Eclipse won't contest Chapter 7

ALBUQUERQUE (KRQE) - Eclipse Aviation won't contest converting its bankruptcy proceedings to Chapter 7 liquidation, according to a news release.

Several creditors for the company on Tuesday had asked a bankruptcy court judge to convert the company's Chapter 11 proceedings to Chapter 7, allowing creditors to seize Eclipse's assets and sell them off.

Eclipse on Wednesday announced the company does not plan to contest the motion.

Aviation Week reports the company informed employees that they were being permanently laid off on Tuesday, and all benefits will end Feb. 28, although COBRA medical, dental and vision benefits may be available until March 31. The Web site Aero-News Network has posted what it says is the letter sent to employees .

The magazine also reported the Federal Aviation Administration may ground the Eclipse 500 fleet because no company would be able to support the aircraft, but an FAA spokeperson said the agency would not ground the aircraft because of the bankruptcy.

In its news release, the company said it expects the court to appoint a trustee to oversee the liquidation.

The company filed for Chapter 11 bankruptcy protection on Nov. 25, 2008. It had been struggling in recent months after the cost of making its Eclipse 500 very light jet rose, yet the company had to fulfill contracts at prices that had been set before the costs rose.

Under Chapter 11 proceedings, the company was trying to sell itself to EclipseJet Aviation International Inc., an affiliate of Luxembourg-based ETIRC Aviation, one of Eclipse's major shareholders.

In their filing Tuesday, the creditors claimed that all conditions for the sale had been satisfied by Jan. 23, and said the sale order required that the sale be closed within five business days.

"EclipseJet has not yet obtained the financing it needs to close, and is accordingly in breach of the APA (asset purchase agreement)," the filing claimed.

Eclipse had been operating under a loan while the sale went through, but the money ran out last week. The company sent most of its employees home without pay last week, but had told them they may be called back to work and would continue to receive benefits.

The company employed more than 850 emplotees.