Pelton leads resurgence at Cessna, eyes growth opportunities

 - October 30, 2006, 8:34 AM

How has this year been for Cessna?

This year has continued to be a growth year for Cessna. We came out of last year positioned with three new certified Citations–the Sovereign, XLS and CJ3. So last year was really a transitional year, moving out of development and into full-rate production. The real story is that these new jets have turned out to be a home run and now account for 75 percent of our backlog. During the recent tough economic times we made significant investment in new products, and we have validated that we hit it on the head with the right ones.

The pre-owned market has rebounded, which is a leading indicator that the new aircraft market will be strong and healthy. We’re seeing inventory of pre-owned Citations decreasing, and sales of new ones are going up. In fact, sales are strong–stronger than we forecast at the beginning of the year. As a result, we have a healthy backlog right now.

We have increased production rates this year, and we will continue to increase the rate next year. Our only concern is the supply chain, which is currently struggling to keep up with demand. And the demand isn’t just from North America; it’s from around the world. This is one of the new world dynamics that we’re faced with; we’re all competing on a global scale for the same resources.

At the same time we are viewing this as an opportunity for growth at Cessna, since there will be continued emerging markets that are small today but will be bigger in the long term. We’re certainly seeing this in China, where we’ve had success this year in selling Citations and piston singles. So we’re positioning footholds in these emerging markets.

How will the Citation Mustang fit into the VLJ segment?

When we conceived the Mustang, it was driven by the technology available at the time from a cost standpoint, both in avionics and engines. The size of the airplane also helped in determining its price. We view the Mustang as a downward extension of the Citation line.

We looked at owners of cabin-class twins as a natural group that could migrate into the Mustang when they look to replace their aircraft. The price of the Mustang is opening up jet aircraft to those who couldn’t afford a $4.5 million CJ1. Many European operators are also buying Mustangs because the aircraft offers business jet performance at a lighter weight–important given the weight-based landing fees throughout the region. So we’re seeing a much larger Mustang order book internationally than we originally expected.

While we directionally understand where the VLJ market is headed, we don’t know how big it will be eventually. There are a multitude of niche markets for the Mustang–owner-flown, air taxi, fractional and traditional flight departments. The good news is that the Mustang backlog is strong. In fact, the next available slot for a Mustang is in 2009.

Is a $3.5 million Mustang II possible in the near future? How about a $1.5 million Cessna VLJ?

There is indeed a gap between the Mustang and CJ1. When Cessna enters any market, we really get into it with a business case that nets good returns. The available technology drives the cost of the airplane, and Garmin and Pratt & Whitney Canada provided the right technology at the right price for us to launch the Mustang. So every new Cessna aircraft has to have these ingredients.

Is there room to move up from the Mustang? Yes, there certainly is, and we’re currently looking at new products on all fronts–from supersonic business jets down to single-engine pistons. After we get the Mustang completed, we’ll explore what makes sense moving up the product line.

However, we haven’t yet found the technology with a cost that would allow us to develop a VLJ smaller than the Mustang and still have the returns that we want to see. If that technology becomes available, we will definitely go after it. We won’t enter any market unless we can enter it to win.

Will the CJ3 eventually supersede the Bravo, given their price and performance similarities?

When we launched the CJ3 as an extension of the CitationJet family in 2002, we fully intended for the new airplane to make the Bravo obsolete. That said, we continue to sell Bravos because of the heavy backlog for the CJ3. We will phase out the Bravo, but we’ll let the marketplace decide when this actually happens.

So the next step-up airplane from the CJ3 will eventually be the Citation Encore. And this set the stage for us to upgrade this model to the Encore+, which we announced last month at the NBAA Convention. Like the CJ family, the Encore+ has Pro Line 21 avionics, making for an easy step-up transition from the CJs.

What are the challenges in the business aviation industry?

The strong economy and changing dynamics are driving a lot more product into the infrastructure and airspace system. Our challenge is to ensure that e properly maintain the infrastructure–from airports to the FAA technology necessary to manage the number of airplanes in the sky. While the airlines are in bad financial shape, the number of routes and aircraft they fly is as high as it’s ever been. So there’s no slowdown in airspace demand.

How do we manage airspace and infrastructure that has been continually under-funded by the government? That’s a real challenge. Given the growth and demand, we’ve got to get focused on maintaining the infrastructure. If we don’t, we could put a cap on growth on the aviation industry, which brings a lot of high-paying jobs with it.

We as a nation have to decide where we want to be. The U.S. was the pioneer in aviation, and we need to have the foresight to continue on this path. This effort will need backing from NASA, the FAA and other agencies.