Jack Pelton guides Cessna through industry recovery

 - December 18, 2007, 5:00 AM

Jack Pelton was appointed Cessna’s president and CEO last December. He joined the Wichita-based manufacturer in November 2000 as senior vice president of product engineering, with full responsibility for engineering and product development activities–including new aircraft design, development, flight test and certification–and product improvements for all aircraft in production and service.

The Cessna executive’s extensive aviation industry career spans three decades. Before joining Cessna, Pelton served as senior vice president of engineering and programs at Fairchild Dornier in Germany and was responsible for the company’s 728Jet aircraft family. He also spent nearly 20 years at McDonnell Douglas, where he held related executive positions of increasing responsibility.

Pelton holds bachelor’s and master’s degrees in aerospace engineering from Hamilton University. He is a resident of Wichita and currently serves on the board of directors for the General Aviation Manufacturers Association and Wichita’s Habitat for Humanity. A commercial pilot with an instrument rating, Pelton is type rated in several Citation models and regularly flies as pilot-in-command.

It appears that the downturn hit Cessna later than other business aircraft manufacturers. Why are deliveries at competitors rebounding, but not yet at Cessna?

We had a stronger backlog and more robust order book than others in the business aviation industry. This helped when the economic downturn came–our total units and volumes did not reach the lows of our competitors, but as a percentage our deliveries were significantly affected because of the high delivery rates we had before the downturn. However, this year’s delivery rates are similar to what we had five years ago, during the boom in the late 1990s.

What has surprised us is that the recovery has come faster than we thought it would. In our planning last year, we believed that this year would be the bottom, with market recovery starting late this year or sometime next year. But actually the recovery came much sooner–at the beginning of the year the order intake rate was far more significant than originally planned. Earlier this year we revised the production rate for Citations, from 165 to about 180 airplanes. We also saw an increase in our piston single production rate, which also recovered a little faster than we anticipated.

Our deliveries decreased quickly and are now increasing nicely, but we are still not back to where we were before [at more than 300 Citation deliveries per year].

Do you think such a high production rate is sustainable?

At the time we thought it was. Our ability to forecast was easier back then–that was before 9/11 changed the whole game. The fidelity and accuracy of forecasting are tougher now than they were then because we still believe we’re in a fragile economy.

That said, we have had great order intake this year, and we’re forecasting that next year we’ll produce 225 jets, which is a nice uptick from today. So when you look at our initial forecast of 165 airplanes this year and next year’s planned production rate, that’s a nice recovery. We think that 225 aircraft per year is sustainable.

It’s hard to predict whether we’ll ever get back to 300 aircraft deliveries a year. But our model mix is changing year over year and we’ll be delivering higher-revenue aircraft such as the Sovereign and CJ3, so for the overall business we’ll have revenue growth. As a result, it might not be necessary to have such high production rates. So the overall volume might be lower, but our revenues will increase.

If there’s a silver lining to the downturn, it exposed areas where we need to control our costs. So as we grow again, our increased efficiency will yield higher profit margins.

What is Cessna’s overall market strategy?

We are continuing with the strategy that has historically been the underpinning of
this company, which is to invest in new products and services, regardless of the economic cycle. Despite the downturn, this year we will have invested more than $100 million in service centers alone. We’ve already opened the new 159,000-sq-ft Orlando, Fla. service center, which will be further expanded this month to 185,000 sq ft. Fortunately, this year’s hurricanes didn’t damage this new facility too badly.

Before the year is out, our new 447,000-sq-ft Wichita Citation Service Center will open for business. So we’ve made huge investments during the economic downcycle, just on the service side. The facility, which is on track to be fully open next month, will be the largest general aviation service center in the world.

What about Cessna’s investments in new airplanes?

We have also invested significantly in new products. This year we certified the XLS in May, the Sovereign in June and the CJ3 [last month]. As we’re finishing the developments of those programs, we also have the Mustang, which is a huge investment. In addition, we announced the CJ1+ and CJ2+ programs at the NBAA Convention last month. (See NBAA Convention Report, this issue.) It’s hard to quantify how much money we’ve invested in new aircraft over the past 10 years, but during that time frame we’ve certified 16 new aircraft. From a percentage standpoint, we have double-digit R&D investments year over year.

This doesn’t include our piston-single line, which is important to us since it typically introduces people to the Cessna brand. Historically, once we get people into the Cessna family they tend to stay since we can move them from product to product, given our diverse aircraft offerings that range from the 172 to Citation X and Sovereign. We’ve even made recent product investments in the piston line by introducing the Garmin G1000 glass cockpit into these aircraft.

So far, Cessna is the only established manufacturer that has entered the very light jet race. How is this program going?

It’s definitely a market expansion for us, and we’re definitely going to be moving into new markets as we see fit. There’s a lot of speculation about how big this market can and will be. We’re excited to see where this market will go and what Cessna’s role will be.

Customers have responded favorably to the Mustang, and we have orders for 323 of them right now. So there’s definite interest in this segment.

Regarding the Mustang program itself, we’re emerging from the design phase–where everything is on a computer screen and out of public view–to where we’re getting ready to assemble the static-test article and prototype. Interestingly, the Mustang has been completely designed in a 3-D virtual-reality
design center.

More than 80 percent of the very light jet’s detail parts have already been built for the static-test article. We’ll have a completed Mustang fuselage within 30 days of the NBAA Convention, and we expect to have the prototype flying in May. We’re really rolling on getting to where you’re going to see actual hardware.

We have been flying, for Pratt & Whitney Canada, the PW615F engine on a CitationJet testbed. This is unusual, since engine manufacturers typically do the initial flight testing of the powerplant on their own testbeds. We actually flew the PW615F first for Pratt as part of our partnership with the company to get the engine, and thus our aircraft, to the market faster.

We’ve accumulated more than 100 hours on the PW615F to date, and it has yielded a wealth of data, both for Pratt and for us. Later this year we’ll be receiving the engines for the Mustang prototype.

Also, in September we got the Mustang iron bird up and running. This will allow us to do preliminary development work with the Garmin G1000 avionics, autopilot and flight-control system.

Is there any chance that Cessna will enter a larger aircraft market segment, meaning something bigger than the super-midsize Sovereign?

Cessna continues to look at all markets and all different product sizes. Our commitment to R&D dollars allows us continually to explore new models in all areas. We have an ongoing advanced design group that creates and innovates new aircraft models, but we also have to look at what the market will bear.

We have a big market space that we’re in, when you consider the 172 to the Citation X and Sovereign. And we aggressively protect that space, which requires investments across the entire line. To do a larger aircraft would require even more investment, so it’s a timing issue to determine whether we want to develop a larger aircraft and can do so without neglecting our current market segments.

Looking into your crystal ball, where’s the business aviation market headed in the next 10 years?

For Cessna, we are going to continue to grow and ensure that we hold on to the fundamentals that have made us successful, such as investing in products and services and focusing internally to become a more efficient manufacturer.

As for the entire industry, there’s a lot of interesting dynamics. I think we’ll see more rationalization over the next years, as we have in the past. A good example of this rationalization is Gulfstream’s acquisition of the Galaxy product line.

In fact, it’s likely that many of the start-up manufacturers, if their aircraft make it to market, will be absorbed into an established aircraft manufacturer. I think they’ll have to because the investments to just build an aircraft are one thing, but to become a complete company that has sales, service and sup-port–and can be there for these products that customers expect to be in service for 20 years–requires much more investment.