Albuquerque-based Eclipse Aviation announced today that it has filed for Chapter 11 protection in the U.S. Bankruptcy Court in Delaware.

It simultaneously applied for a sale of its assets in accordance with Section 363 of the U.S. Bankruptcy Code to the European Technology and Investment Research Center (ETIRC), a firm that is Eclipse's largest shareholder with an investment estimated to be close to $140 million.

ETIRC chairman Roel Pieper also is acting CEO of Eclipse Aviation.

"In the face of unprecedented economic challenges, it is clear that the sale of the Eclipse business through the Chapter 11 process is the right course of action to maximize the value of the business, secure its future and protect the best interests of Eclipse's stakeholders, including customers, suppliers, employees and creditors," Pieper said in a press release.

The actual amount that ETIRC intends to pay for Eclipse's assets is not known, but it is subject to a competitive bidding process. Pieper has retained New York-based Greenhill & Co, a firm that specializes in aviation company mergers, acquisitions and restructuring, to assist ETIRC in the asset purchase process. Pieper wants the process to be completed quickly to avoid an interruption in Eclipse's business operations, which already have slowed to a crawl since Nov. 1because of the failure of a new round of investment that was to be arranged by UBS.

ETIRC, some of shareholders and debt note holders intend to provide Eclipse with post-bankruptcy filing "debtor in possession" (DIP) financing until new investment needed for restructuring can be arranged. Looming large, though, is obtaining agreement from other shareholders and the note holders, which have senior secured debt, to the reorganization plan. The bankruptcy court is more likely to approve the reorganization plan with a DIP financing agreement in place.

Eclipse needs another $250 million to $300 million to resume normal operations and fulfill its obligations to customers with respect to post-certification improvements. But the amount could be slashed to $150 million if Eclipse reneges on all contracts, including $60 million of refunds owed to customers who canceled their contracts, elects not to honor flight into known icing and avionics upgrades (up to $50 million) and bumps the price of all aircraft to be delivered to $2.15million or more.

Photo: Eclipse Aviation