Aiming high to change the way we fly, Vern Raburn's $220-million start-up -- aviation's "next big thing" -- faces sudden turbulence.
Aiming high to change the way we fly, Vern Raburn's $220-million start-up -- aviation's "next big thing" -- faces sudden turbulence.
If the 20th was the Century of Flight, the 21st is likely to go down as the Century of Flight Frustration.
Getting there fast not only is no longer fun -- it's no longer even fast. For journeys of 500 miles or so -- according to a study by NASA, no less -- you might as well drive. And that was before airline passengers found themselves compelled to spend hours waiting to make small talk about their socks with ultraserious uniformed strangers under the gaze of soldiers toting large guns. The highly centralized hub-and-spoke system -- centralized for the airlines, not us -- now regularly bifurcates and often trifurcates even an hour's flight time as the crow flies into a four-hour series of legs. That irony would be delicious were it not so painful: meant to free us to soar, aviation is now all about legs: the legs of flight segments; the legs of endless lines; legs shuffling as we wait for our flight to be called, usually late; legs propelling us like feed-yard cattle along windowless corridors in terminals the size of small cities, until finally those same legs are squeezed into spaces made to accommodate people who apparently don't have any.
Considering that he has four planes of his own and is thus spared airline hell, it verges on amazing that Vern Raburn has taken note of it. Raburn is the president and CEO of Eclipse Aviation Corp., which next month is expected to launch a plane that may well change the way we fly.
Looking like everyone's favorite sandy-haired professor in pressed chinos and round gold-framed glasses -- the prof who had time for you after class, the one who listened -- Raburn is pursuing a goal so intoxicatingly desirable that everyone (but the airlines) wants him to succeed, even a competing start-up. By the end of next month, when the first Eclipse 500 should fly, Raburn will have spent close to $220 million to create the jet-engine-powered Checker cab for a new way to travel, the air taxi.
The Eclipse 500 is a six-seat twin-engine low-maintenance marvel expected to fly 408 miles an hour and cost $837,500, the price of a similar-size propeller clunker designed in the 1950s. That is less than a quarter the cost of a like-capacity multiseat jet, Cessna's CJ1, which last year sold only 61 planes. To maintain such low pricing, Raburn needs to sell tens of thousands of planes over the next decade. How? The Eclipse 500 is meant to spawn a revolutionary new service industry in which air-taxi operators will fly you and your business team (or your family) from point to point at airline speeds and, give or take, airline prices. No check-ins, no snaking pat-down lines -- outside the airline system, security remains pre-9/11 -- and neither hubs nor spokes. A 90-minute flight will be just that, all flight. Forget two or three legs. In fact, forget about your legs entirely. Park near runway at local tiny airport, fly to similar tiny airport, have meeting nearby, return to office. Think of the efficiency: you will never miss that last plane.
A latent infrastructure is already in place: North America has as many as 5,000 suitable small airports. That there are at present no broad-scale inexpensive air-taxi operators to use those airports hardly bothers Raburn. After all, there were no airlines before the Wright brothers. Raburn is a man who cut his teeth in computing as head of Microsoft's consumer-products division, and he knows this: if you build it right, things will happen.
Over the past four years he has spent 95% of his time raising $220 million to get a prototype airborne -- though since the beginning of the year, seducing investors has taken a backseat to what he calls "keeping it all together and making it happen." That too is part of the money-raising process, because once his plane flies, Raburn is confident that the cash to start production, another $120 million, will flow in. Designing a cutting-edge aircraft like this is a hard slog, but flying it is only one step from having it certified by the Federal Aviation Administration. For plane aficionados it's a rush; for investors it's a major step toward selling planes.
Just as his plane is to be fabricated with a precision rare in the industry -- in which the most common hand tool is a rubber mallet for banging ill-fitting parts into line -- Raburn's financing leaves little room for error. As of mid-April, Eclipse Aviation had $20 million left to cover the $4-million-a-month cost of some 180 employees and what may be the most elaborately orchestrated preparation for a strategic launch since the Gulf War. By the end of next month, when that first sleek minijet leaps skyward, Eclipse Aviation will have precious little cash left but customer deposits.
And that may be why, in August of last year, around the time he was trying to close one difficult round of investment for $62 million and looking at the immediate need for another $38 million to get him to the critical moment of first flight nearly a year later, Raburn reached an agreement with a charmingly brash would-be air-taxi mogul named Ilia Lekach. Lekach's company's announcement that it would order 1,000 planes made a splash in the aviation press and in one stroke validated Raburn's hope: the new plane would create its own huge market.
Unfortunately, Lekach's Nimbus Group Inc. -- whose stock price (Amex: NMC) rose 65% following the order's announcement -- was broke.
With a second announcement, on February 11, of a $1.2-billion commitment by an affiliate of Royal Bank of Scotland to finance the purchase, Nimbus's share price spiked again, this time by 44%. Only problem was, the commitment turned out to be so much hot air.
Even more interesting, on the date of the second announcement, Eclipse, with 17.1% of Nimbus's stock, was one of Nimbus's largest stockholders. It owned those shares, valued at about $2 million, from January 22 to February 28.
How could such a seemingly desperate act be associated with Raburn? This is a guy who counts Bill among his investors.
Put starkly, Raburn appeared to be raising capital on the basis of a too-good-to-be-true order from a financially challenged company in which Eclipse was taking significant ownership: the $62-million round had closed in September, just weeks after the 1,000-plane order, and $38 million more closed after the even more spectacular announcement that Nimbus had locked down the financing. A cynic would say that Eclipse was promoting the feasibility of its own business by taking a financial piece of its main customer.
How could such a seemingly desperate act be associated with Raburn? This is a guy who counts among his almost 200 private investors Bill Gates -- best man at Raburn's wedding, for goodness' sake -- Red Poling, former chairman of Ford; Bob Eaton, former cochairman of DaimlerChrysler; serial entrepreneurs like Al Mann, who sold two companies for $3.8 billion last year; and Sam Williams, whose Williams International makes the power plant for the Tomahawk cruise missile and whose startlingly efficient microjet engines are to exclusively supply the Eclipse 500. Raburn knows everyone who is anyone in the technoindustrial complex. Why get into bed with Ilia Lekach, whose Nimbus was only recently transmogrified from the steaming remains of a dot-com called Take to Auction? Answer: because no other putative air-taxi operator was giving Eclipse an order for 1,000 planes.
An investment banker might point to the state of the capital markets, where raising start-up money now is close to impossible. A classicist might be tempted to note the Greek myth of Icarus, whose ambition and heedless self-confidence caused him to fly too close to the sun, which melted the wax holding together the feathers of his fabricated wings. Somewhere between those poles is the truth: Raburn had entangled himself with Lekach in a flight of fancy formed of desire, promotion, ego, capital requirements -- and hope.
A Luminous Cloud
"In terms of raising money, this is the hardest thing I've ever done."
From his office window in the hangarlike building that Eclipse has spent $1.5 million refurbishing at Albuquerque international airport, Raburn stops in midthought to point out an F-18 fighter blasting heavenward and, moments later, a perfectly preserved 1930s-vintage DC-3, arguably the most beautiful aircraft ever made. "Look at that," he says with an expression that can be called nothing less than lust. "Polished to within an inch of its life."
In his own phrase, Raburn is an aviation nut. "It goes back to the days of going out to the airport when I was in knee pants to pick up my dad [an aeronautical engineer]. Airplanes were always the coolest," he says, giving the word a West Coastian third syllable -- coo-uhl-est -- suggesting the motivating urge of high-tech entrepreneurs everywhere. "How much luckier can you be to work at something you're passionate about?" he asks. "And get to use the skills and experience you've been involved in for 30 years?"
Among Raburn's personal aircraft is the tritailed Constellation he bought from John Travolta for $100,000 and then overhauled to the tune of $1 million. Though that suggests he is rich, Raburn won't discuss the extent of his wealth. But he was one of Microsoft's first employees -- it's there. He says he has "a lot less than $10 million" of his own money in Eclipse. "At this stage two years ago we would have done an IPO and got all the money we need," he says, wryly nostalgic for a time when all you needed was an idea, a track record, and the right phone numbers.
Raburn has all three, but times have changed. He has been compelled to pitch ... and pitch ... and pitch. His frustration is palpable. On the edge of creating a vehicle designed to destroy the airlines' monopoly on affordable air travel -- think of what hordes of decentralized personal computers did to the mainframe -- he was in April by his own count about $120 million short.
Little wonder that when Ilia Lekach had come with an offer for 1,000 planes -- at a time when Eclipse's order book held deposits for only something like 172 -- Raburn was receptive. Here was a fellow visionary. Nimbus was prepared to set up a nationwide air-taxi service, point to point, anywhere, anytime. Even a visionary might have done well to consider the common dictionary definition of nimbus -- "a luminous cloud."
"Nobody is going to take this away from me. I'm a hard man to take things away from."
But Raburn did not lose a beat. Someone -- just as he had predicted, it was someone from outside traditional aviation -- was going to take the planes he had not yet built and turn them into America's first national air-taxi service. By Raburn's reckoning, Nimbus would be merely the first of a series of operators to create a market for up to 200,000 planes over the next two decades. Of course, not all those planes would be Raburn's; Eclipse's success would spark competitors. "All I want," Raburn says in teasing reference to his Microsoft upbringing, "is my natural 75% of the market."
Though he bridles at the term, Eclipse may be Raburn's last hurrah. His track record is mixed. He has had some successes (the early days with Gates, a key position at Lotus, his stewardship of software pioneer Symantec), a so-so period in venture capital, and at least one outright flop as the force behind Slate, a developer of applications for pen-based computing. Raburn says Slate was simply 10 years too early. "In technology," he says, "if you don't fail once in a while, you're not trying hard enough." He is clearly respected in the computer industry, which seems to regard him with a kind of old-school fondness. Though he and Gates parted company at Microsoft, they remain close. Raburn grows nearly misty-eyed recalling his 50th birthday party, which Gates hosted. "He did a terribly nice thing," Raburn says.
How then to explain that Raburn has lost touch with the underlying cyclical event? Ask him how old he is, and he gets it wrong. He is not 52, as he says, but 51. For Raburn, this is just the kind of error you would expect: his personal life has been subordinated to the endless struggle to manage engineering, FAA certification, marketing, new methods of manufacturing, sales, and -- always, always, always -- finance.
In his modest boardroom in Fort Lauderdale, Fla., Ilia Lekach knows how old he is. He will tell you he will be 53 in three days. An apparent success at running Perfumania, a chain of 250 mall shops, along with a related fragrance business, Lekach makes his money licensing and selling designer scents. He knows how to sniff out an idea. Deliriously infected by James Fallows's 2001 book Free Flight: From Airline Hell to a New Age of Travel, he has plunged into starting a national air-taxi service in precisely the same way he calls the book's author (whom he has never met) "Jimmy" -- he just does it. Nimbus's business plan is elegantly simple: (1) buy 1,000 Eclipse jets, (2) base them in small airfields close to underserved cities or travel-dependent corporations around the country, and (3) hire sufficient people to count the money.
Yet the generous smile Lekach sports below a baseball cap carrying the Nimbus logo is somehow less than reassuring, despite the compellingly aeronautical scent of jet fuel and sound of roaring engines in the background. The odor and engine noise are from the diesel trucks pulling out of the Budweiser distributorship across the street. Where are the planes? Vern will build them. Of course. And the money to buy the planes? Ah. That money, according to a Nimbus press release, has been fully committed by a company called Dafin Asset Finance Ltd., an affiliate of Royal Bank of Scotland, a global player in aircraft finance.
It takes but one phone call to discover that Royal Bank of Scotland denies Dafin is an affiliate. A two-year-old outfit with a phone number in the Isle of Man -- a U.K. tax haven that functions like Bermuda or Panama -- Dafin has an office in Johannesburg. There one George Stander, identifying himself as Dafin's director of European operations, immediately agrees that little-known Dafin is not an affiliate of Royal Bank of Scotland. "I don't know where that came from," he says, adding helpfully that "it was in the [Nimbus] press release." Dafin, it turns out, has never financed a deal anywhere near this big. Is $1.2 billion in financing in place? Stander uses a Britishism to say it is too early to tell. "Still early days," he says, exuding a sigh of exhaustion with the whole subject that can best be described as Dickensian. On the phone you can practically see his finger pointing 8,000 miles across the Atlantic -- to Ilia Lekach.
In Fort Lauderdale, Lekach's finger points another 1,600 miles west -- to Vern Raburn. This game of "Who, me?" would be gut-splittingly hilarious were it not for the fact that so much is riding on it. What will happen to Raburn's vision if he fails? What will happen to our hopes of exiting airline hell?
"Dafin came to us by way of Eclipse," Lekach says in an accent so wildly unconnected to his markedly Slavic features that it is unidentifiable until he employs a proverb not out of Russia but from South America, where he spent much of his childhood before arriving in the United States at age 20. " El pez muere por la boca," he says. Simple meaning: the fish dies by its mouth. Implication: I'm keeping mine shut. Although he has practically committed suicide por la boca via el press release, Lekach's lips are now abruptly sealed. Not so his eyes, which are twinkling at full wattage, as if there is more to this than he is willing to say. Then he says it: "Besides, in the first year it's only 10 planes."
The ensuing silence is big enough to drive a Budweiser truck towing an Eclipse 500 through.
That the questionable financing was for 1,000 planes at least has the resonance of magnitude -- but 10 planes? Should not Raburn and Lekach have taken care to announce that detail? Maybe nobody asked.
For Nimbus, even 10 planes seems like a stretch. Having fallen below Amex's listing requirements, the company would probably have been delisted but for a waiver from the exchange. With almost $11 million in losses since its birth, in July 1999, as Take to Auction.com Inc., Nimbus at the end of last year carried on its books a $700,000 deficit in working capital, a situation that led its auditors, Deloitte & Touche, to note delicately in Nimbus's 2001 annual report, "Such matters raise substantial doubt about the Company's ability to continue as a going concern."
One thing is beyond doubt: Lekach has until the end of this month to come up with $11.75 million or lose his option on those 1,000 jets. OK, 990 jets after those 10 jets the first year -- but who's counting?
Ilia Lekach is counting, that's who. Without those jets he is the proprietor of a pooped dot-com. With them he is chairman and CEO of Nimbus, a veritable magnate in the nationwide air-taxi industry. "Nobody," he says, "nobody is going to take this away from me. I'm a hard man to take things away from."
An Order of Magnitude
From the time of the Wright brothers, the air industry has been amusing itself with the question, What really makes these things fly -- engine thrust or aerodynamics? Neither. The answer is money.
Eclipse's main competitor is another start-up. Safire Aircraft Co., in West Palm Beach, Fla., has 20 people working out of offices over, among other things, an upscale wineshop. In a business in which progress is measured in money, it is well behind. According to its CEO, Robert M. Kuhn, Safire has spent only about $10 million so far.
An aerospace veteran, Kuhn is beating the bushes for at least $100 million more -- possibly from the same sources as Raburn. Kuhn aims to produce a jet meant to seriously outperform the Eclipse 500 -- at a price only about $100,000 higher. The Safire S-26 will seat six comfortably -- and provide a toilet. (If you want one in Raburn's six-seater, you have a five-seater.) Kuhn is careful to modulate his criticism of Raburn's company. He knows full well Safire's success is predicated on Eclipse's: a mass market for Raburn's plane will create a slipstream for Kuhn's. "If Eclipse screws up," he says, "we're f***ed."
The battle for investment dollars drives both men, but there is a difference: Kuhn is a hired gun. Eclipse is not a job but Vern Raburn's life, ostensibly his last chance to join Bill Gates as the founder of a transformational industry, one that by order of magnitude (to use Raburn's favorite phrase) will change our lives -- and his.
Coo-uhl, We Need It
In Albuquerque, after a two-hour investor's-eye tour of Eclipse's impressive facilities, the touchy subject is raised. Raburn doesn't blanch but, as he notes later, "my irises flexed."
What the hell is the Nimbus business all about?
"We get calls by the dozens per day from people who want to do things with us," Raburn says. "Dafin came in and said we can raise hundreds of millions of dollars for you guys. We said, Coo-uhl, we need it .... Dafin said they finance airplanes. We gave them Ilia's name and phone number, and the next thing we know -- we had less than 12 hours' notice -- they [Nimbus] were sending out the press release [on the financing]. Well, we said, that's interesting -- hope it's true."
But surely Raburn knew the true state of Nimbus?
"Ilia Lekach is an entrepreneur, and on that basis I liked dealing with him. I like the guy because of his just sheer, unmitigated balls. He sees an opportunity, and he says, 'I don't know anything about aviation, but I know this is a product that has mass and value,' and he said to me, 'I'm going to make this happen.' I have a soft spot in my heart for people that do that. I never expected to see United or American Airlines coming in and saying, 'We need to buy a bunch of airplanes because we want to obsolete our current business model.' Big companies never do that....
"Does Ilia have real successes and real failures? Do I see Ilia being much different than about another thousand people? Have I an unbroken chain of nothing but successes? Absolutely not.... Do I wish Ilia had a big bank account and everything he'd ever done was totally successful? Of course, but we're in a business right now where everything we've done, people said couldn't be done, and everything we're trying to do, people maintain can't be done. That's going to extend to some of the people that go out and operate the airplanes for the first time."
And the "commitment" for $1.2 billion? "I saw Ilia four days after at a Deutsche Bank Alex, Brown conference [where Lekach and Raburn made a joint presentation]. I said, 'Guys, everyone in the world's calling me and saying this is total bullshit -- what's the deal?' They actually played back a voice mail from Dafin saying we have confirmation [of the cash commitment]. All I know is that ... I heard Dafin saying, 'We are [an affiliate of Royal Bank of Scotland].' You can say it." But, it is pointed out, they ain't. Raburn lets out a breath and says, "I have a fax from Royal Bank of Scotland saying they ain't." But he is adamant that it is not his responsibility to make announcements about announcements by Nimbus.
When it comes to Nimbus itself -- the company, not its press releases -- why did Eclipse become a 17.1% owner of its principal client?
"Nimbus owes us deposits," says Raburn. "They wanted to pay the deposits through stock. We told them we're going to turn around and monetize this stock as soon as we can -- sell it, liquidate it. It turns out they had such a low valuation and we ended up being such a big shareholder, there wasn't any way for us to sell it, so we sent it back saying, 'We're not accepting this as a deposit.' ... I guess the only way to explain it is we're not [now] an owner of Nimbus.... I understand how it looks.... [But] we have had absolutely no beneficial gain from that ownership, and any implication otherwise is really a crock of shit.... At best we were a bystander."
Yet Nimbus shares, in big blocks, have been virtually unsellable for a long time. Wasn't that obvious? "We actually thought we might have a chance of liquidating it," Raburn says. "I'm not going to blame a lot of things on other people. We made a decision, changed our mind, and returned the stock."
It turns out the huge order was only part of the deal. Talk about hope: according to Raburn, Nimbus promised to do more than order planes. This cash-strapped newcomer was going to help ensure that the planes would actually be built. " They were going to be an investor in us," Raburn says. But it didn't happen. Raburn turned the disappointment to his favor. "They had some beneficial terms." What sort of terms? "We revised the deal, the biggest portion of which is it became a nonexclusive deal."
A nonexclusive deal? That means it had been exclusive? In its own way, the disclosure is as revealing as Lekach's downshifting from 1,000 planes to 10. Had Raburn so badly needed the validation or promotional boost that he would hand an exclusive lock for air taxis -- our air taxis! -- to a company that was little more than hot-air taxis? "It's called first money in, and sometimes beggars can't be choosers," Raburn says wearily. "We were trying to be cooperative, to work with a large customer who was saying, 'Let us do this and we'll make it right.' Another perfect example of no good deed goes unpunished. Jeez, it's really wonderful when you can tell people to go away because they're not good enough to buy something from you."
That leaves the handling of that 1,000-plane order. Was it used to promote investment? Regarding one round of investment, when $62 million was closed, Raburn says: "All the money was already committed ... in August." In fact, the investment round closed on September 11, after Nimbus's August order of 1,000 jets. A subsequent tranche closed February 14 on the heels of Nimbus's February 11 announcement of that $1.2-billion "commitment" from an "affiliate" of Royal Bank of Scotland. "There's nothing we've kept from our investors," Raburn says. "This is not a public company. I know what I've told my investors, and I know what my investors understand. We were trying to work with a customer that didn't have the cash. It turns out it was a mistake. Now, I don't know how many other CEOs would stand up and say, 'I made a mistake,' but I made a mistake in accepting that stock. I'm also going to let my actions speak for themselves. We returned it.... Hey, in business you make decisions based on conditions at the time."
Just on the other side of Vern Raburn's office window, in the midday sunshine of Albuquerque, another plane taxis toward the runway. A propeller job. Its noise is masked by the window's thick glass. The office falls silent, yet within the sudden quiet it is almost possible to hear, like a persistent echo, the words of Ilia Lekach: "Nobody, nobody is going to take this away from me. I'm a hard man to take things away from."
Safe landing, Vern. We're in this together.
A former foreign correspondent covering Europe, Africa, and the Middle East, Hesh Kestin knows entirely too much about airports.
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