Bizav hits the brakes as layoffs reflect slow sales

Aviation International News » October 2002
May 7, 2008, 6:33 AM

One OEM called it “an adjustment.” Another referred to it as a “reduction in force.” Yet another described an “involuntary separation plan.” But by those or any other names, the meaning is the same– “layoffs.” In the past 18 months, business aircraft manufacturers have announced layoffs of more than 9,000 workers and, barring a reversal of the current economic trend, there will be more.

In announcing the latest round of layoffs, this time of 1,980 employees primarily at its Montreal, Toronto and Wichita facilities, Bom- bardier cited a need to match production with a weakening demand for its business jets. The Bombardier decision, revealed early last month, came little more than a year after an announced cut of 3,800 jobs in September last year.

The most recent layoffs accompanied a decision by the Canadian OEM to reduce aircraft production rates dramatically. The cuts include:

• A six- to eight-week suspension of all work on the Global Express and Global 5000 business jets and Q-series turboprop airliners, starting late this month.
• A halt in production of Learjet 45s and Learjet 60s in Wichita for a period of four months, starting next month.
• A decrease in production of Challenger 604s in Montreal for a period of four months.
• A cut in production of business-aircraft components at the Belfast, N. Ireland plant.

A company report said the new Challenger 300 (née Continental) and Learjet 40 development programs and entry-into-service schedules “are not affected by these measures.” Certification of the Challenger 300, expected as early as last month, has been postponed until the first quarter of next year; however, the setback is due to the incorporation of design changes called for by the flight-test program rather than cost reductions.

A spokesman for fractional-ownership provider Flexjet said delivery dates for new aircraft from parent-company Bombardier remained the same and were not a factor in company layoffs.

According to a Bombardier spokesman, interruption of Q-series turboprop production was tied to the decision to interrupt Global Express production. Both aircraft, he explained, are assembled at the same Toronto facility and it was more efficient to interrupt production of both assembly lines.

In a recent series of interviews, Bombardier president and CEO Robert Brown described the Q-series production stoppage as, at least in part, an unavoidable consequence of the Global Express suspension in which union “bumping rights” determine worker layoffs based on seniority. The company was expecting to make the last of an anticipated 36 Q-series aircraft deliveries this year before this month’s halt in production.

At Raytheon Aircraft, the Wichita-based OEM last month announced the layoff of about 750 employees “at all levels, including both salaried and hourly employees.” The layoffs, to occur during the fourth quarter of this year, are in addition to some 1,250 workers let go last year.

The layoffs were part of other cost-cutting steps, such as “elimination of unnecessary travel, a sharp reduction in capital expenditures, scaling back research and development funding, additional cutbacks of contract employees and reducing fleet and factory inventory levels,” said Raytheon Aircraft chairman and CEO James Schuster in the company’s October 1 newsletter.

Layoffs at Cessna Despite New Orders

Cessna Aircraft has been encouraged by orders in recent months for 217 Citation Mustangs and 156 Citation CJ3s and expected deliveries this year of some 300 Citations. The company has nevertheless initiated an “across the board” layoff of 400 workers last month. Describing the more recent layoffs as a last-resort means of cutting costs, Cessna also promised no more job cuts for the remainder of the year.

Cessna had put into effect a no-hire/attrition program earlier this year and in June announced a voluntary separation plan “in the hope that it would help us reduce our workforce by approximately 900 team members.” Some 400 workers took advantage of the voluntary plan, leaving the company with “no choice” but to lay off 400 additional employees last month as part of an “involuntary” separation plan. The job cuts are included in an October 17 announcement by parent company Textron of a “restructuring program” that will cut 2,000 jobs.

Deliveries of the CJ3 and Mustang are not expected to begin before fall 2004 and fourth quarter 2006, respectively. This leaves a considerable gap in production, and according to Cessna Aircraft chairman and CEO Russ Meyer, the “involuntary separation was necessary to help align our workforce to production schedules for 2003 and 2004.” And he added, “Although we were pleased by the overwhelming response from our customers to the two new Citation models…it does not change our near-term outlook.”

A Cessna spokeswoman also pointed out that, like other OEMs, Cessna is being especially selective with regard to which employees are being retained. According to The Wichita Eagle, she said because certain skill levels must be retained, employees are not being laid off strictly by seniority. And at the same time, Cessna is hiring in some critical areas, including engineers and A&P mechanics.

Gulfstream Aerospace, which announced a reduction in force (RIF) in November last year of some 480 employees at eight facilities nationwide, closed its Oklahoma City airframe manufacturing plant this summer, further cutting its workforce by another 350. Some of the Oklahoma City workers took advantage of an early-retirement package; others were “let go.”

At the time of the November RIF, a spokeswoman emphasized that letting people go was a last-ditch cost-cutting measure. When the economy, and aircraft sales, improve, she pointed out, the company can more quickly accelerate by increasing funding and adding overtime. But she added, “Replacing highly skilled and well trained people is much more difficult.”

Dassault Falcon Jet declined to discuss exact numbers, but said “a minimal adjustment” in employment levels had been made at its Little Rock, Ark. completion center. The RIF came after a decision by fractional operator NetJets to put a number of Falcon business jet orders on an “extended delivery” schedule. As a result, interiors for the NetJets aircraft are now being installed at the OEM’s Merignac, France facility. A company spokesman noted, “They’ve also started putting more and more interior cabin components into all the Falcons during the production phase [at Merignac].”

The number of Boeing Business Jets workers laid off by the Seattle-based company is difficult to determine, given that the numbers are folded in with the total layoffs for all of Boeing. Boeing Business Jet production, however, seems to suggest some layoffs of workers directly associated with the BBJ program. Those numbers show deliveries of 14 green Boeing Business Jets in 2000 and 16 last year. But at press time deliveries of BBJs and BBJ2s stood at only six. A company source suggested, however, that the last quarter might be “very active” with regard to deliveries.

In announcing the most recent layoffs, few of the OEMs have offered encouragement, and the chance of a near-term recall of those laid off or furloughed appears slim.

Bombardier executives expressed the opinion that the current measures will be sufficient for the time being. But they declined to offer a forecast for the near- or long-term future.

While this year was a record for deliveries at Cessna, Meyer was no more encouraging than Bombardier with regard to next year. “We are still watching the economy and order intake and trying to monitor it,” he said.

Raytheon’s Schuster was equally glum, if not more so: “I believe that the U.S. economy, aviation in general and Raytheon Aircraft specifically are in for a slow period over the next 12 to 18 months,” he said.

The outlook from Dassault was no less negative. Despite a report that the company’s net profits for the first half of the year were $142.4 million, up $19 million over the same period last year, and Falcon orders this year are ahead of last year at this point, chief executive Charles Edelstenne warned of a worsening market. He said the company would slow its business-jet production rate to 60 aircraft next year. Deliveries for this year are expected to be between 60 and 70 aircraft. “The world is going through a period of economic crisis,” he said. “We are expecting a reduction of the market in the coming months.”

In announcing Gulfstream Aerospace results for the third quarter 2002, Nick Chabraja, chairman of Gulfstream’s parent company, Gen-eral Dynamics, was cautiously optimistic. While deliveries of 19 com- pleted aircraft in the quarter was down by five from the same period in 2001, he told analysts and reporters at a conference call on October 16 that manufacturing margins are stable, he expected total deliveries for next year to be “very similar to this year.” At the same time, Chabraja could not resist taking a swipe at the competition, noting that in a tough market, “They’re not doing as well as we are.”

The only other positive forecast came from outside the industry, from Lynn Reaser, chief economist for Bank of America’s capital-management division. Speaking in Wichita to bank clients last month, she voiced the opinion that the city’s economy would begin to recover next year as companies begin to buy airplanes again.

Unemployment in Wichita, the home of Cessna and Raytheon and of major manufacturing, assembly and production plants for Boeing and Bombardier, is between 5.5 percent and 6 percent above the national average, according to The Wichita Eagle.

Reaser believes an economic recovery is already under way, and that the fundamental strength of the economy will not allow the nation to sink back into a recession. “As profitability improves, the prospects for business-jet production become very strong,” she concluded.

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