Bill Boisture is embroiled in the challenge of his career. As chairman and CEO of Hawker Beechcraft (HBC), Boisture leads a manufacturing company at a time when a confluence of debilitating events has decimated the general aviation industry. Every manufacturer is suffering from reduced sales and smaller backlogs due not only to the state of the economy but also buyers having difficulty borrowing money to purchase aircraft and a glut of available young used aircraft.
HBC’s problems have resulted in massive layoffs of production and management personnel, including the August announcement of 800 more union jobs lost, and an unavoidable recalibration of production volume to meet the current ability of the market to absorb new aircraft. HBC faces another problem, which is challenging other manufacturers, too. The economic downturn has favored large-cabin, long-range aircraft, and smaller jets have not fared as well. Boisture recently made the decision to suspend Hawker 400XP production, and this is not surprising considering not only that the jet is long overdue for an upgrade but also that deliveries of new 400XPs dropped to four through the third quarter of 2010. During 2009, 400XP deliveries totaled 11.
HBC is not, as some pundits have suggested, standing by helplessly while the general aviation marketplace sorts itself out. HBC, in fact, has strengths that may not always be immediately apparent, including 30 percent of new deliveries going to the defense and special-mission markets (T-6A trainers and King Air turboprops) and a large-cabin jet, the Hawker 4000, that Boisture insists is finally coming into its own after a long certification gestation period.
What HBC has that is difficult to replace and that will have more of an effect on the company’s future, however, is not the aircraft on the production line or the factory-owned service network or the most dynamic sales team. HBC has leaders who are not afraid to make tough decisions (including moving more component production to Mexico), who ask for and listen to customer and employee feedback and who are backed by the company’s owners, private equity firms GS (Goldman Sachs) Capital Partners and Onex Capital Partners, “neither of which takes one nickel out of this company,” Boisture likes to point out.
“Listen, this is hard work in this economy,” Boisture told AIN. “And we intend to win in the parts of the market that we choose to play in. It’s just that simple. We intend to win.”
While many question HBC’s overall strategy, Boisture believes that what is ailing the company primarily has to do with the economic situation. “Where we are is an external issue about the market’s willingness to buy, about banks’ willingness to finance, it’s about a bigger thing than HBC,” he explained. But overall sales, while down, are better than they would be had Boisture and his team not made any changes at the company. “The right things needed doing. No matter what. And the presence of a poor economy works two ways, to give you a slower-paced market in which you can put large-scale change in play while the organization is being asked from the marketplace to do less. So we looked at it and said this needs doing, good economy or bad. And the downturn gives us the opportunity to do it on a large scale and do it quickly. So when the market’s ready, this team will be ready to do the right things in that market.”
What this means in practical terms is not only fewer jobs at HBC but also significantly improved productivity and efficiency. For example, the old Plant 1 building at HBC’s Beech Airport headquarters in Wichita will be closed and sold and much of the component manufacturing processes done there are being moved to HBC’s Chihuahua, Mexico plant or to suppliers. At Mexico and suppliers’ facilities, more work will be done by “stuffing” large components that will then be shipped to Wichita for final assembly, removing repetitive work requiring less skill from the Wichita facility.
In Wichita, the last four stations on two separate final assembly lines for the Hawker 4000 and Hawker 200 (formerly the Premier II) have been combined. The filament-wound composite fuselages start out on separate lines, then the two airplanes’ lines are joined; the assembly processes are so similar, it made more sense to have the same people doing the work on both airplanes, said Boisture.
Interestingly, the plan to marry the two composite-fuselage lines into one more efficient production environment did not come from Boisture and get handed down as an edict from the ivory tower. Michael Hammond, director of manufacturing, and Allen Couture, v-p of new programs, not only figured out that it would be possible but they launched a team that went ahead and made the move. Of course, Hammond and Couture did mention that this was being done to their boss, Bill Brown, executive v-p of global operations, but they didn’t really ask for permission before setting the plan in motion.
For HBC, changes like these are key not only to producing airplanes more efficiently but also to creating significant future capacity to build airplanes faster and at much lower costs so that when the recovery happens, HBC’s assembly lines will be ready to pick up the needed pace. As just one example, with all the changes that have taken place in HBC’s factory, the man-hours needed to build a Hawker 4000 have dropped almost a staggering 50 percent, to 15,000 hours from 30,000 hours just 14 months ago. Couture and Hammond expect that to drop to 10,000 sometime this year. “It’s scalable efficient capacity,” Boisture said. And if production rates hadn’t dropped so much, it would have been much harder for HBC to make these efficiency improvements while cranking out larger numbers of airplanes.
Moving to Hawker Beechcraft
Boisture joined HBC in March 2009, not the best timing in the world for the general aviation manufacturing business. He was previously president of NetJets, Gulfstream Aerospace and also the company that produced the Hawker jets that eventually became part of the Beechcraft line. Boisture keeps current as a pilot and flew fighters in the Air Force, retiring at the rank of major. He graduated from the Air Force and Navy Fighter Weapons Schools and holds a bachelor’s degree in engineering from the Air Force Academy and a master’s in business administration from the University of New Haven.
When Boisture took over at HBC, he knew there were problems with the company. “Historically in the business and general aviation sector, this has been the least profitable of the major OEMs. So then you say to yourself, ‘why’ And then you begin to develop the change agenda. It’s not one thing, it’s not two things, it’s a lot of things.”
Boisture doesn’t feel that he is the instigator of changes but that turning loose employees with good ideas makes for a better result. “We believe strongly that almost everyone shows up every day wanting to do the right thing, and whatever it is they’ve spent doing their life’s work at, they have an aspiration of being better at it. The challenge is to create an environment and a structure in which that can flourish.”
That said, not everyone was qualified to stick around, he said. “In some cases we have improved the talent in certain parts of our company because it was clear that we didn’t have the right talent to get as much out of these brands and this product line and this team of people as we should based on the investment that’s been made.”
The word has reached the rest of the industry, too, said Brown, that HBC, rather than being a sinking ship, is actually a good place to work with significant opportunities. Brown sees a lot of interest from people employed at other OEMs who want to bring their talents to HBC. “Two years ago,” he said, “we could not steal a person from our competitor.”
“Okay, there are people who want to come play on our team,” Boisture said. “That’s a fundamental affirmation for this team of people. And we have seen the improvement of our company accelerate by selected use of excellent talent from outside the company.”
Private company, public debt
HBC is a private company, but reports financial results publicly because a tranche of its debt is publicly owned. Because HBC’s owners don’t take any money from the company, Boisture said, “Whatever we generate in the form of free capital, we are not upstreaming to our shareholders nor do we have to pay dividends or do any of the things that a public company might have to do. So we’re able to reinvest.”
This means that he is constantly asking the question, how do we best deploy that capital? Some of it has been used to pay down part of the debt and some to drive the transformation of the production processes. One part of that gives an insight into how Boisture works. The management team decided to create a new in-house training facility, and part of that effort would be to require every employee who touches an airplane to go through the training. Some employees balked, believing that having driven rivets for 20 years, for example, ought to exempt them from the training, which starts with the basics of sheetmetal work, composites construction, a total of 37 essential techniques.
Not only did Boisture support the need to retrain everyone, which had a huge effect on improving efficiency because work turned out much more consistently, but he also made sure that $1 million was available to develop the training facility and that it wasn’t shoved into some inadequate unused space.
Another key effort was developing a feedback mechanism for the shop floor so workers could quickly learn how to fix problems that kept coming up. At one point, it was found that too many rivets needed to be removed and re-driven, which slows down the assembly process and pushes unnecessary work down the line. Now, anytime a job is done wrong, the production team creates a photographic- or video-based summary of the problem and posts it on tvs at stations along the line so workers can see the problem and how to prevent it. Those who do those jobs are required to view that particular fix before starting work. Now, Hammond explained, the airplane cannot move to the next station on the assembly line until all open items are fixed, where before a lot of rework was done at subsequent stations.
Hammond also developed a system to reward assembly teams when they meet metrics set for their jobs. Team managers on winning teams get gift cards and everyone else gets free meals. HBC also implemented performance rewards, which are one week’s worth of pay when the company meets profitability and cash-flow targets.
Engineers were moved from a separate building to near the assembly lines so they could work directly with the operators who put the airplanes together on any problems that develop.
The results of the training and the efforts to get everyone involved in the quality process have driven post-delivery discrepancies down to unheard-of lows, according to Brown. For the last 18 Bonanzas delivered earlier this year, for example, 16 had zero squawks, and those are problems identified by customers, who can be pretty picky when spending hundreds of thousands of dollars for a new airplane.
What buyers want
Other ways to spend available capital are to strengthen the service and support network and also make sure that what the company is building is what the market really wants. Or, how to change the products to serve buyers’ needs and desires.
“The transformation and restructuring of the company gives us an opportunity,” Boisture explained, “from a financial strength point of view to ask those questions. And to start to answer them.”
More than a year ago, HBC created a customer advisory board to ask users what they thought about HBC’s products and services and began a detailed survey of existing and potential customers. Boisture wasn’t just interested in what customers thought but he also wanted HBC’s employees to see that the company is reaching out and not simply doing what it thought best. “In my experience,” he said, “walking in here, the voice of the customer was relatively absent in the conversation.”
Clearly Boisture had some experience as a former customer of HBC when he was running NetJets, but a large fleet operator is not necessarily what most customers’ experiences are like when dealing with an OEM like HBC. He wanted to know what flight departments and charter operators and individual owners thought about HBC. So in addition to the customer advisory board, Boisture tasked executive vice president Shawn Vick with finding out the answers to those questions.
Vick mounted an effort that resulted in 3,000 customer-facing discussions generated by various surveys. If a customer (or potential customer) preferred a one-on-one conversation, then that’s how he or she was asked for an opinion. Surveying was also done online, by mail, in whatever form was preferred, thus resulting in the gathering of lots of useful information. The goal, said Boisture, “was to pull information in an analytical way and begin to understand how our brands are viewed, how our products viewed, what our strengths and weaknesses are and what does a customer want from Hawker Beechcraft?”
One important item that the company learned was that customers like the composite-fuselage construction of the Hawker 4000 and Premier I (soon to be Hawker 200). “They see it as a significant positive differentiation for our products. So as a long-term driver, we have to be looking for the opportunity to transform the jet product line,” he said, hinting that more composite production may be coming on other products. “We’ve got the book ends [the Hawker 200 and 4000]. And so we’ve got some work to do there.”
Customers naturally also are concerned about reliability, cost of ownership and readily available support, he explained. “Support talks about how does the company [deliver] at the right place at the right time to an understood need for a combination of parts, information and people? That’s what support means. So we drive back inside and we’re investing in those things, and we have a longer-term view of how to develop and migrate the product line around some advanced technology.”
Fundamentally, noted Boisture, no one urged HBC to make major changes in the product line other than to improve reliability, cost of operation and so on. But incremental improvements could add value to certain products. For example, the King Air 250 launched at last year’s NBAA convention. “It carries the right number of people, it goes the right distance, but improve it within its space to make it use shorter runways and to make it burn less fuel.” As Boisture puts it, “When you have successful price and performance points for an airplane, your first thought is, ‘how do I build stronger barriers around this point, not how do I desert this and go to another point [with a completely new product]?’ We’ve made a huge investment in this product line. Both in turboprops and jets we have some valuable market space. So before we start talking too much about product development, you have to say am I leaving this space and going somewhere else or am I going to build incredibly fine airplanes that are in this space?”
That is not to say that HBC isn’t looking at new product opportunities. And it has expanded into the defense and special-mission space with the T-6A and King Air to the extent that these products represent a significant and growing portion of the company’s business. HBC, on its own, has developed an attack version of the single-engine turboprop T-6 that it is shopping around. “There’s an untapped market that required that we make a risk decision and an investment and I am pleased with how that is going,” he said.
Given all the talk about technology and customer focus, questions come up about the Hawker 400XP program and how it fits into the HBC lineup. “We suspended the production of the 400XP,” Boisture said candidly, “because in this market, that airplane was not generating sufficient profit in today’s pricing environment to justify building it. It’s a perfectly fine airplane, but the light/midsize jet markets are the most impacted sectors by the worldwide economic reset that started in 2008. To me the decision that we took on the Hawker 400XP to suspend production entirely connects to forces outside the company that say there’s not enough demand for this product now at a price that we want to sell it at so we’ll suspend production. And we’ve put substantial management attention into suspending it in a way so that it can be officially restarted.”
The Hawker 400 line won’t be moribund, however, as HBC is going ahead with the 400XPR upgrade, which is even a step more comprehensive than what had been planned as the 450XP, with new Williams International engines and optional Rockwell Collins Pro Line 21 avionics. The 400XPR program helps HBC’s service and support business because the factory-owned facilities will do the upgrades. “We think that’s a product offering that fits the current economy; people who are on stable financial ground are probably going to keep their airplanes longer than they have in the past,” Boisture said. The 400XPR could lead to resuming production of that jet in some form in the future. And HBC is always looking at other niches that need to be filled. “There are opportunities that are worth spending money on. And no, I’m not going to tell you what they are,” he laughed.
The 400XPR and other moves signal something that many thought would never happen at HBC, acceptance of product improvements not developed by the company’s own engineers but by third-party developers like Raisbeck Engineering and BLR, both of which are contributing to the King Air 250. “The fundamental change in orientation is in my view that the aftermarket value stream is a very good business for the OEM to be in,” said Boisture. “Our strategy is in careful strategic partnerships that are good for both partners to take back that market.”
As to why a company with its own engineering talent doesn’t come up with upgrades like those on its own, Boisture understands the constraints and that engineers often are too busy with internal developments to focus on incremental improvement programs that third parties might target. “The C90GTx is a primary example,” he said. “That was a model variant of an existing production airplane that was improved substantially through third-party technical work, and incorporating it into the production certificate. It’s a new skill we’re learning as a company. And frankly I’m real proud of the team. They’re getting good at seeing those opportunities, and I’m equally proud of [v-p global customer support] Christi Tannahill’s team in seeing that strategic partnership builds a business in global customer service and support.”
For Boisture and HBC, it is critical to listen to customers and serve their needs rather than dictate what an executive at the company thinks that an owner should want. “When you welcome the voice of the customer in, the great thing about the customer is they have choices. What you have to figure out is how do they make those choices and how do I become their choice? It sounds like it’s about the customer, but that’s a competitive discussion. And it’s key for our way forward, because we intend to win. And if we win, the customer wins. Because that means they’ve got an incredibly good product from us.”