ALBUQUERQUE, N.M. (AP) -- Eclipse Aviation has filed for bankruptcy protection after failing to produce its very light jet as fast as its business plan required, forcing the manufacturer to take a loss on each aircraft it built.
The struggling Albuquerque manufacturer of the six-seat Eclipse 500 filed for Chapter 11 protection in U.S. Bankruptcy Court in Delaware on Tuesday.
The filing comes after a troubled year that saw layoffs of more than a third of its work force, the exit of its founder and former chief executive and mounting lawsuits from nearly a dozen disgruntled customers. Earlier this month, the company sent employees home for two days after it was late making payroll.
"In the face of unprecedented economic challenges, it is clear that the sale of the Eclipse business through the Chapter 11 process was the right course of action to maximize the value of the business, secure its future and protect the best interests of Eclipse's stake holders, including customers, suppliers, employees and creditors," acting chief executive Roel Pieper said in a news release.
Pieper was not immediately available for comment Tuesday because he was en route to Albuquerque.
Under Chapter 11, a company seeks an order from a bankruptcy judge that prevents creditors from immediately seizing company assets. Most companies continue to operate in some form while seeking to reorganize and reduce their debt.
"This is painful. It's not fun. But, the good news is we're still here and the great news is that someone wants to continue to operate the company," said Mike McConnell, Eclipse's vice president of marketing and sales.
Eclipse Aviation plans to sell nearly all its assets -- valued at between $100 million and $500 million -- at a public auction that would be held in January, court records show. The company has more than $1 billion in liabilities, the records show.
Barring an offer from a higher bidder, the company would be sold to an affiliate of its largest shareholder, ETIRC Aviation, called EclipseJet Aviation International Inc., said Brad Robins, managing director of Greenhill & Co. Inc., a New York-based investment bank Eclipse hired as its financial adviser.
Pieper said the sale will position Eclipse "for aggressive global expansion, allowing the company to fulfill its promise and solidify its position as the world's leading manufacturer of (very light jets)."
The company was able to add 300 European aircraft orders to its books after the Eclipse 500 received certification from the European Aviation Safety Agency on Friday, which is similar to getting Federal Aviation Administration certification in the United States.
The European certification would allow Eclipse to sell its aircraft in 37 European countries.
Robins said Eclipse's plant in Albuquerque, which employs 945 people, should see no major changes as a result of the bankruptcy proceedings.
"The goal is the company continues to operate; employees are keeping their jobs," Robins said.
Part of the restructuring will allow Eclipse to obtain $20 million in debtor-in-possession loans from Eclipse board member Alfred E. Mann and ETIRC Aviation, court records showed. The money will be used to pay employees and fund operations during the restructuring.
McConnell said moving the company from Albuquerque would be "very, very expensive."
The company has increasingly been looking overseas for customers in recent months, but McConnell said that alone is not a reason to leave New Mexico.
"Just because the sales opportunities are there doesn't mean we have to move the company over there," McConnell said.
Eclipse chief financial officer J. Mark Borseth said in an affidavit that keeping employees working is important for the future of the company.
"I believe that if (Eclipse is) unable to honor all such obligations immediately, employee morale and loyalty will be jeopardized at a time when such support is critical," Borseth said in the affidavit.
He said the company had early production delays caused by introducing several new technologies to build the aircraft.
And Eclipse's business plan required aircraft to be produced at "unprecedented volumes" to enable the company to price the jet lower than its competitors, Borseth said.
After Eclipse failed to meet production targets, the cost per aircraft increased.
"As a result, Eclipse continued to lose larger than expected sums of money on each aircraft manufactured," Borseth said.
Eclipse also announced Tuesday that Peg Billson, president of the manufacturing division, voluntarily left the company. McConnell declined to comment on why Billson left.
Eclipse had received financial help from the New Mexico State Investment Council and the city of Albuquerque.
Authorities with the State Investment Council, which invested and loaned $19 million to the company, anticipate "some impairment" to their investment, but not a complete write-off, SIC spokesman Charles Wollmann said.
Albuquerque issued the aircraft manufacturer a $45 million industrial revenue bond backed by Eclipse's equipment, Mayor Martin Chavez said.
Chavez remained optimistic about Eclipse's future, pointing out that the filing was under Chapter 11, which means the company will restructure.
"Their intent is clearly to save and grow the company, not to dissolve it," Chavez said.
Eclipse announced earlier this year that it needed $200 million to $300 million in financing to stay afloat, but analysts agreed that in the midst of a global economic crisis, a "white knight" investor was unlikely to appear, making restructuring necessary.
Eclipse's "experience in the past several years is that they were able to secure financing. I think with the world we're in today, this (Chapter 11) is the basis in which they could get it," Robins said.