Eclipse Aviation: Sometimes an Industry Can’t Be Revitalized
Former Microsoft employee Vern Reborn founded Eclipse Aviation in 1998. The idea was to solve a problem in the aviation industry although private jet service is safe and convenient, it is also very expensive. To remedy this problem, Eclipse, headquartered in Albuquerque, New Mexico, set out to design and build a six- passenger jet that could be produced in high volume and at a substantially lower price than existing private jets. In fact, Eclipse’s goal was to create a new segment in the private jet industry called light jets. The pitch Eclipse made to investors is that its jet would be so small and inexpensive to build and operate, that not only would private individuals buy it, but a new class of air taxi service would emerge to make private jet travel more accessible to middle-class individuals and smaller companies.
Eclipse set out to accomplish its ambitious goals by revolutionising how airplanes are made. The conventional way of making airplanes does not deliver substantial economies of scale. Planes built by Boeing, Airbus, Cessna and similar companies are largely hand-built, meaning that increasing the number of units produced only slightly decreases the cost per unit. Eclipse endeavored to change the way airplanes are built by introducing ultra-efficient manufacturing techniques that reduces costs and allow for high-volume manufacturing. The result, Eclipse promised, is that it would be able to sell a jet for around $1 million, which was roughly one-fourth the cost of the least expensive corporate jet on the market.
Eclipse worked toward its ambitious goal for almost 10 years. The firm designed and produced 260 copies of its Eclipse 500 very light twin-engine jet, and developed and sold a handful of copies of its Eclipse 400 single engine jet. Its vision of helping create an air-taxi industry came to fruition, at least for a short period of time. Dayjet, an air taxi service, was founded in 2002 largely on the premise of utilising very light jets to ferry passengers to and from mid-sized cities. Dayjet was Eclipse’s biggest customer and had purchased 28 Eclipse 500 jets with plans to purchase 1,400 more when it went out of business in late 2008. Investors, suppliers and state governments (through tax subsidies) invested over $1 billion in Eclipse. In the end, it wasn’t enough. In November 2008, Eclipse filed for bankruptcy. What went wrong?
There are lots of things that went wrong with Eclipse. However, two factors are paramount among these and represent the essence of why Eclipse failed.
First, a number of people including investors, pilots, local government (where Eclipse facilities were located), aviation experts and others desperately wanted Eclipse’s story and vision to be true. The idea of producing airplanes in high numbers rather than essentially one-by-one, is one that had it came true would have revolutionised the industry. Ultimately Eclipse, like other aviation industry failures before it, couldn’t make it work. According to aviation writer J. Mac McClellan, it cost than the company was selling it for. Particularly striking is how many people and companies bought into Eclipse’s vision, even though it may have been unrealistic from the start. For example, there were over 5,000 creditors in the Eclipse bankruptcy filling alone. The fact that Eclipse was a start-up may have added to its allure. It wasn’t trapped by the conventional thinking that characterised executives at established manufacturers
such as Embracer, Cessna and Boeing. But in the end, it turned out that the conventional thinking was true with at least for the time Eclipse Aviation was in business. As J. Mac McClellan has noted, building airplanes is like building houses, division, the houses still have to go up one at a time and each board has to nailed separately. Similarly, air-planes are built one at a time and their parts are riveted or glued together piece by piece.
The second thing that sunk Eclipse, which is related to the first, is that its ambitions, which were integrated to its business plan, were spectacular. Its plan called for deliveries of one thousand very light jets per year. To put that number in perspective , in 2007 about 4,000 corporate jets were built in the entire world. So Eclipse, which a start-up with no production experience, set out to implement a plan that would increase the worldwide production of small jets by 25%. Eclipse’s path to success then became predicated on price and not only production savvy but production breakthroughs. The only way to sell 1,000 jets per year was to dramatically lower the product’s price. The only way to dramatically lower the price was to dramatically lower production costs. When that didn’t happen, the company had no path forward.
Ultimately, Eclipse’s investors, customers, suppliers and state governments that supported it lost over $1 billion and it was the largest financial failure in the history of general aviation.
1. Examine the lessons from Eclipse’s failure have for entrepreneurs who are studying the industry or industries they are about to enter. (40 marks)
2. Eclipse Aviation has been revitalised as Eclipse Aerospace by new owners and new management team. Explain the strategies that Eclipse Aerospace should take in positioning itself in the airplane industry differently than Eclipse Aviation did. (30 marks)
3. Explain your advice to Eclipse Aerospace new owners and new management team, on the type of research you would advise them to conduct. (30 marks)
Answers to Above Questions on Entrepreneurship Development
Answer 1: An analysis of the given case study of Eclipse indicates the main reason for its failure. From the case study, it has a good implication for the new generation entrepreneurs to take their decision wisely. The main lesson that has been of great significance to the entrepreneurs from the given case study of Eclipse is to set up realistic goals to accomplish. It is important to do a thorough research before venturing into a business idea because the selection of an unrealistic goal would ultimately lead to failure of the entire concept, as evident in the case of Eclipse.
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