Cuts at Cessna as Johnson takes over

 - January 16, 2008, 11:13 AM

Less than two weeks after Charlie Johnson replaced Russ Meyer to take over the leadership of Cessna Aircraft, the Wichita airframe manufacturer announced major reductions in production rates and workforce. Based on “uncertain worldwide economic conditions,” Cessna told its employees on March 20 that projected Citation deliveries this year will fall to between 180 and 195 aircraft, compared with the 220 the company projected just a week earlier. Cessna delivered 305 Citations last year. Caravan production will also be cut back.

To align the workforce with the new production schedule, Cessna will implement a seven-week furlough from June 2 through July 18 that will affect 6,000 workers, and a permanent workforce reduction in excess of 1,200 employees. These reductions add to the layoff notices given to 2,125 workers over the past six months and 505 in 2001. To address customer support concerns, Cessna promised that “we will continue to provide our usual level of service for our customers.” Cessna currently employs 9,200 in Wichita.

Cessna parent company Textron of Providence, R.I., announced that as a result of the production and employee cutbacks at Cessna, the company will be reducing its 2003 earnings guidance. “The current economic and geopolitical situation has worsened and is affecting business-jet demand much more severely than expected,” said Textron chairman, president and CEO Lewis Campbell. “Most significantly, one of Cessna’s largest customers [believed to be NetJets] recently informed the company of a significant reduction in the number of jets it plans to purchase in 2003.” At press time, Textron was negotiating with the customer to determine the specific changes. Textron said it will communicate new earnings targets after it has completed negotiations and has fully assessed the adverse effect on its business.

On March 9 Johnson, president and COO, was handed full responsibility for Cessna, reporting directly to Textron executive v-p and COO Steve Loranger, himself a relatively new member of the parent company, having come on board from Honeywell in October. Meyer has stepped down as CEO.

Johnson, with the title of president, will serve in the role of a CEO with all the responsibility, authority and weight that position carries, but he will not be designated CEO or chairman, and the COO position also goes. Textron is phasing out CEO and COO titles in all its business units as personnel changes occur. Meyer, 70, who plans to stay with Cessna through the end of the year to assist in the leadership transition, will retain the title of chairman, though his role will be advisory only. He will also help in marketing programs and continue as a director of CitationShares, the fractional aircraft ownership joint venture between Cessna and TAG Aviation.

Johnson joined Cessna in 1979 as manager of production flight test. He served in a variety of positions in quality control and product support before being named v-p of aircraft completion and product support in 1988. He was promoted to senior v-p of operations in 1993, executive v-p of operations in 1995 and was named president and COO in 1997. Johnson completed U.S. Air Force pilot training in 1968 and flew more than 1,000 hours of combat in the F-105 in Southeast Asia. He holds an ATP certificate with type ratings in all Citation models and has logged more than 14,000 hours of civilian flight time.

In an interview with AIN, Johnson fielded several questions.

How do you compare the state of the industry and the economy at the time of the Gulf War to today’s situation?

In 1991, the Gulf War was so swift and the economy was picking up at that point, I don’t remember that it caused even a ripple. Today, the economy is down, so the situation is much less predictable, especially if there is a lengthy war. What we are seeing in every piece of the economy is that because of the uncertainty people are hanging on to their money.

Can you say when you think the economy will start bouncing back?

There is a universal feeling among our suppliers that it will be late next year before any upturn hits the aviation business. Before that the general economy will start picking up.

You are probably aware that Raytheon Aircraft recently disclosed plans to reduce costs significantly over the next three years by farming out production of many parts, a plan that could also adversely affect employment levels. Does Cessna have such a plan it has not yet revealed or do you have some thoughts on the expansion of outsourcing?

That’s an extremely difficult question to answer. There has to be a balance. We are always looking for the most efficient, lowest-cost and highest-quality method of providing parts for our airplanes. What we first do is challenge our own folks internally to ensure that we are producing quality parts at the lowest possible cost. If there were other alternatives we would compare them with our current costs. As a personal philosophy I always want to give everybody the chance to meet those cost targets internally whenever it’s possible.

You still have to have oversight. While you may go outside to get a part, a certain amount of oversight is needed to get that part into your factory and to ensure that it has the quality, form and fit required. That’s part of the equation that balances it all. We always want to ensure that we are the low-cost, high-quality producer. But if we can’t do it internally, which is what we would like to do, then we wouldn’t dismiss the capability of going elsewhere, including overseas.

Will you address speculation that some manufacturers are considering lowering “sticker prices?”

We would love to do it. We actually looked at what we could do to pull costs out of airplanes. We asked ourselves, “Could we pull enough out to consider repricing the airplane?” What ends up happening is the best you can do is hold pricing levels over a period of years instead of having inflationary [increases]. It’s very difficult once a product line is in operation to pull much cost out. You can use VAVE [value analysis value engineering] to lower some of your costs in an airplane. But it is very, very hard to pull enough out to reduce the price.

What we have done is try and take a standard airplane and look at how the options are selling. If we find out that more than 70 percent of our customers are taking a particular option, we will incorporate that option into the base of the airplane, and in many cases, we have been able to do that without raising the price of the airplane. This way, people actually get a higher value. That would be our goal–to make more things standard without raising the price.

In terms of flying activity, give us your take on where you see the industry yesterday, today and tomorrow.

The impression I have of activity, based on a lot of subjective inputs, is that business flying in general is probably up a little bit. Sales activity is down significantly, but there are still some buyers out there and we are still taking orders on airplanes scheduled to be delivered in 2006 and 2007, and we are taking orders for deliveries in the next two or three months. Buyers are scarce and we have to work harder for each order, but they are out there.

It is a general impression, and it’s almost a self-fulfilling prophecy, that the economy is going to stay about the same for the foreseeable future, taking us into next year. Based on what we are just starting to see and hear, it will pick up late next year and beyond. We’ve never been smart enough to figure out exactly where the deceleration point is or where the acceleration point is.