottomed out in mid-March, but sentiment started shifting towards
the end of March and has now turned positive. In the last two weeks, sales have picked up as have prices. With Eclipse delivering 3 DayJet
airplanes the end of March and promises for another 10-15 deliveries in April,
it appears that Eclipse is starting again to create positive media
attention. This has helped the secondary
market and buyers are now coming back into the market. News from Eclipse continues to be positive
and their marketing presence has picked up significantly. Fleet buyers and European buyers have also
added to the increased demand. This up-tick in the secondary market should
continue if Eclipse continues to perform and continues to provide good news to
the media and its customer base.
Market Forces
Delivery and Production Issues
As of this writing (April 4th) delivery of five production aircraft has taken
place. The first 3 DayJet
airplanes were delivered on 31 March 2007. The FAA is still in
Eclipse serial numbers; projected
delivery by month 2007
Mar 5
Apr 6-20
May 21-46
Jun 47-69
Jul 70-99
Aug 100-136
Sep 137-182
Oct 183-239
Nov 240-312
Dec 313-402
2008 deliveries at 80-90 per month.
As I mentioned last month, the realism of this delivery ramp up and production
schedule is still suspect and whether Eclipse can meet it won’t be known for
another few months. It is highly
dependent on Eclipse receiving production certification in the next two months
and whether the suppliers can keep up with this schedule
Avio and Technical Issues
The technical issues continue to get resolved. AvioNG (Next
Generation) development and testing is progressing with current projections of
production cut-in around serial number 150 in the September time frame. The aero enhancements have completed
development testing and are currently being tested for certification by the
FAA. Their production cut-in is projected around serial number 39. Airplanes produced before the cut-in date
will have to return to Eclipse factory or service center for retrofit.
Eclipse released a draft performance section 5 of the
AFM and it clearly supports the exceptional fuel economy of the jet. These draft performance numbers also support
Eclipse claims on climb, cruise, takeoff and landing performance. There were no surprises and most customers
are content that Eclipse will fulfill the performance promise of years
ago. Once the FAA completes
certification of these numbers, then Eclipse can formally publish the updated
performance charts
CPI, Financial and
So far an expected moderation in inflation has not occurred. For the first two
months of this year, consumer prices are rising at an annual rate of 3.3
percent, up from a 2.5 percent increase for all of 2006. Core inflation, which
excluded energy and food, has been rising at an annual rate of 3 percent over
the past two months, far above the Fed's comfort zone for gains of 1 percent to
2 percent in core prices. Last year, core inflation rose by 2.6 percent, which
was the highest reading since 2001. Even with this rise, it would still be
prudent to use 2.5% as a CPI-W number going forward. This 2.5% percentage CPI-W has been the
historical average for the last 6 years.
Last month there were questions raised by critics and some customers about the
financial viability of the company. Eclipse did address this issue with their customers by providing
incentives for early payment of deposits. Eclipse also was reported to have secured additional bridge funding in
the neighborhood of $50 million, until deliveries start bringing in the
required cash to maintain a positive cash flow.
The European market has picked up considerably, especially in the secondary
market. A fleet buyer in
Market Prices
Prices on the secondary market bottomed out in mid-March and started to rebound
towards the end of month as Eclipse started announcing good news. Some positions were actually sold for less
than $1.4M but most sold between $1.45M and $1.55M base price before
options.
Again, as I quote these sale prices,
they are the list price (usually in 2000 dollars) plus CPI through projected
date of delivery plus the seller’s equity. As this pricing comparison is the most confusing part of the secondary
market, I will again try to simplify it with a sample comparison of a recent secondary
market sale to a factory sale. This sale was for a position in the serial
number 300 range with a November 2007 delivery. The current factory delivery price and schedule is taken from the
Eclipse website: www.eclipseaviation.com/configurator. Here is how these prices and delivery
schedules compare for a base model before options are selected:
Factory Price Secondary Market Price
List: $1,520,000 (June 2006 dollars) List : $1,040,000 (June 2000 dollars)
CPI: $ 84,000 (Nov 2008 delivery) CPI : $ 200,000 (Nov 2007 delivery)
Seller’s Equity: $ 300,000
______________________________________________________________________
Total $1,604,000 (base price) Total: $1,540,000 (base
price)
In above example, the buyer purchased
the November 2007 Eclipse at a $65,000 discount below factory price and also
will receive the aircraft a year earlier than the factory position.
There is still a large supply of positions for sale on the secondary market,
but the sentiment has shifted and instead of being a buyers market anymore, it
is now becoming a sellers market. The
sellers have noticed this and now are more willing to wait to get their asking
price. The prices have still not come
back up all the way to factory prices or higher, but if the news keeps being
positive and more of the low hanging fruit gets picked, prices will climb up to
$1.6M or higher.
Conclusions and Forecast
The secondary market prices for Eclipse reached an all time low in February and
early March but now are climbing back up to factory pricing. Eclipse has started delivering airplanes and
will soon secure their production certificate which will allow them to deliver
more and at a faster rate. Media news has been positive and the buyers are
coming back into the secondary market. Prices for late 2007 and early 2008 deliveries have climbed back above
$1.5M
The forecast for the secondary market is bullish. Sentiment has changed with
sellers and they are more willing to wait for their asking prices. With more Eclipse deliveries in the coming
months and Eclipse forecasting their production certificate soon, the secondary
Eclipse market should continue to accelerate with prices rising.
Until next month--regards,
Mike
Michael Press
314-277-6890 Cell
636-536-1902
mpress@spjets.com
www.spjets.com
-Mar 2007-
Secondary Market
Analysis: March Update
The past two weeks have been the most newsworthy for Eclipse since the Type
Certification announcement last fall . This comes just in time for the Eclipse secondary market as the news
“blackout” and lack of deliveries had put a severe dampener on the secondary
market. Waiting for these announcements
has been one reason why I did not publish until the middle of March. I try to publish these market updates at the
beginning of each month, but I like to wait a week or two after a significant
public release by Eclipse to judge the market reaction. This update will try to put these Eclipse
announcements in the context of the secondary market, and provide insights for
both buyers and sellers of how these announcements may impact both prices and
sales. I will continue to address the
European market, as the interest in
Market Forces
Delivery and Production Issues
As of this writing (March 12) delivery of the second production aircraft still
has not taken place. However, this
delivery will most likely take place by the time you read this update. The FAA is currently in
Eclipse serial numbers; projected delivery by month 2007
Mar 12
Apr 13-27
May 28-46
Jun 47-69
Jul 70-99
Aug 100-136
Sep 137-182
Oct 183-239
Nov 240-312
Dec 313-402
2008 deliveries at 80-90 per month.
The realism of this delivery ramp up and production schedule is still suspect
and whether Eclipse can meet it won’t be known for another few months. It is highly dependent on Eclipse receiving
production certification in April and whether the suppliers can keep up with
this schedule. Typical of modern
aircraft factories, Eclipse only assembles, tests and
delivers the final product. All the systems and subassemblies are manufactured
by suppliers in the
Avio and Technical Issues
There has been more good news regarding the technical issues raised over the
last 6 months. Eclipse has announced
that they and Avidyne have terminated their
“partnership” on the development of the Avio flight
deck. This was a “mutual agreement” to
part ways, which is good for Eclipse and its customers. It allows an orderly redesign and retrofit of
the current Avidyne based Avio
system to what Eclipse is calling the Avio NG (Next
Generation) system. The new suppliers
replacing Avidyne components are leaders in the
industry: Honeywell (radios), Chelton (FMS), Garmin (IFF), PS Engineering (Audio), IS&S (displays).
Eclipse engineering had been working on the redesign of Avio
for a couple of months. They announced that they are confident that Avio NG will be ready for flight testing in about a month
or two followed by certification sometime this summer. The production break-in will be around serial
number 150 (see above schedule-September) and then retrofits of Avio NG into the first 150 aircraft will start. The
redesign of Avio was done so that the changes will be
almost transparent to the pilot. Most of
the redesign involves components behind the displays with the display functions
mostly unchanged. The retrofit time was estimated to be about 10 days and will
be done at an Eclipse authorized service center. The retrofit to Avio
NG is being paid for by Eclipse and will be at no cost to the owner, except for
the cost to transporting the aircraft to the service center and the down time
on the airplane.
It was also mentioned in the news conference that the retrofit of the performance
enhancement modifications announced last month and the windshields will also
take place at the service centers. The
production break-in point for these modifications will be before Avio NG as they are currently undergoing
certification. It is estimated that
these will enter production around serial number 50 and start retrofitting this
summer. The retrofit time on these
modifications is longer and estimated to be 30 days. Some owners may wish to delay these retrofits
until the Avio NG is ready and do all these retrofits
at the same time. Again, these
modifications will be accomplished by Eclipse at no cost to the owner.
It appears that Eclipse is on track to finally get into production and get an
airplane delivered that will meet all the promised performance envisioned years
ago. However, it will most likely not be
until after delivery of serial number 200 that we will see a fully functional Avio NG with all the aero performance enhancements. Hopefully, this will be in the late summer or
fall 2007. Vern Raburn
was asked if Eclipse plans to raise the price of the Eclipse and he said while
he cannot rule it out in the future, there is currently no plan to do so now.
CPI, Financial and
The CPI-W numbers for January 2007 hovered at around 2.0%. The numbers for
February are still not in, but energy prices have stabilized around $60 dollars
a barrel after falling to the low $50’s in January. Unless there is another spike, 2.5% CPI-W
should be a good number to use for 2000-2006 actual and going forward number
for 2007.
There have been questions raised about Eclipse’ financial viability based on a
number of issues. The first was that that they were not getting payment for
deliveries as these were delayed six-months since Type Certification. The
second was that Eclipse was still calling for 6-month deposit progress payments
(approximately $600,000) up to serial number 400 although owners knew they
would not produce them within six month window projected. While Eclipse does
not appear to be in financial difficulty, there is most likely a cash flow
issue until they get into production and delivery. Eclipse addressed this issue with their
customer base and provided incentives to owners to pay the 6-month deposit
payment early. It is also rumored that
they secured additional bridge financing until they get into higher rate
production. As can be seen in the
financial markets today, there is no scarcity of private equity cash looking
for a place to invest. It is suspected that Eclipse could easily raise this
private equity bridge financing if needed.
.
The European market continues to be interested in the Eclipse and the demand
for information from European customers continues to grow. In the past month, European fleet buyers have
started to inquire about purchasing airplanes on the secondary market. Of course the questions of EASA
certification, service centers and retrofits affect the European buyers more so
than the
Market Prices
Last month I said that “prices on the secondary market continued to weaken
through December and January”. In
February they actually hit an all time low during the news “blackout” and
worries about Eclipse financial condition. By the end of February, the prices of positions on the secondary market
sold for around $1.4M (list price plus CPI plus equity but before
options). Some mid-2008 positions sold
for less than $1.4M as speculators again started entering the market. Most of
the sellers were owners just fed up with waiting and wanting out. What most people don’t realize is that most
of the owners who purchased these position years ago are very wealthy
individuals who believed in the Eclipse dream. Most of them still do believe in the dream but have become tired of
waiting and just want to move on or their life circumstances have changed. When
they decide to sell, they of course want the best price for their investment,
but most often that is not the primary reason they are selling.
There is still a large supply of positions for sale on the secondary market and
it continues to be a buyers’ market. The
prices seem to have stabilized and bottomed out since the announcements, but
they probably will not start back up again until Eclipse starts delivering
airplanes and meeting revised schedules. The demand for Eclipse has not
dwindled, and the interest in the secondary market is just as high or higher than it has ever been.
Conclusions and Forecast
The secondary market prices for Eclipse reached an all time low in February and
early March due to continued delays in production and lack of news from
Eclipse. In the last two weeks, Eclipse
has been forthcoming with the status of the program and their solutions for
various issues to include a redesign of the Avio
system. Prices for late 2007 and 2008
dipped to $1.4 million, which is over $150,000 BELOW factory price. In early March, after Eclipse announced their
plans on production, delivery, and Avio upgrades,
speculators and buyers started to come back into the market and it appears
prices have now bottomed out.
The forecast is a little less cloudy than last month. Eclipse will start delivering airplanes in
March, albeit at a low rate until they get PC. More announcements and visibility into their
production ramp-up will also help quell the unknown and cause buyers to be more
certain of their purchase decision. Like I stated last month, the more people
see the airplane and compare the performance, operating cost and acquisition
price to what else is available, the more they will become buyers. Now that Eclipse is starting to provide
insight into their start-up issues and their resolution, this helps both buyers
and sellers weigh their options and the value of the positions.
Until next month--regards,
Mike
Michael Press
314-277-6890 Cell
636-536-1902
mpress@spjets.com
www.spjets.com
- Feb 2007 -
Market Analysis February Update
December and January have been very slow
months on Eclipse secondary market. This
is one reason why I did not publish a January Update. Because of delivery delays, production certification
delays, and the lack of news from Eclipse on their progress, sales on the
secondary market have slowed. For owners wanting to sell, the 60% six-month
progress payment continues to force these owners into a decision on picking
options, paying the deposit, and then selling or simply swapping with other
owners for a later position. Interest
from Europe is still picking up and I continued to sell positions in
Market
Forces
Delivery and Production Issues
Delivery of the first production aircraft
took place on 4 January 2007 in a ceremony in
However, deliveries have still been slow to
non-existent due to the fact that Eclipse still needs to obtain their
production certificate from the FAA. Until they do, the FAA must inspect each
aircraft and issue a Certificate of Airworthiness. This is a laborious exercise and slows down
the delivery process. Also, it backs up
the production line and resources are strained. Until this bottleneck gets unclogged with a production certification,
deliveries will continue to be slow. This month, Eclipse and the FAA have
committed to work together to get the production line certified. Hopefully production certification will take
place by the end of February and deliveries will start in earnest.
Technical Issues
There has been good news regarding the
technical issues raised in the last few months. Eclipse tested their performance enhancement modifications and exceeded
their projected increased performance goals. In late January and early February, they demonstrated in excess of 370
knots max speed and in excess of 1125 NM with fuel reserves for IFR. They flew a non-stop mission from
Eclipse also has a production fix for the wing
attachment bushing and the windshield issues that were found to be problems
last year. These replacement parts will
be retrofitted to aircraft already produced and implemented on the production
line.
While it appears Eclipse is making good
progress on the performance and airframe issues, the Avio
integrated flight deck continues to be a lingering problem. There had not been any announcements on Avio progress, and unconfirmed reports say that Eclipse and
their supplier are on the verge of a divorce. Of course the integrated glass panel Avio
system is a discriminator and a requirement for many buyers and certainly until
it is fully functional it will impact the secondary market.
CPI
and Euro
The CPI-W numbers continue to be more good
news for Eclipse owners. In all of 2006, the CPI-W clocked in at 2.4
percent. This was down from 3.5 percent
in 2005 and down from over 4 percent in the first half of 2006. Of course the big swinger for CPI-W in 2006
was energy costs. Energy costs which rose sharply in both 2004 and 2005,
advanced at a 22.8 percent annual rate in the first half of 2006 before
declining at a 13.4 percent annual rate in the second half of the year. Overall energy costs rose 2.9 percent in all
of 2006 with the index for petroleum based energy advancing 6.1 percent, while
the index for energy services declined 0.6 percent. With the 2006 CPI-W number closing matching
the average for the annual rate between 2000 and 2005, it would be prudent to project
2.5 percent CPI-W going forward in 2007 and 2008.
.
The European market continues to pick up
and interest in the Eclipse from European customers continues. The big question in
Market
Prices
Before discussing sale prices on the
secondary market and how they compare to factory price, here is another short
tutorial on how factory price, discount and premium are calculated. Current factory price is $1.52M in June of
2006 dollars. This is list price before
adding CPI up to delivery date and also before adding options. To get price at
delivery, you would have to add CPI to the list price (at 2.5 percent) and
whatever options one would select. Therefore, factory delivery price before options in June 2007 would be
$1.558M (1.5 X 1.025). If a June 2007 position on the secondary market was
selling for $1.5M (list price plus CPI plus any equity) then the sale price of this
position is $58,000 BELOW factory price. If the sale price was $1.6M then the buyer is paying a $42,000 premium
for the early position.
Prices on the secondary market continued to weaken through December and January. By the end of January, the prices of positions sold averaged about $1.5M (list price plus CPI plus equity but before options). Some late 2007 and early 2008 positions sold for $1.45M or less and some early 2007 positions sold for a little over $1.5M plus options. Going into February there is still a large supply of positions for sale on the secondary market and it continues to be a buyers’ market. The 60% 6-month deposit notices continue to cause owners a dilemma. They must decide at that point to pay the deposit and take the airplane, sell it or swap for a later position. If they want to sell, they are selling into a buyers’ market and they are accepting a reduced profit.
Conclusions and Forecast
- Dec 2006 -
Market Analysis December Update
November has been a very active month on Eclipse secondary market. Because of delivery delays, production
certification delay, and the grounding of the test fleet by Eclipse, the market
dynamics changed throughout the month. Also, because of a “suspected” shuffle
of fleet deliveries to third quarter 2007 from second quarter, many owners were
moved up and their 60% progress payment came due one or two months early. This has caused some owners to want to move
their deliveries back to third quarter. Because of these shuffles in serial numbers, a new market has
emerged—internal trading of serial numbers and delivery dates. I will explain how
this internal trading works and if any premiums are required. Interest from
Europe is still picking up and I did sell two positions in
Market Forces
Grounding, Delivery Delay and Production Issues
Early in November Eclipse found problems in the aft wing attachment area and windshields. They grounded the test fleet and cancelled marketing tours. Delivery of first production aircraft never took place and the production certification process was having problems. All these issues had an adverse effect on the secondary market. Buyers wanted to wait to see if any of these issues would have a serious impact on the delivery schedule or eventual airworthiness of the aircraft. Buyers now want to wait to see the airplane delivered, sit in it and fly it. When Eclipse cancelled AOPA and other marketing events, the word went out to the market: “buyers beware”.
As Eclipse has since openly discussed their issues and is working through these issues it is believed that these buyers will come back. The buyers have not gone elsewhere, they are just waiting for Eclipse to start delivering aircraft and resolving these technical issues before coming back for another look.
Fleet Buyer Delay (Speculation)
DayJet announced in November that they will not start operation in the first quarter 2007, but rather wait until second quarter 2007. This is most likely due to the delays mentioned above. Because of this delay in start up operations, it is suspected that DayJet may have moved some of their production serial numbers from first and second quarter 2007 to third quarter or later. Also they may have given back some to Eclipse (pure speculation). Coincidently with this announcement, Eclipse was reported by some buyers to have put about 7 first and second quarter 2007 positions on the market for $1,750,000. Eclipse also moved some third quarter position holders into the second quarter, causing them to be given notice that their option selection is due, followed by the 6-month progress payment. (Again, all these events may be a coincidence or they may be tied together, but all did happen).
CPI and Euro
The CPI-W numbers continue to come down. On a seasonally adjusted basis, the CPI for Urban Wage Earners and Clerical Workers declined 0.7 percent in October. Although I don’t have an annual rate for CPI-W, during the first ten months of 2006, the CPI-U rose at a 2.4 percent seasonally adjusted annual rate (SAAR). This compares with an increase of 3.4 percent for all of 2005. The index for energy, which increased 17.1 percent in 2005, decreased at a 1.5 percent SAAR in the first ten months of 2006. Petroleum-based energy costs were unchanged on >average, while charges for energy services fell at a 3.1 percent annual rate. If CPI-W continues to decline or stays steady for November and December, then the annual CPI-W for all of 2006 will be less than 3.0 percent. This will impact the price current owners and future owners will pay for their Eclipse. During the first six-months of 2006, CPI was running over 4%. For the past six-months CPI has been near 2% or even negative. This is due to massive swings in energy costs as oil and gas have come down in the last few months. However, core inflation has remained just below 3% most of the year and energy prices are starting back up. Therefore, 3% would be a good number to use for 2006. Most economists and the Federal Reserve are looking at CPI (inflation) to either remain at this level or go higher in 2007. Until there is more data to show inflation increasing in 2007, using 3% for CPI-W going forward would be prudent. As mentioned above, the activity in is picking up as is the Euro and European economies. The dollar is trading at a five year low against the European currencies. Business activity is picking up in Europe. Euro-zone gross domestic product is on course to grow by 2.7% this year, a big improvement on the 1.4% growth the euro zone averaged the previous five years. Calls from European buyers has increased over the last month and I have sold two Eclipse positions into Europe last month. I would anticipate this demand from Europe to increase next year. EBACE 2007 (the European equivalent of NBAA) will be held in Geneva in May next year and there should be a lot of interest in the Eclipse 500 building up to this show. There should be one or two Eclipse aircraft flying in Europe by next May and attending the show.Market Prices
Prices were strong at the start of November, but then after the grounding and AOPA they started to weaken. By the end of the month, supply far